A service level agreement (SLA) complements and forms part of an IT master service agreement. It incorporates strategic business objectives and defines the business’s desired results.
The most common types of SLA include:
- Service-based SLA: a single type of service common to every client.
- Customer-based SLA: an agreement between a service provider delivering a type and quality of service to a client.
- Multi-level SLA: is a combination of levels addressing different tiers of clients subscribing to varying types of service.
In a typical SLA, critical components included are:
- nature of service;
- measurement of key performance indicators (KPI), what to measure, i.e. cost of services or quality of services, who will measure, how it will be measured and how often it will be reported; and
- a penalty system when a service provider fails to meet the KPI.
The essentials to a meaningful SLA:
- provable indicators that measure the proper performance levels to ensure that the client is receiving its expected level of service, for example:
- the client and service provider can achieve an acceptable level of profitability and increased productivity;
- ability to collect performance productivity with an appropriate level of detail but without costly overhead; and
- bind all commitments/objectives to reasonable, attainable performance levels, thus differentiating good service from bad/substandard service and allowing the service provider a fair opportunity to satisfy its client.
Ensuring flexibility in the SLA to adapt and change
The principles in the contractual nature of the SLA are:
- Flexible – able to change as needs, priorities, products and technologies change;
- Responsive – able to meet client’s needs;
- Timely – able to stay on schedule;
- Motivate – the proper behaviour to reduce costs, obtain new skills, or improve product quality;
- Adopt reasonable metrics – able to measure service and such metrics within service provider’s control and reward accordingly.
Fully understand the meaning of contract provisions and how you can negotiate to create a mutually beneficial relationship with your service provider
The SLA must be simple, measurable and realistic. It creates clarity, dispels ambiguity and keeps the negotiation process more straightforward. With realistic objectives in place, it will ensure the same can be easily achieved and the penalties imposed can be limited.
The SLA must act as a tool to obtain the maximum and continuous quality of service, value to both parties, minimize business risks and have clearly defined components to ensure a win-win agreement. The ability to reduce business risks and protect the party’s interest will depend on the party’s bargaining position, the type of services being contracted for, and the skill in writing SLAs. The SLA must be mutually agreed upon and not be contracted unfairly for the benefit of one party.
The SLA must provide for any future events that may creep up once the contract is entered. The SLA can anticipate future events, but it must also provide contingency plans to address the occurrence of such future events.
To sum up, it may be advantageous that the following elements are also captured in the SLA accordingly:
- Reporting – measurement period should be set to measure whether the service provider achieves the required or expected level of service. Further, the SLA must provide whether the measurement period includes times when force majeure occurs or includes periods when the service demand exceeds the minimum or targeted levels;
- Reviews – include a variation clause to reappraise the SLA, allowing regular checks to evaluate the SLA since technology and other advances in systems and processes are constantly evolving and improving. It is recommended that such reviews be conducted every six months to one year; and
- Change Management Process – both parties must agree on change management procedures in the SLA. These change management procedures must facilitate any necessary change to the SLA during the contract term.
SLA is a living document that needs constant review to ensure that the service level objectives remain valid and kept current on an ongoing basis. The same teams from both parties should oversee the negotiations and execution of the SLA. It encourages both parties to manage the SLA and demand continuous improvements from the SLA without a major confrontation. Hire a TMT lawyer and get professional legal services for the benefit of your business.