Service Level Agreement (SLA): Key Elements and Best Practices

Author: Zeinab Farhat, Progressive Legal

In business, organisations across various industries rely on service providers to deliver essential services that support their operations. Whether it’s IT support, telecommunications, logistics, or any other service, companies often enter into a Service Level Agreement (SLA) with their service providers.

The purpose of these agreements is to establish clear expectations, define performance standards, and ensure quality service delivery. In Australia, Service Level Agreements play a crucial role in fostering productive partnerships and maintaining high service standards. On this page, we’ll delve into everything you need to know about a SLA and the benefits of using one.

What is a service level agreement (SLA)? 

A Service Level Agreement is a formal contract between a service provider and a customer that outlines the deliverables that a party is to provide another. Further, an SLA will also contain provisions relating to the level of service to be provided, the metrics used to measure performance, and the remedies or penalties for not meeting the agreed-upon standards. 

An SLA also serves as a foundation for managing the relationship between the two contracting parties by setting expectations, and providing a framework for dispute resolution.  

Sometimes, Service Level Agreements may be referred to as Service Level Contracts or Level of Service Agreements.  

What goes into a service level agreement? 

Here are some key components of a well organised Service Level Agreement, and a brief explanation of what such provisions in an SLA would entail: 

Stakeholders

An overview of the parties involved, effective date, and any relevant background information. 

Service description

A description of the services being provided including the specific obligations and responsibilities of the service provider. 

Service level objectives

An outline of the performance metrics and targets that the service provider commits to achieving. They can include metrics like response times, availability, and other key performance indicators (KPIs). It is important that Service Level Objectives are as clear as possible, in order to ensure that the party tasked with meeting those objectives understands its obligations.  

Service hours

An overview of the agreed-upon service hours, such as the hours of operation. It may also include any provisions for after-hours or emergency support. 

Problem management

The process for identifying, reporting, and resolving issues or incidents. It may also specify escalation procedures for unresolved or critical problems, such as but not limited to dispute resolution mechanisms 

Service support

A description of the support services provided by the service provider. This may include forums where support requests can be made, or directing the party to the relevant email address for all enquiries. 

Periodic review

The process for regular service review meetings, performance evaluation, and opportunities for continuous service improvement. 

Termination

The conditions under which either party can terminate the agreement, including any applicable notice periods and/ or any provisions for data transfer or transitioning to another service provider.

Need some guidance on drafting your service level agreement and including the correct terms? Make an enquiry below to get in touch with our experienced commercial team and we’ll get back to you within a day.

When do you use a service level agreement? 

Service Level Agreements are typically used in situations where there is a formal relationship between a service provider and a customer or client.  

It is suggested to use a Service Level Agreement if you are providing services to another party, or alternatively, if you are receiving services from another party.  

Here are some scenarios in which Service Level Agreements are commonly used: 

Outsourced services

When a company outsources certain functions or services to a third-party service provider, a Service Level Agreement is often used to outline the agreed-upon service levels, responsibilities, and performance metrics. This can include IT services, customer support, maintenance, or any other outsourced functions. 

Vendor contracts

When engaging with vendors or suppliers for critical products or services, a Service Level Agreement can be included in the contract to ensure that the vendor meets specific quality, delivery, or support requirements. This helps in managing the vendor relationship and mitigating risks. 

Service agreements

Service Level Agreements are commonly used in service-based industries, such as telecommunications, internet service providers, and hosting providers. These agreements outline the quality, availability, and support provided by the service provider to the customers during their engagement of the services and service provider 

Customer service

Service Level Agreements can be employed in customer service departments to define response times, resolution times, and service quality standards for addressing customer inquiries, complaints, or support requests. 

What are the different types of service level agreements? 

There are four main types of Service Level Agreements. These include: 

Customer service level agreement

Customer Service Level Agreements are typically used for individual clients. These agreements establish a customer-seller relationship. They set out the agreed level of service the customer expects to receive from the seller.  

These are tailored to the specific requirements and needs of the customer. They consider their unique business objectives, service expectations, and contractual agreements. Customer Service Level Agreements allow for a more personal and flexible approach in defining service levels and performance metrics based on the customer’s specific requirements. 

Multi-level service level agreement

Multi-level Service Level Agreements are hierarchical agreements that establish different levels of service and performance commitments for various tiers of customers. In other words, the level of service to be provided to the customer is contingent upon what level the customer falls within.

This type of Service Level Agreement is often used by service providers who cater to customers with different service requirements or levels of priority.  

For example, a service provider may offer different tiers of service packages with varying levels of performance. Each tier has its own Service Level Agreement with specific service level targets. The multi-level Service Level Agreement ensures that customers receive appropriate service levels based on their chosen service tier. 

Service-based service level agreement

Service-based Service Level Agreements are focused on specific services provided by the service provider. These agreements define the performance standards and quality levels expected for the services.

Service-based Service Level Agreements can cover a wide range of services, such as network connectivity, data storage, application hosting, or technical support. They are applicable to multiple customers who use the same service from the service provider. 

For example, Internet Service Providers often use Service-based Service Level Agreements to define standards of service when new customers sign up. They may guarantee 97% uninterrupted network connectivity to their customers. 

However, if a customer encounters network interruptions that lead to the agreed service level not being met, this would be a breach of the Service Level Agreement. The Internet Service Provider may then offer a potential remedy in the form of discounts or compensation. 

