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A supplier discussing a service level agreement with a customer across a desk in an office environment

What is an SLA or Service-Level Agreement?

A Service-Level Agreement (SLA) is a commitment between two business parties, usually a customer and a supplier, that defines their working relationship and the level of service required, with targets and metrics for measuring and monitoring performance.

What is an SLA?

SLA is another of those terms you’ll hear a lot in business, but what does it actually mean? Why might your organisation need one? And what do they include? SLA stands for Service-Level Agreement. These contracts appear regularly in the business world, and they are especially common in the IT sector where technology-based companies regularly use each other’s services. This could include Internet providers, Cloud computing, business transformation specialists, or managed print services. SLAs are effectively used to regulate the service being provided between an organisation and an external supplier, but they can also exist between different departments within a single, large organisation.

SLAs are vital if your business regularly outsources work to third-party suppliers (or to different areas of its own organisation) as they safeguard the interests of both sides by defining the expected level of service and the metrics for monitoring performance, from the outset. This can include penalties if the work fails to meet the agreed targets, or if the contract is breached. While most suppliers and organisations will have standard SLAs, the exact terms are usually negotiated between the customer and service provider before being reviewed by legal teams and signed off.

An SLA ensures that both parties have the same understanding of their working relationship, the level of service required, and other factors such as budget, deadlines, and business objectives, before work commences.

What’s included in an SLA?

An SLA should include all necessary information about the service being provided between an organisation and a supplier. As well as a detailed description of the work and what is expected, other components of a standard SLA will outline how the service supports the organisation’s objectives, the metrics used to measure success, and any remedies or penalties in place, for both sides, if something goes wrong.

The contents of an SLA are often divided into two areas, service and management. Service covers the work to be undertaken, such as what is included and what is excluded in the work, timescales, costs, the responsibilities of each side to the other, conditions of service availability, and any other information relating to the service itself. Management refers to the metrics used to monitor the work, including agreed standards and methods of measurement, reporting processes and communication frequency, systems for updating and amending the agreement where necessary, a framework for resolving disputes, and an indemnification clause.

It’s important that any SLA is regularly kept up to date. Creating an SLA is not a ‘box ticking’ exercise, but a ‘living document’ that reflects current working practices and relationships right up to the present day. If an organisation’s requirements and a supplier’s capabilities change, this should be immediately reflected in the SLA. This is the best way to protect both sides.

What metrics are monitored in an SLA?

Metrics are used to monitor the level of service, objectively measure performance against agreed standards, and ensure full accountability. The type of metrics included in an SLA will depend on the nature of the service, industry, and other factors. Typically, the type of metrics may include measures around quality, security, service availability, error rates, and business results. The latter should always be linked to the organisation’s Key Performance Indicators (KPIs), providing the service supplier’s contribution can be accurately measured and attributed.

It is recommended that metrics are kept as simple as possible to avoid confusion on either side and that automated systems are used to gather and assess SLA performance data where possible. Experts agree that less is more and simplicity is key when it comes to good, clear SLA metrics.  While SLAs differ on a case-by-case basis, there is a fundamental approach to communication and transparency that underpins all Brother partnerships, including regular review meetings and feedback mechanisms to ensure that both, or multiple, parties are satisfied with service levels.

What is an indemnification clause?

As we mentioned above, an indemnification clause is a feature of the management section of an SLA. This provision requires the supplier or service provider to indemnify the organisation against any legal costs resulting from a breach of its warranties. This essentially means the supplier accepts they are fully responsible for paying any legal costs if such an eventuality was to arise.

An indemnification clause may not always be present in a basic SLA so if this is a provision your organisation requires, you will need to speak to your legal team to have it added. This must be agreed by both parties when the SLA is signed and is one of the features that may be a point of negotiation between the customer company and the service provider.

Service Level Agreements can be found across a wide range of businesses and industries. They are frequently seen in large organisations and technology-based businesses who work with third-party providers and help protect both parties in a working relationship by promoting transparency and accountability, and incentivising good performance. They are also vital if you want to work with leading third-party suppliers to utilise expertise and technology, transform your organisation, and receive tailored business solutions in key areas.

This is increasingly important in today’s fast-moving world, where industry leading products, such as Brother’s innovative print, scan and labelling technology, can provide businesses with a competitive edge. Alongside this, Brother technology solutions, software solutions, and more, help your organisation achieve greater efficiency, productivity and mobility, to help keep up with the pace of change. SLAs are an essential element in successful customer and service provider relationships.

 

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