Outsourcing

A service level agreement (SLA) sets out the services a supplier will to provide and the standards they must meet. It usually forms part of wider outsourcing contract.

What to include in an SLA

A clear SLA should define:

• the services provided
• standards of service and quality levels
• delivery times and deadlines
• roles and responsibilities of both parties
• legal and regulatory requirements
• how performance will be monitored and reported
• payment terms
• how disputes will be resolved
• confidentiality and data protection provisions
• conditions for ending the agreement

Read about supplier service level agreements or see an example of key terms in an ISP service level agreement.

Performance measures and reviews

Service level agreements should include clear performance targets and regular reviews. This helps ensure the service meets expectations and identifies issues early.

SLA compensation clauses

If the supplier fails to meet agreed standards, the service level agreement should include compensation. This gives you something concrete in return for poor performance and helps make the agreement fairer for both sides.

Compensation is often in the form of service credits or fee reductions. Service credits are set amounts that reduce your bill when the supplier fails to meet a target, such as uptime, response times or resolution times. Fee reductions work in a similar way. Instead of paying the full contract price, you receive a discount or rebate because the service delivered was below the standard promised.

A useful SLA should spell out:

• which failures trigger compensation
• how the credit or reduction is calculated
• if there is a cap on the total amount
• if you can still claim other remedies, such as termination or damages

Build flexibility into your SLA so it can adapt to changing business needs or new technologies, and helps you maintain value over time.

Be clear on terms and expectations 

Make sure both you and your supplier understand the contract in the same way. Clear communication reduces the risk of disputes in long-term partnerships. Find best practices to help you manage your suppliers.

Plan your exit strategy

All outsourcing contracts should include an exit plan. Agree with your provider how the relationship will end and how services will transition, if needed. A clear exit strategy will help you avoid disruption if the partnership does not work out.

SLAs are complex documents. If in doubt, seek advice from a service management consultant or a commercial lawyer.