What is a service Level Agreement & does my business need one in place?

Service Level Agreement

A Service Level Agreement or SLA is an agreement or contract which is put in place with a supplier and defines what service will be supplied by that supplier and at what level the service will be undertaken.

The responsibilities and priorities of the supplier in undertaking the service will also be specified within the Service Level Agreement.

Contractual Obligations

A service level agreement is effectively a set of contractual obligations often built into a contract through a number of specific clauses or drawn up itself as a separate agreement.

They are often key aspects of an agreement between a business and a supplier when the customers’ needs of that business are dependent upon the proper functioning of the supplier.

Key Provisions for a Service Level Agreement

Any service level agreement should detail the following key provisions:

  • Clearly define the services
  • Payment provisions
  • Relationship
  • Representations and warranties
  • Indemnification
  • Ownership of product
  • Confidential Information 
  • Force Majeure

Clearly defined Services

It is imperative that the performance of the services for which the service level agreement relates to are clearly defined along with any deadlines for the performance.

Service levels which are concerned with technical performance should be provided in an exhibit to the agreement and should be stated in very accurate detail ensuring that they are properly defined.

Payment Provisions

You should ensure that the agreement includes provisions in relation to how much is to be paid for the service, when this is to be paid and what will included in the payment such as expenses, taxes and travel.

Procedures for invoicing and penalties for late payment should also be clearly defined within the service level agreement.

Relationship

A standard service level agreement should include a clause that clearly defines the relationship between the parties and states that it is not a partnership, joint venture or employer employee relationship. Often these relationships can be implied by law so it is imperative that this clause is contained within the agreement.

Representations and Warranties

This clause will be concerned with detailing the proper performance of the services the supplier has been contracted to perform. The clause may consist of the following:

  • That the services will be performed at proper industry standards
  • That the performance of the contract is not infringing any third party rights
  • That the performance of the contract is not infringing any other contract that the supplier may have in place

Indemnity

There should be a clause inserted into the contract stating that the supplier must indemnify the company which has hired them if they do not fully perform the representations and warranties specified.

Indemnification deals specifically with any costs that the party will have to pay in relation to any third party claim against them due to the supplier not fully performing their representations and warranties. They would then indemnify the supplier for the costs paid to the third party.

Ownership of Product

The owner of the product will want to insert a specific clause within the service level agreement stating that the ownership will not pass to the other party. There however is a requirement for a licence in relation to the product enabling the other party to fully perform their side of the contract. The details of the licence will need to be fully specified in the agreement.

Confidential Information

The service level agreement should have a clause indentifying what will happen in relation to any confidential information exchanged between the parties.  This should specify such things as how the information will be identified, how it will be handled by either of the parties and what the restrictions on disclosure and misuse will be.

In certain technical service level agreements there may have to be a data exchange for the proper functioning of the relationship. If this is the case full details concerning the operation of the data exchange should be provided in an annex to the agreement.

Force Majeure

When drawing up a service level agreement you should always endeavour to insert a force majeure clause which deals with the situation that the service cannot be performed due to acts of god, war, strikes, weather and any other uncontrollable conditions.

Other clauses that should be inserted but which are common to all contracts of this nature are the following:

  • Liability
  • Insurance
  • Duration
  • Termination