Service Level Agreement (SLA) – What Is It All About?

A brief intro of Service Level Agreements (SLA)

QUESTION: What is an SLA?

ANSWER: A SLA is part of the contract that set outs (amongst others):

  1. The type of service that is provided for by a service provider;
  2. The standard of the service provided; and
  3. What happens in the event the standards are not met by the service provider.

QUESTION: Who are the parties to an SLA?

ANSWER: Usually, a service provider and a recipient of such services. For example companies and an external service provider, such as entities that provide IT services to the company, an internet service provider/ telecom operator and its users etc.

QUESTION: Why would you need an SLA?

ANSWER: It ensures that the service provider holds up their end of the contract with certainty as to what should have/ should not have been done during the duration of the contract and what are the consequences should they fail to uphold their end of the bargain.

Elements/ Components of a good SLA

  1. The overall objective is clear and concise- this would ensure both parties know what is the desired outcome from day one/ even before the contract is underway and both parties are able to work together to achieve that goal.
  2. The services are clearly described in the agreement/ The expectations of both parties and clearly laid out to each other- this would ensure that both parties know the scope of the services provided (i.e. how the service is provided/ when is the service provided/ who is the target audience of the service/ what should the service be providing/) and prevent abuse from either party (i.e. one party trying to cut corners while the other trying to get more out of the agreement without wanting to incur more cost).
  3. There is a clear guideline of what happens if the service provider does not meet its expected performance- this is to ensure that the deficiencies in the services are clearly highlighted to the service provider so they can improve and that the customer is compensated for such deficiencies.
  4. There is a clear guideline of what happens if there is a material breach in the agreement (such as terminating the agreement and claim for compensation/ damages). At the end of the day, if what they provided falls below expectations and is affecting the end of your bargain significantly (directly or indirectly), why stay?

Important factors to consider when drafting a SLA

  1. Provide incentives/ compensation- at the end of the day, it takes two hands to clap.
  2. Properly define what is material breach – this would make your life much much easier in the event you have to terminate the service altogether.
  3. Make an independent decision on what services you want, how/when/where/who is the service provided for relying on the service provider to make that decision for you. This would ensure that, instead of being charged for services that you do not want at all, what you want is what you get.
  4. Avoid asking your service provider anything and everything. Rather, ask yourself this: will you be able to monitor all the services you requested for effectively? If you cannot, then perhaps it is a good idea to manage your own expectations as well.
  5. Prioritise the services – which one is more important to you and which one you can live by with lower performance rate? Do you need all services to be running at maximum to ensure that your operation is able to run smoothly? If not, prioritise, as this would arguably lower down the cost you will need to pay to the service provider significantly without compromising the end result.