Service Level Agreement (SLA)

What is an SLA?

A service-level agreement (SLA) defines the level of service expected by a customer from a supplier, laying out metrics by which that service is measured, and the remedies or penalties, if any, should service levels not be achieved. Usually, SLAs are between companies and external suppliers, but they may also be between two departments within a company.

A telecom company’s SLA, for example, may promise network availability of 99.999% (which works out to about five and a quarter minutes of downtime per year), and allow the customer to reduce their payment by a given percentage if that is not achieved, usually on a sliding scale based on the magnitude of the breach.

Why do I need an SLA?

SLAs are an integral part of an IT vendor contract. An SLA pulls together information on all the contracted services and their agreed-on expected reliability into a single document. They clearly state metrics, responsibilities, and expectations so that, in the event of issues with the service, neither party can plead ignorance. It ensures both sides have the same understanding of requirements.

Any significant contract without an associated SLA (reviewed by legal counsel) is open to deliberate or inadvertent misinterpretation. The SLA protects both parties in the agreement.

What are the benefits of an SLA?

1. Accountability: An SLA establishes responsibilities and obligations for both parties in the relationship, thereby ensuring accountability.

2. Clarity of expectations: By spelling out agreed-on services, performance levels, and metrics for validating service levels, SLAs ensure customers can expect a specified level of service, or have remediation possibilities should the service fail to meet obligations, and provide clarity to vendors as to what is expected of them.

3. Conflict resolution: By providing a framework for remediating issues, SLAs provide predefined processes for addressing disruptions in ways that can help circumvent conflict between parties as issues arise.

4. Customer experience: SLA benchmarks help ensure customer satisfaction.

5. Legal protection: The contractual nature of SLAs provides legal protection for both parties by outlining conditions, processes for mitigating disputes, and clear responsibilities and expectations for both parties.