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Aug 2014

Service level agreements - could these benefit your business?

Does your business rely on the ongoing provision of a service by a supplier?  Or does your business provide ongoing services, outsourced or otherwise, to your customers?  If so, a service level agreement could benefit your business.

A service level agreement is a contract with a supplier which formally defines and agrees the level of service that they will provide.  It should reduce the risk of conflict which in turn can cost your business money and damage your business relationships.

The service level agreement records a common understanding of services, priorities, responsibilities, warranties and guarantees. It aims to state measurable standards of service so that both parties settle, in advance, their expectations and responsibilities for a particular service.  If used correctly, the agreement should identify and define the customer’s needs, provide a framework of understanding and remove unrealistic expectations.

A typical service level agreement would set out in detail:

  • the exact nature and extent of the service provided
  • the standards of service expected by both parties
  • the timetable for delivery
  • the terms of payment
  • the specific responsibilities of the supplier and the customer in delivering the service
  • the arrangements for measuring, monitoring and reporting compliance
  • dispute resolution procedures
  • confidentiality and non-disclosure provisions
  • contract termination arrangements.

Incentives and penalties can be agreed and documented to reward high standards of service and, perhaps more importantly for the customer, to compensate for poor levels of service.  Alternatively, some service level agreements provide for a reduction in the monthly service charge or other commercially suitable arrangements. 

The aim of the service level agreement is to reduce the risk of service delivery failure because both parties know what is required of them from the outset.  The customer should set out the aspects of service delivery failure which could worst affect it and the most severe penalties that should attach to those failures.  Where a service delivery failure occurs, having an agreement in place should help shorten and simplify any process for compensation. 

Consider whether you have business relationships which could benefit from the improved certainty and clarity of a service level agreement.  A great deal of time and money can be saved by ensuring that , from the outset, your most important business relationships are carefully managed and maintained to ensure mutual success. 

Contact: Robert Goddard

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