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All you must know about SLAs: metrics, joint SLAs, earn backs

Breakdown of tyreService-level agreements (SLAs) are a critical component of any technology vendor contract. Beyond listing expectations of service type and quality, an SLA provides remedies when requirements aren't met.

SLAs are an integral part of an IT vendor contract. An SLA pulls together information on all of the contracted services and their agreed-upon expected reliability into a single document. They clearly state metrics, responsibilities and expectations so that, in the event of issues with the service, neither party can plead ignorance. It ensures both sides have the same understanding of requirements.

Any significant contract without an associated SLA (reviewed by legal counsel) is open to deliberate or inadvertent misinterpretation. The SLA protects both parties in the agreement.

Ideally, SLAs should be aligned to the technology or business objectives of the engagement. Misalignment can have a negative impact on deal pricing, quality of service delivery, and customer experience.

What are key components of an SLA?

The SLA should include components in two areas: services and management.

Service elements include specifics of services provided (and what's excluded, if there's room for doubt), conditions of service availability, standards such as time window for each level of service (prime time and non-prime time may have different service levels, for example), responsibilities of each party, escalation procedures, and cost/service tradeoffs.

Management elements should include definitions of measurement standards and methods, reporting processes, contents and frequency, a dispute resolution process, an indemnification clause protecting the customer from third-party litigation resulting from service level breaches (this should already be covered in the contract, however), and a mechanism for updating the agreement as required.

This last item is critical; service requirements and vendor capabilities change, so there must be a way to make sure the SLA is kept up-to-date.

What is an indemnification clause?

An indemnification clause is an important provision in which the service provider agrees to indemnify the customer company for any breaches of its warranties. Indemnification means that the provider will have to pay the customer for any third-party litigation costs resulting from its breach of the warranties. If you use a standard SLA provided by the service provider, it is likely this provision will be absent; ask your in-house counsel to draft a simple provision to include it, although the service provider may want further negotiation of this point.

Is an SLA transferable?

Should the service provider be acquired by or merge with another company, the customer may expect that its SLA will continue to be in force, but this may not be the fact. The agreement may have to be renegotiated. Make no assumptions; however, bear in mind that the new owner will not want to alienate existing customers, so may decide to honor existing SLAs.

How can I verify service levels?

Most service providers make statistics available, often via an online portal. There, customers can check whether SLAs are being met, and whether they're entitled to service credits or other penalties as laid out in the SLA.

Usually these processes and methodologies are left to the outsourcing company to identify, ensuring that such processes and methodologies can support the SLA agreement. However, it's recommended that the client and the outsourcing company work together during the SLA contract negotiation to eliminate any misunderstanding about the process and method of support as well as management and reporting methods.

For critical services, however, customers should invest in third-party tools to automatically capture SLA performance data, which provide an objective measure of performance.



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