Service level agreement (SLA)

Definition

A service level agreement sets out the measurable standards a service must meet (such as uptime, response times, or resolution times) together with how performance is measured and what happens if targets are missed. Remedies typically include service credits, escalation, or, for persistent failure, termination rights. SLAs are central to IT, SaaS, and outsourcing contracts where ongoing performance matters more than a one-off deliverable.

Example

A SaaS provider guarantees 99.9% monthly uptime; below that, the customer earns service credits scaled to the downtime.

Why this is a business risk

SLAs that look strong on paper can fail in practice if measurement methods are undefined or if service credits are the only remedy, capped at a fraction of the contract value. Customers who do not monitor compliance may only discover a persistent breach when it is too late to claim credits or invoke termination rights.

How to manage it

• Define measurement: who measures uptime, by what method, and how are planned maintenance windows treated.
• Require the supplier to produce monthly reports so you can track compliance without relying on self-reporting alone.
• Include a step-down right: after a defined number of SLA failures in a rolling period, the customer should be able to terminate for cause.
• Ensure that the service-credit remedy does not replace your right to claim damages for losses that exceed the credit value.