Internal service level agreement

Internal Service Level Agreements are designed to meet internal business needs and establish expectations and requirements for various stakeholders within an organisation. This may include internal staff, departments, and essential business functions.

Internal Service Level Agreements can be implemented across multiple departments within a company and serve different purposes. 

For instance, Internal Service Level Agreements are commonly used between a business and its IT team to outline the service levels and performance expectations related to IT services and support. These agreements ensure that the IT team understands the specific needs and priorities of the business and provides services accordingly. 

Moreover, Internal Service Level Agreements can be used by companies to measure the internal performance levels of their employees. By setting metrics and benchmarks, organisations can monitor and assess their performance against these targets.

This facilitates continuous improvement and optimises internal processes by monitoring employee productivity. 

Our experienced commercial contract lawyers will guide you if you’re struggling to decide which type of service level agreement applies to you. Simply make an enquiry below to get in touch with our team.

What can I do if my service level agreement has been breached? 

If your Service Level Agreement has been breached, there are several steps you can take to address the issue and seek appropriate resolution. Remember, each situation is unique, and the appropriate actions may vary depending on the specific circumstances, the severity of the breach, and the terms outlined in the agreement.

It is crucial to maintain clear communication with the service provider and document all interactions and responses throughout the resolution process. Here are some actions you may want to consider: 

Review the service level agreement

Carefully review the agreement to confirm that a breach has occurred. Pay close attention to the specific service levels and performance targets outlined in the agreement. 

Document the breach

Gather evidence to support your claim, such as records, logs, or documentation that clearly displays that the breach did in fact occur, and its impact on your business operations or service experience. 

Notify the service provider

Contact the service provider directly to report the breach. Provide them with a detailed explanation of the breach, along with supporting evidence. Request acknowledgment of the breach and an explanation of the steps they will take to address it. 

Invoke the service level agreement remedies

Refer to the remedies or compensation mechanisms available as outlined in the agreement. Depending on the terms of the agreement, this could include service credits, refunds, discounts, or other appropriate remedies. Clearly communicate your expectation for the application of the agreed-upon remedy. 

You should also be mindful of your rights under the Australian Consumer Law (“ACL”) pertaining to the provision of services, in particular those rights relating to consumer guarantees. When buying a service, you have a right to expect: 

1. due care and skill;  
2. fitness for a particular purpose; and 
3. that the services are provided within a reasonable time. 

Escalate the issue

If the service provider does not adequately address the breach or fails to provide a satisfactory resolution, consider escalating the issue within their organisation. Follow the escalation path outlined in the SLA, which may involve contacting higher-level management. 

Review dispute resolution processes

If the breach remains unresolved or the service provider is unresponsive, review the dispute resolution processes outlined in the SLA. This could involve engaging in mediation, arbitration, or legal actions, depending on the provisions specified in the agreement and the applicable laws in your jurisdiction.  

Further to any dispute resolution processes in the SLA, you may also be entitled to lodge complaints with other regulatory bodies such as the Australian Competiton and Consumer Commission.  

What are the benefits of using a service level agreement? 

Using Service Level Agreements offers several benefits for both service providers and customers. Here are some key advantages of using Service Legal Agreements: 

Clearly defined expectations

Service Level Agreements establish clear expectations regarding the level of service to be provided. This clarity helps manage customer expectations and enables the service provider to align their resources and efforts accordingly. 

Performance measurement and accountability

Service Level Agreements provide a framework for measuring and monitoring service performance. This measurement fosters accountability because it enables both parties to track and evaluate performance against agreed-upon standards. 

Service improvement and optimisation

Service Level Agreements can drive service improvement initiatives. By tracking performance against set targets, service providers can identify areas of weakness or inefficiency and take proactive measures to enhance service quality, responsiveness, and customer satisfaction.  

Conflict management

By outlining the processes for addressing breaches and seeking remedies, they help facilitate communication, escalation, and resolution of conflicts in a structured manner. 

Customer satisfaction and trust

Service Level Agreements contribute to customer satisfaction by establishing clear commitments and demonstrating the service provider’s dedication to meeting customer needs. When customers see that their expectations are being met, or even exceeded, as outlined in the Service Level Agreements, it strengthens the customer-provider relationship, and promotes long-term loyalty to the service provider. 

Risk mitigation

Service Level Agreements can help mitigate risks associated with service interruptions, quality deficiencies, or other service-related issues. By defining remedies, compensation mechanisms, and penalties in case of breaches, Service Level Agreements incentivise service providers to maintain high levels of service and address issues promptly.  

Transparent communication

Service Level Agreements foster transparent communication between the service provider and the customer. This transparency promotes open dialogue, facilitates problem-solving, and enables the parties to address any issues or concerns in a constructive manner. 

Key takeaways

Service Level Agreements in Australia play a vital role in ensuring quality service delivery and maintaining strong partnerships between service providers and customers. They establish clear expectations, roles and responsibilities between providers and customers. They are important because they ensure you are aware of your rights in commercial agreements.  

If you have further questions on Service Level Agreements, do not hesitate to contact us at Progressive Legal. We have a talented team of commercial contract lawyers that are willing to help you out. Feel free to make an enquiry below or simply give us a call on 1800 20 083. 

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