All about Service Level Agreements & their uses


Service Level Agreement (“SLA”) is an important part of a contract that includes mutually agreed upon terms between a service provider and their customers, ensuring the services provided meet certain thresholds (i.e., uptime, responsiveness, etc.). This can include technical support services such as guaranteeing improved CSAT score, faster email response, or that 98% of customers calling in will receive First Call Resolution (FCR).

Who can enter an SLA?

An SLA had originated with network service providers but are now widely used in a range of IT related fields. Some examples of industries that establish SLAs include IT service providers and managed service providers, as well as cloud computing and internet service providers.

Corporate IT organizations, particularly those who have embraced IT service management, enter into SLAs with their in-house customers and users in other departments within the enterprise. An IT department creates an SLA so that its services can be measured, justified and perhaps compared with those of outsourcing vendors.

Reasons why every company should enter into a SLA:

  1. To align expectations and requirements with service providers
  2. To document timelines such as development, servicing errors, response times
  3. Measuring service quality
  4. Documentation of procedures and best practices
  5. To ensure clear communication
  6. Mutual protection
  7. To clearly outline remedies
  8. To positively impact customer service quality

Critical Components of an SLA:

The service commitments outlined in an SLA should cover all these essential elements in clear and specific detail:

  • Service – the service or action the outsourcing partner provides. For example, your internet provider gives you internet access.
  • Measurement – this is a metric that quantifies the service commitment. Using the internet provider example, the measurement could be 99.999% availability (also known as “five nines of uptime”).
  • Interval – the measurement (metric) that must be captured at defined intervals. For example:
    • “Every time the helpdesk is called..”
    • “… every month”
    • “… average of all tickets every month”.
  • Obligations – some SLAs have obligations that the client and the partner must fulfil in order for the SLA to be enforceable. Also, it’s a common obligation for the client to declare an SLA violation, in order to exercise their right to receive a penalty payment from the partner.
  • Penalty – this is the penalty for failure to comply with the SLA component’s obligations (an SLA violation). In subscription-based agreements, the penalty a partner incurs will usually be to credit back a percentage of the monthly subscription. In software development outsourcing, an SLA penalty is often the loss of a “bonus payment” (or percentage) held in reserve by the client for a successfully completed project with all SLAs met.

Key Benefits of an SLA:

The following are the reasons why a company should have an SLA as part a of their contract(s):

  • Clarify expectations – SLAs help to define and align clear expectations for performance from the relationship in measurable terms. They keep the outsourcing partner accountable for delivering on their promises, so there are no surprises.
  • Focus on customer service – The SLA helps the partner to remain focused on client requirements and needs. It outlines the specific scope and timing of what is to be provided to the client, as well as how and when issues will be resolved. 
  • Establish measurable standards – The SLA sets clear standards of performance for the partner, with key metrics varying based on the project and its goals. The SLA also should define the frequency and types of reports to be provided.
  • Outline remedies for non-performance – SLA penalties should incentivize the partner to fulfil commitments made to the client, and offer remedies if they fall short. In addition, the SLA should delineate a dispute resolution process to help with mediation of performance issues.

Depending on the needs of the parties there are different kinds of SLAs:

  1. Customer-based SLA

This type of agreement is used for individual customers and comprises all relevant services that a client may need, while leveraging only one contract. It contains details regarding the type and quality of service that has been agreed upon. For example, a telecommunication service includes voice calls, messaging and internet services, but that all exists under a single contract.

  1. Service-based SLA

This SLA is a contract that includes one identical type of service for all of its customers. Because the service is limited to one unchanging standard, it is more straightforward and convenient for vendors. For example, using a service-based agreement regarding an IT helpdesk would mean that the same service is valid for all end-users that sign the service-based SLA.

  1. Multi-level SLA

This agreement is customized according to the needs of the end-user company. It allows the user to integrate several conditions into the same system to create a more suitable service. It addresses contracts at the following levels:

i. Corporate level: This SLA does not require frequent updates since its issues are typically unchanging. It includes a comprehensive discussion of all the relevant aspects of the agreement, and is applicable to all customers in the end-user organization

ii. Customer level: This contract discusses all service issues that are associated with a specific group of customers. However, it does not take into consideration the type of user services. An example of this is when an organization requests that the security level in one of its departments is strengthened. In this situation, the entire company is secured by one security agency but requires that one of its customers in the company is more secure for certain reasons.

iii. Service level: In this agreement, all aspects that are attributed to a particular service with regard to a customer group are included.


SLA is generally ancillary to other agreements such as a Consultancy Agreement, to help mitigate specific issues that may crop up between companies and outsourcing partners. There are many important aspects that need to be clarified before starting an alliance and an SLA can be a great tool to aid professional relations and mutually agreeable standards.

The content of this article is intended to provide general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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