What Are Service Level Agreements, How They Work and Why Do You Need One?
Service Level Agreements (SLAs) usually form part of a larger contract. The purpose is to provide a reference document that defines what services and standards of service a business are due to provide to their customer.
An SLA is often part of a wider business contract and is often used by IT providers and those businesses, for example, involved in utilities, broadband or facilities management, where the delivery of services are on going, rather than just a one off interaction. The maintaining of standards is of importance to both sides of the agreements and an SLA helps regulate that provision of service.
As services and business relationships vary, SLAs will also be different depending on each situation. However, like most legal documents, there are common elements that define what a service level agreement actually is and what it should include. The following list is not definitive but it will help provide some light on what should be included.
What Should Be in a Service Level Agreement (SLA)?
- The actual service to be delivered in detail.
- The performance standards expected by the customer in terms of the provision of services by the service provider.
- The business objectives of the customer from the provision of services. This helps an understanding of why and how the business relationship exists.
- Reporting and KPIs. How are the standards of delivery of services measured? Without an agreed measure of what constitutes success or failure, there is no way to assess how the service level is actually performing.
- What happens if service levels are not met? The SLA defines how problems are remedied and when and how much compensation is paid if standards are breached.
- Sometimes business environments change and the requirements of the customer change as well. A well-drafted Service Level Agreement will allow service levels to be reviewed and changed over the course of the contract.
- Termination of the contract. Like any relationship, things can go wrong and rectification of the situation is either impossible or cannot be delivered. At this point you need to have the option for the customer to terminate the contract and also a mechanism for the provider to walk away if they fail to be paid (for example). On service standards, the circumstances where the contract can be terminated need to be defined. What period of time and what service levels define and breach of the SLA?
Defining Goals in a Service Level Agreement
Is your SLA an external or internal SLA? What we mean by the terms ‘external’ and ‘internal’ are whether the service level agreements are between a business and a customer or, for example, between two departments within a company, such as the sales and credit control teams?
If you are dealing with an external SLA, the goals defined in the agreement tend to be those of the customer. However, for those goals to be achieved, there needs to be an understanding of what your service or product can actually do and whether it aligns with the goals of the customer. This may sound a little bit obvious but there are many contracts that have come to an early close when it is discovered that the service on offer is not ever going to satisfy the customer’s requirements because both sides are trying to achieve different things.
With regard to an internal Service Level Agreement, both departments/teams need to have their individual goals defined clearly in the agreement. If the process taken by the sales team to achieve hitting their targets is stopping credit control achieving their targets, then the SLA is effectively a negative and unhelpful document to one or other side, or at worst, effectively obsolete.
For an SLA to be useful to the signatories, the actual actions to reach goals need to be clear. One of the key purposes of an SLA is to include a definitive list of what each party requires to reach their goals. When dealing with external SLA’s it can be useful to include the peripheral requirements that help facilitate the achievement of goals, such as what reporting, consulting and maintenance visits may be required.
An SLA in existence between internal departments, such as sales and credit control, should define what each party needs from the each other in order to achieve their goals. This could include regular reports, information, client information, defined meetings etc.
Who are the responsible parties for ensuring who is in charge of ensuring that service levels are delivered and goals are met? Where are the lines of communication and reporting? Define who the key individuals are and what their responsibilities are.
Where goals are not met, whether internally or externally the SLA needs to include ways to address the matter. It’s not all about a termination of a business relationship but more about rectification and how the situation can be fixed. This could be, in an internal SLA, about having key people responsible for analysing why there is under performance via training or coaching those elements that are failing to deliver. In an external arrangement it may be about offering financial compensation or credits against future services.
Different Types of SLAs
This type of SLA is used for individual customers and comprises all relevant services that a client may need. Commonly used in telecoms or internet provision, this type of SLA contains all the elements of the service to be delivered such as texts, internet and voice calls but wraps them all under one contract.
Commonly used when there is one standard, identical service level for all customers. This SLA is a contract that includes one identical type of service for all of its customers. Basically all clients get offered the same SLA. This is convenient for the provider but can be frustrating for clients who are looking for variations according to circumstance.
This SLA is produced on a bespoke basis. Where a client has different requirements from their service provider to others businesses, this SLA allows the end user to structure their expectations of service levels on a more complex level, integrating several conditions into one system. For example there may be a need for different approaches to different customers of a client company.
This type of SLA is defined according to the organisation of the customer with overall definitions with relevance for all subordinate levels. This SLA focuses on the structure of the end user. All services being provided and their interrelationships with other subordinate services are included when defining the multi-level SLA.
The overall purpose of this type of SLA is to address the requirement for complex service provision by addressing all the possible variances in service demand, therefore avoiding having to make changes to the SLA on a regular basis.
Why You Need a Service Level Agreement
Without a Service Level Agreement, you are left with a lack of clarity over how certain scenarios will be dealt with by the provider or customer. If you have an IT help desk that you were promised would respond to queries in half an hour and you find out that consistently help and advice is getting taking over an hour you may find yourself in a disagreement with the provider about what was initially agreed. Having an SLA in place gets rid of any scope for confusion and allows for transparency about what the service level targets are as well as what happens if the required targets are not met. Basically, a well-drafted SLA gives protection to all parties and prevents the scope for major disputes.
Need Assistance or Commercial Legal Advice?
rhw solicitors have a commercial law team with a vast amount of experience and know-how and we are able to advise and assist in all aspects of contractual agreements including the creation of new contracts and amendment of current agreements.