Businesses need digital and technological solutions to achieve optimal levels of performance. Whilst many organisations implement these measures independently, there are also cases where services are procured from a specialist provider in a particular field, such as software, digital infrastructure or cloud solutions (cloud). This type of contract is known as SLA, service level agreement.
In this article, we’ll tell you more about this agreement, what is it for?, what its components are and the types of penalties for failing to fulfil one’s obligations.
The concept of a service level agreement (SLA)
The service level agreement orService Level Agreement (SLA) is a contract between a service provider and a customer, generally in the field of technology. As an agreement, it sets out the guidelines and parameters that will enable the beneficiary to be offered a range of products or solutions tailored to their needs, expectations and tasks. In view of this, the SLA is an essential element for businesses, as it enables them to meet not only their internal objectives but also the quality standards of the services they offer to their users. In other words, it enables them to maintain secure and optimal business relationships.
What is the purpose of an SLA (Service Level Agreement)?
This agreement, contract or arrangement is essential for setting out the following points in the relationship between the supplier and the customer:
- It sets out the the responsibilities of both parties.
- It provides a framework for action in the event of potential contingencies (failures).
- It formalises the commitment to providing the service.
- It provides a formal document which will be useful in the event of a claim.
- It sets out the terms of service, such as the infrastructure or the number of professionals available.
- It strengthens the relationship between the customer and the supplier.
The SLA must therefore contain clear, realistic clauses that are tailored to the client’s needs and, of course, implemented in line with the supplier’s capabilities.
Types of service level agreements
These are the three types of SLA:
Customer SLA
A customer-focused SLA is designed to meet the the needs of a particular customer. The contract sets out information on the service, the basic procedures, the actual terms of the service, the scope of cover and the circumstances under which the contract would be terminated.
SLA service
The Service Level Agreement (SLA) focuses on a specific type of service, regardless of the customer; in other words, it forms part of a a single offer for several beneficiaries. It is commonly used when several customers use the same service under the same terms and conditions.
Multi-level SLA
A multi-tier SLA is designed for contracts in which different levels of performance, service tiers or price points are offered. When is it used? It is appropriate when the supplier has customers who require the the same service with varying levels of productivity: a small business will not require the same level of performance as a larger one.
Key elements of an SLA (Service Level Agreement)
A well-structured SLA ensures that all parties involved understand the terms of the agreement and understand their responsibilities. Let’s look at the elements that make up the service level agreement.
Details of the agreement
This first section sets out the general details or information about the agreement, such as the dates covering the duration of the contract (start and end), the parties involved and a summary of the agreed services. This is essential for gaining a first-hand understanding of the actual scope of the agreement.
Service details
Every contract sets out a detailed list of the agreed services. In this case, the SLA sets out the types of services, as well as their scope, delivery or completion times, the digital solutions incorporated, the technologies used, the implementation methodologies and the processes. It also takes into account the schedules for reporting, maintenance and evaluation.
Safety standards
The SLA sets out the standards to be followed by the supplier and the client in order to comply with the protocols, measures or regulations relating to the data protection, client infrastructure and risk prevention. In short, agreements are drawn up regarding data access and encryption policies. See the non-disclosure or confidentiality agreement.
Disaster response
There must be a protocol in place for dealing with disasters or failures in the provider’s services, such as server outages or problems. In this case, it is the provider’s responsibility to specify the procedures, containment measures and other measures to restore services and thereby prevent downtime or wasted time.
Service performance
Services must have defined indicators; in other words, they must have specific metrics to define expected performance. What does this involve? The following are taken into account: response times, operational efficiency and other indicators used to measure service quality. It is known as Service Level Objective (SLO) a service level target.
Exclusions
Exclusions set out the circumstances or cases in which the provider shall not be liable for failures in the provision of the service. The following are taken into account: unforeseen circumstances, changes in the company’s requirements or special circumstances that fall outside the scope of the initial agreement.
Termination
The termination clause sets out the conditions under which the contract may be terminated before its expiry date. These conditions include the breach of the terms, non-payment, the notice period for termination of the agreement, or other significant changes in the circumstances of the customer or supplier.
Penalties and reviews
Penalties are imposed in the event of a breach of the terms of the agreement. Usually, the penalty is financial, in the form of compensations or other services. However, in any SLA, it is necessary to review performance indicators periodically, as service level targets must be met. In this case, if they were higher than agreed, measures such as termination or service restriction.
Signatures
The signatures of both parties are essential for ratify the agreement. Signing the SLA constitutes acceptance of the terms and conditions by both the client and the service provider.
Penalties for non-compliance with the SLA
When a service provider fails to comply with the terms set out in the SLA, it may face various penalties designed to compensate the customer for the breach. Let’s take a look at what these are:
- Financial penalties. This is the most common penalty, and it will depend on the amounts agreed for this type of case.
- Licence extensions. Suppliers could extend or expand the range of their services, or offer additional services, to compensate the customer.
- Service credits. These are deductions from the price the customer would otherwise have to pay to the supplier.
