service level agreement

The term “service level agreement” or “SLA” means different things to different businesses, and come in all shapes and sizes. The core function of contractual documents such as these is to set out the performance requirements of a supplier in a single document.

How is an SLA structured?

Any number of ways. At a minimum, the SLA will focus on the KPIs important to one or more of the contracting parties. One way to ascertain what should be provided for in an SLA would be to think through all of the different elements which need to come together in order for the service to be used by the intended user base, and then provide for the key elements in the agreement.

An SLA might be incorporated into a larger document as a schedule, which deals with the calculation of price, payments, warranties, indemnities, termination and disputes. If the SLA is incorporated into a service agreement, the service agreement should set out the larger agreement between the parties (and not just levels of service).

Contents of Service Level Agreements

Key sections of an SLA include the following by reference to the specific services being provided:

1. Level and Standard of Services;
2. Performance Targets;
3. service level compensation or penalties for failing to meet performance targets. These have fallen out of favour in some circles because customers have realised the overall price may be escalated by suppliers to cover these;
4. Exclusions and limitations to the SLA.

In the context of a Software as a Service (SaaS) Agreement, one is likely to find within the different categories listed above:

1. Uptime: The time that the service or server must be up and running. This is not necessarily the same thing as availability;
2. Availability: the time each month or year that the server or services will be available to be used;
3. Response time: the time required for a helpdesk or service provider to respond to an issue by the user base. This is usually expressed in hours or business hours;
4. Resolution time: the time by which problems or “issues” will be resolved. This might be fixed to a number of hours for critical issues which effect the overall provision of the service and days or months for cosmetic issues which do not do so.
5. Technology Updates: where services are outsourced as software as a service (SaaS Agreements), and updates and bug fixes are released, how frequently are those updates to be installed, assuming the business is entitled to receive them?
6. Exclusions: downtime caused by malicious programs, corrupted data, downtime caused by a third party provider, interference with the technology environment by the business receiving the services and other factors which the service provider does not control.

There are always competing interests in business contracts and trade-offs. When a customer presses for higher levels of continuity of service, the supplier should ensure that there are allowances for:

1. the usual tasks that need to be performed to keep the service operating efficiently, such as scheduled downtime for maintenance,
2. interference which may come about by third parties, or even the customer to receive the services.

Another way

Frequently, rather than getting into the detail of the SLA, the contract parties are satisfied to agree to a more generic forms of SLA. For instance, in relation to continuity of availability of a service, a contract might provide:

“The Supplier does not warrant that the Services will be continuously available 24 hours a day, 7 days a week, but will use its reasonable endeavours to keep downtime to a minimum.”

In service level agreements, watch out for…

1. Businesses should have a clear idea of services levels they would like to receive. Ideally, the business receiving the services will have their own list of standards and levels of service which are able to be met by the supplier which are able to be incorporated into the contract, rather than the service provider providing their own terms and conditions – and exclusions which are likely  to be incorporated into the draft.
2. Usually, the ideal timeframe for measurement of levels of service is monthly.
3. An understanding of technical measures used by the service provider to implement the standards and levels of service is not a central concern for a customer. It is the end result of the services which counts.
4. The terms of the SLA should be sufficiently precise and certainty so as to be legally binding. Broad statements of services to be provided lack contractual meaning and are not likely to be enforced.
5. Although businesses would do well to monitor compliance with service levels by the supplier, it might also do well to cast a blind eye to minor infringements, while reserving rights. A properly drafted waiver clause should provide coverage to do this, without waiving all rights for the term of the contract.

Think twice before the accepting service levels which are given by the service provider to the supplier. Provisions such as these provide an escape route for the service provider, and perhaps a poor service for the customer.