A service-level agreement (SLA) is a contract between two parties that defines the deliverables, obligations, and expectations of each party. SLAs are essential in SaaS buying.

Understanding how to write a solid service-level agreement will help a business establish accountability with service providers and set realistic expectations with stakeholders while also enhancing risk mitigation. 

This post covers the details of how to write a service-level agreement and provides an SLA template for businesses to use.

What is a service-level agreement?

An SLA serves several critical purposes. It is a contractual document that acts as an ongoing reference point for service and reliability expectations, like uptime guarantees, response times for issues, and resolutions for downtime. It covers important details like length of contract, price, renewability, and scope. An SLA also outlines customer responsibilities to ensure the service is used within the standards set by the service provider.

Related: Service-level agreement (SLA) basics to improve your SaaS buying process

The 3 types of SLAs

Depending on the business, there are different types of service-level agreements that may come into play. 

Customer service-level agreement

A customer service-level agreement is needed when there is an agreement with a supplier to provide service to a customer. For example, a SaaS supplier will need to create a customer SLA and SaaS license agreement if it is going to provide SaaS access to a customer. 

Internal service-level agreement

Some businesses create internal service-level agreements to ensure alignment between in-house stakeholders, like IT, sales, and marketing. It is common for businesses that have customer service-level agreements to also have corresponding internal service-level agreements. 

If the business has entered into a customer service-level agreement to provide its SaaS solution to a customer, it may also do an internal service-level agreement with IT for help desk or support services for that customer SLA. 

Multilevel service-level agreement 

A multilevel service-level agreement is used when there is more than one service level that needs to be addressed. The multilevel SLA may combine the customer SLA and internal SLA, depending on the situation. This type of agreement helps businesses avoid overlapping or incongruent SLAs. 

What to include in a service-level agreement

Before moving into the details of a service-level agreement template and how to create one, it’s just as important to be able to quickly identify if an SLA contains all of the elements it needs.

Who is involved with creating an SLA

Regardless of the type of SLA, it should begin by addressing the parties to whom the agreement pertains. It may also reference a master service agreement (MSA) if there is one already in place. 

What terms in the SLA mean

Terms can have different meanings to different people, depending on their experience and their industry. Defining terms at the beginning of the agreement is essential to ensuring the parties entering into the agreement are aligned. Once defined, the terms should be used consistently throughout the agreement, avoiding synonyms or industry slang. 

What services are being supplied

Identifying the exact services being supplied under the service-level agreement eliminates any ambiguity about what the supplier is providing for the stated cost or discrepancies between customer expectations, service provided, and quality of service. This may also be called a scope of work.

What the costs are

An SLA should include all costs associated with the services being provided under the agreement. There should never be surprise costs that pertain to the scope of work. Itemized pricing for all aspects of service must be listed, including responsibility for any applicable taxes or other fees. It should also state that any services added that are beyond the scope of work in the SLA will be quoted separately.

What the responsibilities are of each party

Regardless of which party created the SLA, it must include a section of the detailed responsibilities (also called warranties or representations) of each party involved in the agreement. If any party in the agreement does not uphold its responsibilities, it is considered a breach. 

For SaaS agreements, this section may include items such as the terms of delivering the services, guaranteed uptime, outage management, support guarantees, performance levels, data security, compliance, use of subcontracts, proprietary rights, rules around assigning the agreement to a third party, and governing law. 

How the ongoing management of this agreement will be handled

An SLA should include an explanation of how the agreement will be managed on an ongoing basis. It will address items like renewals and whether they will be automatic or issued a stated number of days before the end of the agreement period. The agreement should detail terms surrounding cancellation. 

For example, perhaps the SLA must be canceled 60 days before the end of the term. A termination clause addresses what happens if either party breaches the contract. The SLA will also address how all parties should handle price increases. 

How the parties will handle legal matters

An SLA includes a section, often called indemnification or hold harmless, that describes an agreement of limitation of liability and indemnification for either party. For example, if a supplier’s SaaS solution hosts confidential customer data and that data is breached resulting in a third-party lawsuit, this section addresses liability, time limits, maximum compensation, and so on.

Any other agreements or addendums

If the SLA references any other agreements or addendums, the SLA should include them as exhibits at the end of the agreement. This could include a master services agreement, additional related SLAs, or changes that have been made to the SLA. For example, a customer might want to include their own SaaS rider that includes some internal SaaS governance as an addendum to the SLA. 

TEMPLATE: Service-level agreement to use when writing software contracts

The following easy-to-use SLA agreement template is intended to assist businesses to create their own. Here are the elements of an SLA and what should be included in each. 

Introduction

  • The parties represented by the agreement
  • The name of the service being provided
  • The expected service dates (timeframe to and from)
  • The effective date of the SLA
  • Acknowledgment of all parties

Objectives or purpose

  • Goals of the agreement
    • Company goals
    • Marketing goals
    • Sales goals
    • IT goals

Overview, or scope of work

  • An issue/resolution statement, or what the solution is to provide or resolve
  • A description of the scope of work to be performed under the agreement

Service commitment

  • Requirements of the service provided under the agreement
  • Level of service to be provided
  • Service assumptions
  • Service performance roles and responsibilities of the supplier
    • Performance standards
    • Service availability
    • Guaranteed uptime
    • Downtime resolution
    • Data security
    • KPIs and other performance metrics
  • Exceptions and exclusions
  • Service credits

Customer responsibilities

  • Anything the customer must provide to make appropriate usage of the solution (e.g., end user workflow data) 
  • The process by which a customer notifies a supplier of changing needs
  • Payment term responsibilities
  • Supplier’s SaaS usage requirements 
  • Exceptions and exclusions

Terms of termination or cancellation

  • Termination due to a breach of contract
  • Cancellation before the end of a term 
  • Cancellation at the end of a term 

Contract management

  • Renewal processes
  • Changes to pricing
  • Escalation procedures
  • Other changes to the SLA

Indemnification

  • Limitations of liability
  • Governing law

Acceptance 

  • Company name
  • Party signature
  • Acceptance date

How Vendr can help you navigate the ins-and-outs of software and service contracts

Outsourcing SaaS management to Vendr, a third-party SaaS vendor management supplier, is one of the most effective ways to reduce the knowledge needed and time spent on service-level agreements. While businesses are still included and invested in SLAs, Vendr’s platform uses extensive SaaS industry knowledge to navigate and manage them so procurement and senior leadership time can be spent on more strategic initiatives.

Next post Back to all posts