Service level agreement

Definition

A Service Level Agreement, often referred to as an SLA, is a formal contract between a service provider and a client that defines the expected level of service. It sets measurable performance standards such as uptime, response times, support availability, and resolution targets. SLAs are common in IT, telecommunications, cloud services, and managed service arrangements.

For example, a cloud hosting provider may commit to 99.9 percent uptime in its SLA, with penalties or service credits if this standard is not met.

Advanced

SLAs are legally binding documents that align business expectations with technical capabilities. They often include detailed definitions of service scope, performance metrics, monitoring methods, and remedies for non-compliance. Effective SLAs require negotiation to balance provider limitations with client needs.

Advanced practices include multi-tier SLAs that specify different service levels for critical systems, inclusion of security and data protection clauses, and alignment with regulatory requirements. In complex supply chains, cascading SLAs ensure that subcontractors also meet the agreed standards. Monitoring tools, reporting dashboards, and automated alerts are often integrated to measure compliance in real time.

Why it matters

• Provides clarity and accountability between providers and clients.
• Protects both parties with agreed performance standards.
• Reduces disputes by defining remedies for service failures.
• Builds trust and reliability in long-term service relationships.

Use cases

• Defining uptime and performance for cloud hosting services.
• Setting response times for IT helpdesk support contracts.
• Establishing data recovery times in disaster recovery services.
• Agreeing service commitments in managed telecom contracts.

Metrics

• Uptime percentage over defined periods.
• Average response and resolution times.
• Number of SLA breaches recorded and remedied.
• Customer satisfaction linked to SLA compliance.

Issues

• Poorly defined metrics leading to disputes.
• Unrealistic commitments that cannot be met consistently.
• Lack of monitoring and reporting reducing accountability.
• Gaps in coverage where certain services are excluded.

Example

A managed IT services company signs an SLA with a client guaranteeing response within one hour for critical incidents. The company uses monitoring software to track compliance. By consistently meeting the agreed targets, the provider strengthens client confidence and secures contract renewals.