Service-Level Agreement Disputes

A service-level agreement is a type of contract wherein the services provided are subject to different levels and rates. In other words, a service provider may charge different rates based on the quality or specificity of the service. Known as SLAs, these types of agreements are common in the telecommunications industry, particularly for internet services and phone lines.

What Do Service Level Agreements Cover?

Service level agreements usually cover customer service and various technical repairs. The seller may charge customers of a particular website service based on access to customer service representatives. The purchaser may be charged based on “mean time between failures,” which describes how often phone calls may be interrupted or internet links may experience downtime. One example of a “level” is the rate at which phone calls are answered within a certain time.

Besides these more technological applications, service level agreements may also apply to other fields and industries. A service’s level can also differ depending on whether it is provided to customers or internal workers (such as IT employees).

Why Do I Need a Service Level Agreement?

The SLA is an integral part of any contract with an IT vendor. An SLA combines information on all of the contracted services and their expected reliability into one document. In the event of problems with the service, neither party can claim ignorance because metrics, responsibilities, and expectations are clearly stated. This ensures both parties are on the same page.
Without an SLA (reviewed by legal counsel), any significant contract is susceptible to deliberate or inadvertent misinterpretation. An SLA protects both parties.

It is ideal for SLAs to be aligned with the engagement’s technology and business objectives. Misalignment can negatively affect deal pricing, quality of service delivery, and customer experience.

Who Provides the Service Level Agreement?

Most providers will have standard service level agreements – sometimes several, reflecting various levels of service at different prices – that can be used as a starting point for negotiations. However, since they are usually skewed toward favoring the supplier, they should be reviewed and modified by the customer and legal counsel.

What’s Included in an SLA?

In addition to describing the services to be provided and their expected service levels, the SLA should include other information, such as: metrics by which the services are measured, the duties and responsibilities of each party, remedies or penalties for breach, as well as a protocol for adding and removing metrics.

The metrics should be designed so that bad behavior by either party is not rewarded. A supplier should not be penalized if a service level is breached because the client failed to provide information promptly.

What Are the Key Components of a Service Level Agreement?

SLAs should include components in two areas: services and management.

Among the elements of service are: specifics of the services provided (and excluded, if there is any doubt), conditions of service availability, standards such as the time window for each level of service (prime time and non-prime time services may differ), responsibilities of each party, escalation procedures, and cost/service tradeoffs.

Among the management elements should be: definitions of measurement standards and methods, reporting processes, contents, and frequency, and a dispute resolution process. It should also include an indemnification clause covering the customer from third-party litigation resulting from service level breaches (although this should already be included in the contract), and a mechanism for updating the agreement as needed.

There needs to be a way to ensure that the SLA is updated as service requirements and vendor capabilities change.

How Does an Indemnification Clause Work?

As part of an indemnification clause, the service provider agrees to indemnify the customer company if any of its warranties are breached. Indemnification means that the provider has to pay the customer for any third-party litigation costs arising from its breach of the warranties. If you use a standard service level agreement provided by the provider, this provision will likely be absent; ask your in-house counsel to draft a simple provision to include it, though the provider may want to negotiate this point further.

Is an SLA Transferable?

If a service provider is acquired by or merged with another company, the customer may expect the SLA to remain in place, but this may not be the case. The agreement may need to be renegotiated. Don’t assume anything; however, remember that a new owner will not want to alienate existing customers, so they may decide to honor existing SLAs.

What Is the Best Way to Verify Service Levels?

Most service providers make statistics available online, often through a portal. Customers can check their SLAs there and see if they’re entitled to service credits or other penalties as outlined in the SLA.

These processes and methodologies are usually left up to the outsourcing company to identify, ensuring that such processes and methodologies can support the service level agreement. In any case, it’s recommended that the client and the outsourcing company work together during SLA contract negotiation to eliminate any misunderstandings about the methods and process of support as well as management and reporting.

For critical services, however, customers can invest in third-party tools that automatically capture SLA performance data. These tools provide an objective measure of performance.

How Should Metrics Be Monitored?

SLA metrics will vary based on the services provided. The SLA can monitor many items, but it should be kept as simple as possible to avoid confusion and high costs. Examine your operation and determine which metrics are most important. The more complex the monitoring scheme, the less likely it is to be effective since no one will have time to analyze the data thoroughly. Whenever possible, choose an easy collection of metrics; automated systems are best since the costly manual collection of metrics is unlikely to be reliable.

Depending on the service, the kinds of metrics to monitor may include:

• Service availability: the time the service is available for use. For example, 99.5 percent availability is required between 8 a.m. and 6 p.m., with more or less availability specified at other times. For websites that generate millions of dollars per hour, 99.999 percent uptime is not unusual for e-commerce operations.
• Defect rates: Counts or percentages of errors in major deliverables. Examples of production failures are incomplete backups and restores, coding errors/reworks, and missed deadlines.
• Technical quality: in outsourced application development, measurement of technical quality by commercial analysis tools that examine factors such as program size and coding defects.
• Security: Application and network security breaches can be costly in these hyper-regulated times. Measuring controllable security measures such as anti-virus updates and patching is key in proving all reasonable preventive measures were taken in the event of an incident.

What if a Service-Level Agreement is Breached?

Many service level agreements are relatively new because they revolve around newly developed technologies. A good example is cloud-based data storage. Due to the novelty of the inventions here, the laws governing service level agreements may be somewhat limited. Nonetheless, service level agreements work like any other contract. A service level agreement breach would be adjudicated like any other contract.

Therefore, a court will typically look to the written contract to determine whether a breach of contract has occurred (for example, if the service provided did not meet the level of service promised).

When a breach is found, the service provider may be required to compensate the purchaser for any losses resulting from the violation. Alternatively, the breaching party may be required to provide the services stipulated in the contract.

Do I Need a Lawyer if I Have Any Legal Issues With a Service Level Agreement?

Generally, if you are disputing a service-level agreement, you may need the assistance of a lawyer. Service level agreements can be somewhat complicated and often deal with fairly new issues. Thus, you may wish to hire a contract lawyer if you need to file a lawsuit regarding any service-level dispute. A lawyer can help you resolve the issues and represent you in court.