Guide

Outsourcing

Service level agreements

A service level agreement (SLA) sets out what services the supplier is expected to provide and to what standards. The SLA typically forms part of the more detailed supply of services contract between you and your outsourcing partner.

What should an SLA include?

Typical SLAs include:

  • a description of the services provided
  • the agreed standards of service
  • the agreed delivery timetable
  • responsibilities of supplier and customer
  • provisions for legal and regulatory compliance
  • mechanisms for monitoring and reporting of services
  • agreed payment terms
  • how disputes will be resolved
  • confidentiality and non-disclosure provisions
  • termination conditions

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

SLA compensation clauses

If service providers fail to meet agreed levels of service, SLAs usually provide for compensation, commonly in the form of rebates on monthly service charges.

Identify the most critical parts of the deal and have strict penalties for not meeting these. Build frequent performance reviews into the SLA. Try to build a flexible SLA, so that you can adapt it as your business needs change or new technologies evolve.

Find the best practices to help you manage your suppliers.

When entering an outsourcing contract you should ensure that you're interpreting the contract in the same way as the outsourcing company. This is a long-term partnership and misunderstandings could cause difficulties.

Outsourcing exit

All outsourcing contracts should contain an exit clause. You should ideally agree your exit strategy during the formation of the outsourcing contract. A clearly defined exit strategy should help you to avoid difficulties if the relationship with your provider turns sour.

Download an outsourcing exit management and transition checklist (PDF, 135K).

SLAs are complex documents. It may be worthwhile getting advice from a service management consultant or a commercial lawyer. See how to choose and work with a solicitor.