A legamart lawyer asking a client to sign a Service Level Agreement

Service Level Agreement: A Commercial Arrangement


Ever thought about how a service provider ensures the customer of his service? How is a trust established for customer service between a service provider and the customer in the public sector? How they decide the scope of service, the service delivery, the service management, the service level, the service performance, the service quality, the consideration between them, and expectations of each other. Are such questions pre-decided per the best practice? Well, you will know now, stay with us for a short period and know about the service level agreements. 

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What is a service level agreement?

A service Level Agreement, popularly known as SLA, is a written agreement between an Internal/External service provider and a customer. The agreement sets down the performance standards, including but not limited to service quality, service availability, service performance, service delivery, and the requirement of the service provider from the customer. For instance, an internet service provider establishes SLAs to provide the services. As per google analytics, it has become common for an internet service provider to state their SLA on the website for the public sector.

Service providers lay down the SLA metrics to measure service quality. 

SLA metrics depend on the services. Parties sometimes include the highest network and power uptime percentage and calculate the monthly uptime percentage. These monthly uptime percentages help them in setting their service level in a better manner. SLA may specifically include the metric measuring the time to respond to customers’ queries. Generally, service providers operate a service desk for such a purpose, and it is measured how much percentage of calls the service desk covers without a call back from the customers.

These agreements are a commercial understanding between the parties and are commercially reasonable efforts of the service provider. The service provider provides for the scope of his service level in exchange for consideration. It outlines the deliverables, timelines, payments, compensation, and service quality.

You must be aware that the parties to an agreement have a mutual obligation to each other. The agreement lists the rights and obligations of the parties formatted in an organized manner as per the best practice. Both parties are under an obligation for SLA compliance. 

Why are service level agreements important?

As the name suggests, service level agreements are crucial for service providers to specify the level of customer service and professional services. In addition, it helps parties in various ways, such as:

  • Leaves no space for misconceptions/ambiguities,
  • Establish an effective connection between the service provider and the customer,
  • Service providers can decide on the scheduled maintenance services.
  • Establish a mutual obligation between the parties for SLA compliance, such as what services are provided, timelines, considerations, guarantees, warranties, and compensation, if any. 
  • It resolves disputes faster as the resolution and response times are already decided.
  • More clear and precise communication between the parties makes it a smooth path.
  • Service providers can monitor their performance and take immediate corrective action in case of any requirement. 

Types of service-level agreements

There are 3 types of service level agreements widely used by businesses, per industry standards and specific situations. These are as follows:

Customer-based SLA

Have you ever thought about your connection with the telecom industry? You have an agreement with the telecom industry, where you get data, voice calls, SMS, and various other services. This agreement is between you and your service provider, named a customer-based SLA. Such an agreement defines the working relationship between the service provider and the client. 

Service-based SLA

Surely at least once you might have visited your bank and withdrawn cash from an ATM. What type of agreement is that between you and your bank? No doubt, there is a relationship between a service provider and the customer between you and your bank. This is an instance of service-based SLA, as the agreement covers identical service for all the clients or customers. This makes the service providers convenient as no separate agreements are required for different customers. 

Multi-level SLA

Consider a company providing multiple services. They can’t stick to one agreement for all their services. There will be different customers availing of different services. As the name suggests, a company has multiple services, and different terms and conditions of services are set for different potential customers. The agreement covers the scope of services for a specific association of customers. 

What Is Included in a Service-Level Agreement?

Now that you have understood a service-level agreement, its importance, and its types. The major tussle lies in drafting such an agreement. The agreement requires legal terminologies and must be laid down in unambiguous terms. A person not well-versed in legal terms may find it hard to draft such an agreement. Are you looking for an experienced attorney to draft the service-level agreement? 

We at Legamart, are a team of experienced legal professionals and attorneys from different jurisdictions who work day and night to satisfy clients most desirably. You can check our Legamart directory, where you will find our list of highly-rated global lawyers, connect to them and get your work done. There is no legal requirement to consult a lawyer to draft a service-level agreement. But you will need one if you are unaware of the terms of this agreement. 

Now, let’s look at the core terminologies and see what is included in a service-level agreement.

Sr. no.ClauseDescription
1Summary of servicesDescribe the agreement by providing a summary of the nature and level of services, metrics for service management, deliverables, and timelines including scheduled maintenance services, if available. Clearly set out the names of parties.
2. ExpectationsClearly describe the expectation of both parties. If it is a customer-based SLA, then both parties need to decide the terms of expectations with a mutual understanding.
3.PaymentSpecify clearly the amount of consideration that the customer is required to pay, and the duration of payments, including penalties for late payments.
4.TermThe term needs to be included providing the agreement’s start and end date.
5.Point-of-contactAdditionally, you may include a point of contact providing the name of the person who will ensure that both parties meet the expectations of each other, as set out in the agreement. 
6. Breach and its consequencesYou can determine the penalty in case either of the two is not able to meet the goals. A deterrent penalty is imposed in service downtime situations. Provide for speedy dispute resolution, thus saving resolution time and response time.
7.AmendmentSpecify, whether parties can change the scope of their work and the procedure of such amendment.
8.TerminationDescribe the circumstances where a contract will stand terminated. Specify if termination can be by the will of any party, and how many days’ notice the party must give before the termination.

Service-level agreement vs key performance indicator

According to Oxford Dictionary, Key Performance Indicator, popularly known as KPI, is a quantifiable measure used to evaluate the success of an organization, employee, etc., in meeting objectives. It assists in building a strategy for the business by planned maintenance and keeping a track record of achieving the business goals. A company can keep a check on its growth and make necessary adjustments if the need arises. 

For instance, A owns a mobile shop and has decided to sell at least 50 mobiles in March. That means A has set his KPIs as selling 50 mobiles this month. Now, A can monitor his sales and evaluate whether he can sell 50 mobiles monthly. For example, if he sells 12-15 mobiles in 1st week, consider he is on track per his KPI. 

Let’s understand the difference between the Service-Level Agreement and Key Performance Indicator.

BasisService-Level AgreementKey Performance Indicator 
AgreementIt is a bilateral/multilateral agreement between parties.It is not an agreement at all but is an indicator prepared by a unilateral act.
Rights and ObligationsIt creates rights and obligations between the parties as it’s an agreement.It does not create any right/obligation as it is not an agreement.
Remedies and PenaltiesParties can set out the remedies and penalties in case either of them does not comply with the terms of the agreement. There is no question of remedies and penalties as it is not an agreement setting out remedies and penalties.
Information CoveredIt covers the expectation of both parties in the form of a written agreement.It covers the desired organizational goals to keep track of its growth.
Primary FocusIt focuses on future results and performance so describes ‘what the final outcome will be’.The primary focus is on past performance so describes ‘what has been done’.
Performance ImprovementIn case of an unsatisfactory position, the service provider adopts external appropriate actions. In case of poor performance, the organization needs to take internal appropriate action.


Service level agreement is strongly recommended for businesses providing services to their customers. It is widely accepted as a tool to remove ambiguities and bring more and more clarity. When parties are formally aware of their mutual obligations and expectations from each other, it brings more transparency and builds trust between them. Not limited to that, parties even have a choice to make it a legally enforceable agreement.

To read more information as such, check our legal blogs here.

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