Service level agreements – Ingredients and Importance

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Service level agreements – An introduction

An agreement is an arrangement between two or more parties to create a legal obligation for performing a specific action(s). Agreed parties are legally bound to perform the actions as accorded by the agreement. Though agreed, written agreements with mutually agreed terms are considered as valid proofs in case of litigations/arbitrations than the oral agreements.

Service level agreements (SLAs) are the negotiated contracts that define the service levels expected by the customer from a supplier. The contract generally defines the responsiveness, time limits, quality and levels of the service, metrics to measure the quality, methodologies used for measuring the performance metrics, and the remedies & penalties in case of a failure to achieve the required quality and levels of the service.

Service level agreements – Types and Ingredients

SLAs should be crafted in a way that protects the interest of all the agreed parties in case of any dispute and must specify the available & possible remedies that will not only avoid surprising confusion but also misunderstandings for mutually beneficial long-term partnerships/relationships.

Some of the main components of an SLA include:

  • Type and specification of the services offered
  • Service standards and time limitations
  • Measurement systems for service standards
  • Methods of enforcing service standards
  • Payment terms and billing details
  • Available Remedies/ imposable penalties in case of a dispute
  • Dispute resolution policies and procedures
  • Indemnification clauses
  • Change management clauses
  • Termination clauses for failure to meet the agreed terms in the SLA

By including the above components, various types of SLAs can be designed based on the needs and requirements, which include:

  1. Service-oriented SLA: Singlecontract applicable commonly for many or all of the customers
  2. Customer-oriented SLA: Single contract that encompasses all the required services delivered to a particular customer, and
  3. Multi-level SLA: Single agreement that can be customized/modified according to the requirements of different customers from the same organization

Importance of Service Level Agreements:

SLAs decide the clear expectations of customers from the vendors beforehand, which would not only encourage consistency from the vendors but also facilitate smoother operations of the customers. Since each of the terms in the agreement is negotiated and agreed by both / all of the parties, none of them would be able to contest the unavailability of directions, which ensures stricter compliance levels by both or all of the parties. Further, non-compliance by any of the parties would also be addressed by the remedies and penalties that are mutually agreed through the SLAs, which would negate the lengthy and costly litigations at the budding stage itself and would always help in reducing the wastage of time, money and allocation of diverse resources. In the cases of extreme and/or regular non-compliance, the SLAs allow the termination of the agreement and identification of the newer service providers who can comply with the requirements.

IPLF for drafting commercial contracts:

SLA serves as a bridge in building long term relationships between the service providers and the customers, and hence they need to be crafted with perfection and mutually beneficial. Our team comprises highly skilled and trained legal professionals to assist in the negotiation and drafting of various types of contracts including Service Level Agreements, which not only benefit the parties but also prevent unnecessary misunderstandings and disputes.

Author: Govindhaswamy Srinivasan, a Principal Associate – Patents at Khurana & Khurana, Advocates, and IP Attorneys.

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