Why Do You Need a Service Level Agreement

Standardized Legal Documents Why Do You Need a Service Level Agreement

Don’t Get Cheated! Use Service Level Agreements

Getting quality services should not be an issue nowadays because vendors are competing to sell their products on the market. To make sure the services you pay for are efficient, you must have a service level agreement (SLA). If this sounds like another boring legal document or contract, we’ll make sure you get the gist of it easily and use it to your advantage.

What Is a Service Level Agreement?

A service level agreement is a binding contract between a service provider and a customer or business. It clearly defines what services are provided and the level or standard of those services. An SLA is a must in any service-oriented contract, and it typically includes:

  • Agreement overview with the start date and the parties involved
  • Description of services—A list of services offered, maintenance options, operating hours, the technology required, etc.
  • Service performance—Explicitly stated performance metrics
  • Exclusions—Services excluded from the agreement
  • Stakeholders—The parties involved in the agreement and their responsibilities 
  • Redressing—Compensation in case the provider cannot fulfill the service level agreement
  • Security measures taken by the service provider
  • Risk management
  • Termination process
  • Signatures of all the parties

Read any service level agreement carefully before signing it since it may have terms you don’t agree with. Once you sign it, there is no way back!


Service Level Agreement Types

There are three types of service level agreements:

  1. Service-based
  2. Customer-based
  3. Multi-level

Service-Based Agreement

This type of agreement offers a single service to all customers. A typical example is an internet service provider help desk available to all users.

Customer-Based Agreement

Customer-based SLA targets specific clients. It can cover multiple services. When a large business makes an agreement with a telecommunication company, the provider offers services such as messaging, internet connection, or voice calls designed to meet the particular needs of the client.

Multi-Level Agreement

Multi-level agreements have many subcategories. They are usually designed for large customers and offer different services to various company divisions with specific deadlines.

What if My Service Provider Doesn’t Exist Anymore?

Businesses merge or get acquired by other companies all the time. If it happened to your service provider, you must be wondering what now? In most cases, the new owner continues the cooperation with the clients, but you must often renegotiate your SLA. Contact your new service provider to make sure your deal still stands and the terms have not changed.

Is the Service Level Agreement Legally Binding? What Are SLA Penalties?

A service level agreement is a legally binding document. If the service does not meet your expectations or the provider fails to fulfill its end of the bargain, there are predetermined penalties that apply. They are divided into two groups:

  • Financial penalties
  • Service credit

Penalties should be explicitly mentioned in the agreement to avoid any disputes.

Financial Penalties

The vendor has to pay the customer compensation for damages or missed deadlines. The SLA should state the specific sums that often depend on the extent of the violation.

Service Credit

This penalty enables the customer to get free service for a specific period as a form of reimbursement for the violation. Instead of receiving money, you will use the service free of charge as a form of compensation.

What Are Service Level Agreement Performance Metrics?

The service quality is measured by performance metrics. We have outlined the most important ones in the table below:

Time Related Metrics Other Metrics
  • Uptime percentage—the amount of time services are running
  • Service provider response time—how much time a service provider needs to respond to a request
  • Resolution time—how much time a service provider needs to fix the issue
  • Time service factor—how many calls customer service reps answer 
  • Average time to recover from an outage
  • Error rate—the percentage of errors caused by the provider
  • First-call resolution—how many calls are resolved on the first attempt 
  • Abandonment rate—the percentage of queued calls customers abandon while waiting for answers
  • Business results—the effects that the service has on a business performance

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Our current database has the following customizable contract templates, and more are on their way:

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