# Service level agreement (SLA)

Source: https://contracko.com/glossary/sla

# Service level agreement (SLA)

A commitment defining measurable service performance levels and remedies for shortfalls.

## 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.

### How Contracko helps

Contracko tracks SLA metrics, renewal dates, and step-down triggers as contract obligations with smart reminders. The contract repository stores SLA schedules alongside the main agreement so your operations team can find measurement definitions and credit tables without hunting through email attachments.

## Relevant for

[Software & SaaS](https://contracko.com/industries/software-saas)[IT Services](https://contracko.com/industries/it-services)[Managed Service Providers](https://contracko.com/industries/managed-service-providers)[Telecommunications](https://contracko.com/industries/telecommunications)

## Related clauses

- [Service Level Agreement (SLA)](https://contracko.com/clause-library/service-level-agreement)
- [Liquidated Damages Clause](https://contracko.com/clause-library/liquidated-damages)
- [Termination for Cause Clause](https://contracko.com/clause-library/termination-for-cause)

## Related terms

- [Warranty](https://contracko.com/glossary/warranty)
- [Liquidated damages](https://contracko.com/glossary/liquidated-damages)
- [Term (duration)](https://contracko.com/glossary/term)

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## Frequently asked questions

Common questions about this term.

- **Q:** Are service credits the customer's only remedy under an SLA?
  **A:** Often the SLA states they are the sole remedy for performance misses, but well-drafted contracts preserve termination for chronic or severe failures and exclude this cap for breaches of other obligations.

- **Q:** What is a typical SaaS uptime SLA?
  **A:** 99.9% monthly uptime ("three nines") is standard for most SaaS, allowing about 44 minutes of downtime per month. Mission-critical systems often demand 99.99% ("four nines"), which allows only about 4 minutes.

- **Q:** Can a supplier exclude planned maintenance from SLA calculations?
  **A:** Commonly yes, but the contract should limit maintenance windows in terms of frequency and duration and require advance notice, otherwise the exclusion could swallow the commitment.

- **Q:** What triggers the right to terminate for SLA failure?
  **A:** Contracts typically require multiple failures within a defined window (e.g. three months below target in any six-month period). Without such a step-down clause, a single miss rarely justifies termination.

- **Q:** How should response-time SLAs be measured?
  **A:** They should specify the start event (e.g. ticket opened), business hours or 24/7, the classification of issue severity, and the target time for each tier. Ambiguity here is a common source of SLA disputes.

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