Service level agreement is the level of service agreed between the vendor and the buyer. The agreement includes matrices for the performance measurement and the penalties if the agreed level of the services is not performed.
The level of services is usually agreed upon between buyers and technology vendors. Further, it’s a critical document when outsourcing business-related demands/needs.
For the successful execution of the service level agreement, there is a need for both service providers and the clients to agree on some specific standard to avoid any clash that may arise after services are performed.
Also read, performance guarantee.
Purpose of service level agreement
Following are some of the purposes of the agreement.
Enhanced level of services – If the vendor does not perform the desired level of service, it may be a loss for the client in terms of time and resource wastage. However, if a certain level of service is agreed upon, both parties are expected to be clear, resulting in an improved level of service.
Effective clash management – SLA contains defined responsibilities, commitments, penalties, and sanctions. Hence, it becomes easy the resolve the clash in case of a dispute.
Components of service level agreement
Following components should form part of the SLA,
- Detailed breakup of the services to be provided.
- Agreed level of services between vendor and the customer.
- The agreed metrics of the service measurement.
- Responsibilities of each party in the contract.
- The duties of each of the parties.
- Applicable penalties sanctions if service is not performed to the agreed level.
How to write service level agreement
Due care must be taken while forming a service level agreement because it’s about compensation and damages for the vendors and client. As per standard, the following points should be included in the agreement.
- Name and declaration of the parties involved in the contract.
- Defined identification of the parties in the contract.
- A statement describing the purpose of agreement in terms of service performance and other details.
- Description and breakup of the services agreed between the vendor and the service provider.
- Requirements and expectations of the vendor and client from each other.
- Sign of both parties on the agreement regarding the level of service and other details.
The metrics of the agreement need to be agreed at least in the following terms.
- Agreement regarding the time of delivery.
- Level of technical quality in the services provided.
- Data protection and security.
- Business-related performance indicators
- Consequences in case of default.
Service level agreement is commonly used in the IT sector while outsourcing. This agreement is of great importance regarding defined responsibilities, obligations, terms, and other details. The purpose of the agreement is to enhance the quality of services, effective clash management, and clearly state the terms to protect either party.
A good SLA is expected to protect both parties and clear their level of expectations with each other.