Developing service level agreements (SLAs) for suppliers

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Service level agreements (SLAs) are agreements or contracts with suppliers that define the service they must provide and the level of service to be delivered, and which also set out responsibilities and priorities.

Developing service level agreements (SLAs) for suppliers

Service level agreements (SLAs) are agreements or contracts with suppliers that define the service they must provide and the level of service to be delivered, and which also set out responsibilities and priorities.

SLAs themselves are contractual obligations and are often built into a contract – in the form of one or more clauses or as an entire section. SLAs can be used in any supplier contract where a business’ ability to meet its customer requirements is dependent on the supplier. They are complex documents that should be well defined and cannot be drawn up in an ad hoc fashion. As such, it is important that you are involved in drawing up the agreement together with the supplier.

In this video, Bill explains why SLAs are important and what features they generally have. Typical SLAs set out:

  1. The service being provided
  2. The standards of service
  3. The timetable for delivery
  4. Respective responsibilities of supplier and customer
  5. Provisions for legal and regulatory compliance
  6. Mechanisms for monitoring and reporting of service
  7. Payment terms
  8. How disputes will be resolved
  9. Confidentiality and non-disclosure provisions
  10. Termination conditions.

If suppliers fail to meet agreed levels of service, SLAs usually provide for compensation, commonly in the form of rebates on monthly service charges. When drawing up your SLA with your supplier, highlight the most critical components of the deal so you can apply the strictest penalties to these. Build periodic performance reviews into the SLA.

SLAs require constant discussion and updating. If the needs of your business change, you may require different performance criteria. Likewise, improvements in technology should be taken into account when reviewing your SLA.

Have a pen and some paper with you, and take some notes as you watch the video. Do you have any supplier relationships that could benefit from SLAs? If you already have SLAs in place, are they being reviewed regularly?

Business tools

Service level agreement (SLA) template

Service providers will frequently ask clients to provide them with a Service Level Agreement (SLA), which formally states the level of service that a provider is obligated to perform under a contract.

It is important that you are involved in drawing up the agreement together with the service provider or supplier. Use the Service Level Agreement template below to avoid costly legal mishaps with the provider before they arise.

Download template