Selecting the Right Service Level Agreement for Your Business

service level agreement

Contracts and agreements are major components of how successful business dealings work. This is especially true for businesses that work with vendors or outsource work. When this happens, a service level agreement (SLA) is typically put into place to ensure the needed service supplied by the vendor is done effectively. Knowing the right SLA to use is incredibly important for business owners to understand.

Service Level Agreements

SLAs are a type of  contract that defines the level of service a business expects from a vendor or supplier. This is done by laying out the metrics by which the specific service needed is measured, as well as any remedies or penalties available in the event the agreed upon metrics are not met. While typically SLAs are used between businesses and external suppliers, they are also used between different departments within one company.

SLAs are important to businesses because they consolidate all the information on the expected service and the agreed upon expectations the business needs into a single document. These specific agreements clearly define the necessary metrics, responsibilities, and expectations to ensure that both the business and the vendor have an agreed upon understanding of the requirements. This is incredibly important because any significant contract that is created without an SLA can then be open to misinterpretation by either party.

SLAs should include all of the common components of any legally binding agreement. This includes a list of the parties involved, start and end dates, inclusions, exclusions, non-performance penalties, the locations and departments supported, remedial penalties for not meeting the terms, rewards or bonuses for overachievement, and indemnities for both parties, among others. A comprehensive SLA with all necessary components provides a strong foundation for a healthy and long-term relationship between a business and its vendors.

Indemnification Clause

One of the most important provisions to include within a service level agreement is an indemnification clause. An indemnification clause provision allows a vendor or service provider to agree to indemnify the business for any potential breaches of its warranties. The service provider will then have to pay the business for any third-party litigation costs that result from a breach of warranties.

The Different Types of Service Level Agreements

While there are several different types of service level agreements, the three most common types include:

Service-Based SLAs

Service-based SLAs are created by a business for common services that are offered. For instance, if an IT service provider for a business provides a specific service for all of its customers. In a service-based SLA, the service level of the specific service offered should be the same for all clients that use the service. In the event the finance and human resources departments of a business are the customers using the service, the same SLA will be valid between the IT service provider and the two departments.

Customer-Based SLAs

A customer-based SLA is an agreement created by a business for one specific client that covers all the services they use. For example, if a business utilizes a specific IT provider for several different services, all of the different services used are then documented in one SLA to create a customer-based agreement.

Multi-Level SLAs

A multi-level service level agreement is created by a business for larger clients that cover multiple services, departments, locations, etc. These agreements are customized according to the specific needs of the client and allows for several conditions to be added into the same SLA to allow for the most suitable service possible. Multi-level SLAs address contracts at various levels, including:

  • Corporate level: Comprehensive discussion of all relevant aspects of the contract applicable to all clients subject to the agreement.
  • Customer level: Discuss all potential service issues associated with one specific group of clients; however, this does not take into consideration the type of user service.
  • Service level: All aspects that are attributed to a particular service with regard to a certain customer group are included.

Houston Contract Drafting Attorneys

Just like many other types of business contracts, SLAs can quickly turn into complex documents that require the need of an experienced Houston contract drafting attorney. At Feldman & Feldman, our lawyers have decades of experience helping businesses of all sizes and industries negotiate contracts. If your business needs assistance with the drafting, negotiation, or review of a contract, contact us today to see how we can best assist you.