Service level agreements (SLAs) are a vital tool in commercial contracts, particularly when outsourcing plays a central role in your operations. Whether you're contracting for IT support, logistics, customer service, or other critical functions, getting the SLA right can make all the difference.
A well-drafted SLA gives you clarity, accountability and legal protection, allowing your business to manage supplier performance with confidence.
Our commercial law solicitors can help you shape SLAs that are not just fit for purpose but aligned with your commercial goals, particularly in complex or business-critical arrangements.
Contents:
What is a service level agreement?
An SLA is a contractual mechanism used to ensure that the supplier performs services to the required standard.
For customers, a carefully drafted SLA will:
- Help you get the most out of the services you have outsourced, by measuring the supplier's performance against specific targets, and
- Incentivise the supplier to meet your service standards.
For service providers, the SLA is a valuable tool in helping you to:
- Understand exactly what your customer expects of you, and
- Accurately scope the work to ensure that it is adequately resourced.
An SLA sets out:
- The exact scope of the services
- The parties’ priorities in relation to those services
- Who is responsible for what
- How performance will be measured and reported, and
- What are the consequences of poor or late performance?
It usually forms part of your main outsourcing agreement and is often presented as a schedule to that contract. An SLA can run to hundreds of pages, depending on the scale and complexity of the services, and outlines the operational details of what is to be done, by whom, and by when.
What are the main types of SLA?
There are three main types of SLA:
- A customer-based SLA covers all the services the customer uses. It sets out specific details of those services, and deals with issues such as service availability, a responsibilities framework, and procedures for escalating any problems. For example, a financial services company outsources its customer services, complaints and claims handling operations to a third party. All of these service strands could be covered in a single, bespoke customer-based SLA.
- A service-based SLA is used where a supplier offers an identical service to multiple customers. For example, a business provides a customer enquiries phone line service to a broad range of customers. It would give each of those clients its standard service-based SLA.
- A multi-level SLA is used by service providers that offer services to multiple clients at different price points or service levels. For example, an IT company provides a virtual help desk service with premium, standard and basic options. Each is priced differently and includes different levels of service. These could be catered for in a multi-level SLA.
Our commercial law solicitors are here to help you identify which type of SLA best suits your outsourcing arrangements.
When might you need an SLA?
SLAs are not necessary for every services contract.
You won’t need one if the services are:
- Straightforward
- Low-risk or low-value, or
- Only provided for a short period.
You will need one if the outsourcing is:
- Key to your business (for example, a time-critical delivery service for a components manufacturer)
- High-risk (such as a regulated complaints service for a bank)
- Business critical (for example, to meet statutory requirements or legal deadlines), or
- Complex.
Tips for what to include in an SLA
Key elements you will need to set out in your SLA include:
- Scope of the services – exactly what you expect to receive, and by when.
- Key performance indicators (KPIs) – how will performance be measured? For example, for customer service outsourcing, this could be the number of telephone calls to be answered within a specific timeframe.
- Reporting – how is performance to be reported to the customer? For example, do they require monthly reports against all KPIs, or only a few critical ones?
- Escalation routes – who does the customer contact about any performance issues, and how will this be dealt with?
- Remedies – what happens if the supplier falls short? For example, will it trigger a system of service credits or refunds against the monthly contract price? Will the supplier be obliged to provide additional resources to prevent the shortfall from happening again? Can the customer claim damages? Without real contractual consequences for the supplier, the SLA will be of little practical benefit in the event of a problem arising.
SLA pitfalls to avoid
Here are some common SLA pitfalls to avoid:
- Are there too many service levels? This can dilute their impact. Focus on the services that are most important and offer the most value to the customer. Too many administrative and reporting requirements will divert focus away from delivering the actual services.
- Are your service levels specific and measurable? Vague service levels, which neither party is clear about, are the downfall of many an SLA. Be focused and clear on what each service level is trying to achieve, and ensure that the SLA accurately reflects this.
- Is it legally binding? Each service level should be a contractual obligation capable of objective and reliable measurement, rather than a vague target or aspiration. If your service levels aren’t legally enforceable, they won’t protect the customer and won’t incentivise the supplier to perform well.
- Are you measuring the right things? The aim is to drive the correct behaviour from the supplier and maximise contract performance. For example, in an agreement for complaints handling outsourcing, service levels should measure not only the speed of responses, but also their accuracy, completeness and compliance with any applicable rules and regulations.
- Does your SLA dovetail with the rest of your services contract? Ensure the SLA aligns with key terms in the main contract, including termination rights, variation provisions, and limitations of liability. If your commercial and operational teams lead the set-up of the SLA, ensure that your legal team reviews it and checks how the SLA interacts with the rest of the contract.
- Are your current SLAs up to date? Your SLAs need to be flexible and evolve in tandem with your services. Consider including provisions in the SLA regarding how performance standards will improve and develop, and include a contract mechanism that allows for appropriate changes to be made.
- Our expert commercial lawyers can help you avoid these pitfalls and ensure that your SLA reflects your business priorities.
Why getting your SLA right matters
An effective service level agreement isn’t just a formality; it’s a practical framework for accountability and performance. When services are business-critical or high-risk, a clear and enforceable SLA gives you a reliable way to monitor delivery, address underperformance and align expectations on both sides. It can also act as a safeguard against operational disruption and reputational damage.
If you're negotiating a new contract or want to strengthen an existing one, our experienced commercial law solicitors can help ensure your SLA is commercially robust, tailored to your services and structured to protect your business from day one.
