How to Draft and Negotiate Service Level Agreements

One of the most common, but least understood, contracts that we as contracts professionals are called upon to review, negotiate, and occasionally draft, are Service Level Agreements (SLAs).

Service Level Agreements serve a few different purposes. They’re commonly used to set expectations, make clear the consequences of not meeting expectations, attract customers, provide accountability for both parties in an agreement, and define industry standards for the type of service being provided.

This article provides an overview of five key elements to look out for when drafting SLAs and our top two tips when negotiating SLAs.

Drafting Service Level Agreements: 5 Key Elements

SLAs typically include five distinct pieces: service, expectation, failure, response, and remedy. When drafting an SLA, it’s important to meet with others in your business to clearly define these five elements, since you likely aren’t responsible for delivering on every aspect of the SLA. Legal teams can gain value from leveraging CLMs like Pramata to help keep track of the various responsible parties involved in the contract review process.

Service

When it comes to establishing an SLA, the first step is talking to your business to determine the services they would like to have subject to one. If your business is unsure what services they should subject to an SLA, you can help by researching what service levels leaders in your industry provide and why.

If your business does not provide SLAs but is using a vendor to support its operations, then you should expect the vendor to provide one. If the vendor doesn’t automatically provide an SLA, you should request one.

Expectation

Once your business has agreed upon which service(s) are subject to the SLA, you need to discuss the expectations they want to set around how those services will be provided. Expectation levels should be set for customer service, availability, uptime, latency, and packet loss to name a few. It’s important to set levels for each of these services

Failure

After the service and expectation levels are decided upon, the next step is defining what a failure to meet the service level looks like. For example, a failure may mean uptime availability falls below the specified level or turnaround time exceeds the promised amount.

When determining failures, you need to consider the criticality of the service and whether it makes sense or not to treat failures of different service levels the same. If not, you’ll need to distinguish between failures of differing significance and create different escalation paths for each

Response

Now that the services, levels, and failures are defined, you need to determine what the response to failure will be. All SLAs must include an escalation path when a service level failure occurs. This can be a phone number, email address, or in some cases direction to a ticketing system. The SLA should also include the frequency of which the customer can expect status updates up until resolution.

Although your business will be the ultimate decider when it comes to the appropriate response to a failure, it is your job as in-house counsel to ensure that failures are defined acceptably from a legal standpoint. When drafting an SLA, ask the business if they want to include recommendations for less critical errors in the communication framework such as an FAQ page or troubleshooting site.

Remedy

The last element of an SLA is the remedy or resolution. This should include the time in which the business can commit to responding to the failure as well as the time they can commit to resolving it. The legal team should be sure to include specific language on how response time will be measured so the customer can set expectations properly. Businesses may also want to consider including a right of termination for persistent failures.

For a deeper look at drafting and negotiation tips for SLAs, check out my recent webinar covering more tips for in-house counsel to navigate service level agreements.

Negotiating Service Level Agreements: Top 2 Tips

Assuming you’re in a position to negotiate, here are my top tips on how to do so in a way that will most benefit your organization and make you stand out as a Contract MVP:

1. Ask for a higher commitment level, primarily on uptime in a SaaS agreement.

The first area of SLAs that can (and should) be negotiated are service level commitments. If a vendor has committed to an uptime of 99.0 percent, you can ask for an increase to 99.9 percent. If they don’t agree, consider settling on 99.5 percent instead. The same goes for turnaround times. If the promise is that 85 percent of emails are answered within a minute, ask if that number can be increased to 90 percent.

If the percentage itself is not negotiable, then look to the scoping language, such as the definition of uptime availability and the exclusions to uptime availability (i.e., planned maintenance, emergency maintenance, internet outages).

2.  Ask for a higher credit amount in the event of service failure.

When it comes to credits, negotiating is pretty much a must! You should always request higher credit amounts or ask that they be automatic. On the flipside, if you’re asked to agree to a higher credit amount, you can counter by measuring uptime on a quarterly basis rather than monthly.

When it comes to negotiating SLAs, just be sure that any changes you are asking are within reason for the product, service, and industry. Otherwise, you’re sure to be met with a no.

For a deeper look at drafting and negotiation tips for SLAs, check out my recent webinar covering more tips on how to negotiate Service Level Agreements.