Service Level Agreement

Service Level Agreement: Factors & Essentials

The business entities including  MNCs, big turnover companies  Firms and other entities engaged in rendering services usually resort to the agreements with the suppliers for the smooth functioning of the business operations.

Service Level Agreement (alternatively known as “SLA”), contains the terms and conditions as mutually consented by parties and explicitly converted into written document between the organizations/individuals and the service providers related to quality, quantity and performance level along with the miscellaneous clauses ancillary to performance of services set the benchmark for the standard of services maintaining the goodwill and reputation of parties to the transaction.

The service level agreement provides flexibility to service providers as these can be amended as and when necessary with the consent of parties. Moreover, the service level agreement must be regularly revised as per business requirements. The use of these agreements has allowed for the smooth running of different industries.

Factors to be  considered  for  Service Level Agreement execution

  • Jurisdiction of the SLA: National jurisdiction or International jurisdiction.
  • Defining the service for which agreement is to be made.
  • Review the current position of the business and set realistic plans as per the business as well as customer requirements.
  • The minimum and maximum expected levels of service which helps both the parties to set out the objectives.
  • Describe the roles and responsibilities of each service providers at the time of performance of
  • Duration of agreement and applicable service times of each service provider.
  • The identity and address proof of the business owners and directors.

Essential Terms  for  Service Level Agreement

Each agreement has its unique terms and conditions of working, hence should be discussed and reduced to writing, important inclusions of SLA  are as under:-

Details of Parties to Agreement

To get started with the agreement, the basic details required for parties  to contract are as follows:

  • The name of the organization/service user,
  • Name of an authorized person,
  • Registered address of organization and authorized person,
  • Details of service provider

Scope of Service to include

  • The main services to be rendered to the service user;
  • The Ancillary services to the main services.

Performance & Quality of  Services shall be reviewed

  • Timely review of performance;
  • The standard of performance and quality to be delivered;
  • Indemnity and Guaranty clause;
  • Measures to be taken to control the performance and quality

Validity of agreements

  • Duration of agreement,
  • The period of provision of services along with other timelines.

Duties and Responsibility amongst parties shall be detailed

  • The responsibilities of the parties;
  • The liabilities at various occasions of both service providers and users of service;
  • The duties and authorities of the parties shall be duly specified including there in all possibilities.

Payment terms

  • Payment Schedule;
  • Mode of payments;
  • Penalties applicable in case of failure to follow instructions contained under agreement.

 Insurance Clause

Additional clauses relating to losses/consequences that may come up in the situation of failure to perform; situations of dispute resdressal; delivery mechanism;  grounds of termination and most importantly non disclosure clauses shall be specified with due care.

Advantages of Service Level Agreement

  • It helps the parties both provider and user of services to understand their rights, obligations and responsibilities.
  • The goal of service level agreement is making the contract process faster, timely provision of services easier which saves time and money.
  • The SLA has the dispute resolution provision which encourages the reliance on parties and the agreement which facilitates avoid or end disputes.
  • Service Level Agreement improves confidentiality between the service provider and service user through the non disclosure clause in case of association with competitors.
  • Service Level Agreement provides flexibility in terms of modification of parties, terms and provision, or any other clause with unanimous consent of parties.

Disadvantages of the Service Level Agreement

  • If service level agreement is poorly defined or executed it would destroy the object of creating the SLA and affects both parties.
  • The SLA agreement is based on standard timeline that creates unrealistic expectations between provider and users of service.
  • Outdated service level agreement can result of loss of business.
  • Any SLA may be time consuming for the parties to contract as its drafting involves a lot of care and patience.
  • Any SLA has detailed analysis of various ifs and but included which may lead to make services

Service level agreement is helpful to achieve the determined goals in the dynamic environment of business and it is a  good factor for long term success. Furthermore, it improves the work efficiency and creates a formal relationship between both parties.

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