Service Level Agreement

From CEOpedia | Management online

Service Level Agreement (SLA) includes provisions relating to the obligations of the partners and the principles of action in emergencies and crisis. Comparing traditional and modern approach to outsourcing, it is worth noting that the perceptible trend is to restrict the ranges of specific provisions to guarantee quality of service (SLA). The remainder of the contract is an agreement, in which are included the general assumptions and objectives. In modern approach to outsourcing, this part of the documentation of the relationship between the cooperation partners is vague and informal [Westernising..., the Journal of Management Development, 2000, p. 4-6]. Service Level Agreement often takes form of outsourcing agreement.

Part of the contract with the provider of outsourcing services for the quality assurance of services provided should include in particular the arrangements for:

  • the characteristics of the outsourced tasks
  • terms of achieving the objectives,
  • the responsibilities of the service provider for failure to comply with the arrangements as to the quality and performance of the services,
  • indicators used in conformity assessment of quality of service with the accepted provisions
  • tolerances of indicator values,
  • terms of complaint,
  • forms of compensation for non-performance or improper performance of the outsourced tasks.

In the case when the parties decide on the conclusion of the contract, arrangements for quality assurance services (SLA) should be developed in the form of a separate document annexed to the agreement.

See also:

Examples of Service Level Agreement

  • Service Level Agreement (SLA) is a contract between a service provider and a customer that defines the services that the service provider will perform and specifies the customer's expectations of the service. It is used in IT services and cloud computing, as well as in business processes. For example, an IT service provider may have an SLA with a customer that outlines the services that will be provided and the customer’s expectations for the quality of those services.
  • SLA can also be used to define the expectations of a customer with regards to the service they will receive from a business process or project. For example, a customer may expect that a project will be completed within a certain timeframe or that a certain level of customer service will be provided.
  • SLAs can also be used to define the service levels that must be met in order to receive a certain level of financial compensation. For example, a service provider may be required to meet certain service levels in order to receive a certain amount of payment from the customer.
  • SLAs can also be used to define the obligations of both parties in the event of a service disruption or failure. For example, an SLA may require the service provider to provide a certain level of support in the event of a service disruption or failure.
  • Finally, SLAs can also be used to define the terms of a customer’s agreement with a service provider. For example, a customer may agree to pay a certain amount of money for a certain level of service or they may agree to certain terms and conditions associated with the service they are receiving.

Advantages of Service Level Agreement

Service Level Agreement (SLA) is a contract between two parties, usually between the service provider and the customer, outlining the service standards that the service provider is expected to meet. SLA is an important document for any business relationship and can help ensure that both parties understand their responsibilities and obligations. The main advantages of having an SLA are:

  • It provides a clear understanding of the services that will be provided and the expectations of both parties. This helps prevent any disputes or misunderstandings in the future.
  • It also sets out the terms and conditions of the agreement, including the service provider’s liability in the event of a breach, as well as any remedies for breach of the agreement.
  • SLAs also help ensure that the service provider is held accountable for delivering services as promised, and that the customer is aware of their rights and obligations.
  • It also helps to ensure that both parties are aware of any changes or updates to the agreement, reducing the risk of disputes or misunderstandings.
  • By having an SLA in place, both parties can benefit from the improved performance and quality of services provided.
  • Finally, an SLA can help to build trust between the parties and can provide a basis for a successful long-term business relationship.

Limitations of Service Level Agreement

Service Level Agreements (SLA) have certain limitations that should be considered when negotiating and drafting the agreement. These limitations include:

  • Complexity: SLAs can be complex and difficult to understand, which can make it difficult to effectively measure and enforce the agreement.
  • Cost: Many companies are not willing to pay the costs associated with drafting and implementing an SLA.
  • Contractual Obligations: If a company fails to meet its obligations under the SLA, it may be held liable for damages.
  • Flexibility: SLAs often lack the flexibility to respond to changing market conditions.
  • Timeliness: SLAs are often difficult to enforce in a timely manner, as any disputes must be resolved through the courts.
  • Breach: SLAs can be difficult to enforce if one of the parties breaches the agreement.
  • Currency: SLAs are often written in a currency that may not be readily available or accepted in the country where the agreement is being enforced.

Other approaches related to Service Level Agreement

One other approaches related to Service Level Agreement (SLA) is to include the following elements in the agreement:

  • Governance Agreement - which defines the roles of all parties involved, as well as the escalation process in case of any disputes;
  • Milestone Agreement - which outlines the different milestones that need to be achieved throughout the project;
  • Business Citation - which outlines the roles and responsibilities of the partners in the delivery of services and the consequences of breach of contract;
  • Performance Metrics - which defines the expected performance measurements and thresholds;
  • Change Management - which outlines the processes and procedures for changes to the agreement.

In summary, Service Level Agreement is a document that defines the responsibilities, expectations and performance metrics of both parties involved in an outsourcing agreement. It is essential to include all the necessary elements in an SLA to ensure that both parties are held accountable and that the relationship is mutually beneficial.

Service Level Agreementrecommended articles
Binding contractBest endeavorsConstruction management contractOutsourcing agreementExecuted agreementOutsourcing - agreement dissolvementContractual relationshipMutual agreementTri party agreement


  • Westernising the keiretsu model: the outsourcing paradigm shift, (anonymous), Journal of Management Development, vol. 19, No. 8, 2000
  • Patel, P., Ranabahu, A. H., & Sheth, A. P. (2009). Service level agreement in cloud computing.