Market Updates

Service Level Agreements - Why are they Important

September, 2018

SLA is a contract between a client and a service provider (providing outsourcing services), defining the quality, availability, and responsibilities of a service, which is defined by the client and agreed between both the entities. For instance, an SLA for the telecom industry is popularly defined by the quality of connectivity or the level of service (e.g. minimum bandwidth provided or QoS for downtime support – prioritization or services/support period extension for not meeting service requirement) expected from the service provider.

Importance of SLA’s

  • SLAs can be formal (legal) or informal (internal) which creates an agreed benchmark for service level assurance.

  • It also provides mutual protection for all eventualities based on the service commitments.

  • It explains the responsibilities and liabilities within a pre-defined framework for supervising timely customer support. i.e. It establishes a clear understanding on how the problem and issues will be prioritized while handling them.

  • Most importantly, SLAs include duties and responsibilities of each party, protocols for adding and removing metrics, and penalties for breach of commitment.

  • SLAs beyond services can also include important compliance and security measures which can be thought of as an SLA like an insurance policy for services.

Key components of SLA’s

  • Overview, effective date of contract, contact information, numbers, and cost, etc.

  • How processes and performance levels will be monitored

  • The performance client can expect

  • How compliance or data privacy concerns will be managed

  • Definition of the service client is receiving

  • How to report any issues to the service provider

  • How long will it take to resolve issues

  • A process for handling contract changes

  • Reimbursement or otherwise


SLA is the contract which outlines how a service is delivered to client. SLA’s plays an important role for both the client as well as service provider as it sets boundaries and expectations for the services provided, thereby reducing the chances of a conflict.

– Sonam Chawla,
Research Analyst,
Infoholic Research