Want to learn more about drafting, negotiating, and understanding intellectual property and technology contracts and have 10 minutes to spare? Grab your morning coffee or afternoon tea and dig into our Tech Contract Quick Bytes—small servings of technical contract insights prepared by our seasoned attorneys. This month, we're discussing service-level agreements.
Negotiating a service-level agreement sets clear expectations of each party's roles and responsibilities within online or cloud-based service arrangements. A service-level agreement (in particular, a "customer service-level agreement" or SLA) is a contract between a service provider and a customer that details quality and availability standards the service provider must meet. A well-written SLA will prevent a service provider from successfully pleading ignorance after failing to deliver services of a certain caliber. But a SLA has several benefits for both parties:
- Clear metrics used to assess the quality of performance
- Clear remedies and penalties for either party's failure to meet written expectations
- Transparency regarding the service provider's obligations and capabilities
- If negotiated, written standards that have been approved by both parties
An SLA also typically describes the scope of support services, the availability of the services, penalties and remedies for failures to meet the standards set in the SLA, and certain exceptions to those standards.
Support Services
SLAs typically detail support obligations for a service provider, based on the severity of an issue reported by the customer. Issues may be categorized according to priority level (a "low priority" issue would have minimal impact on the customer, while a "high priority" issue would have a more detrimental impact), and the SLA may require the service provider to address the issue within a certain period in accordance with the priority level of the reported issue.
"Availability"
An SLA will also usually detail performance metrics by which the customer can measure the service provider's "availability" (ensuring the service will be operational). This metric may also consider technical quality of the service, error rates, security measures, and outputs. For example, if an SLA offers a 99.99% monthly availability, the service provider is promising that its services or system will be available for that 99.99% of a given month. This also means that the service will not be operational for a maximum of about four to five minutes per 30-day month.
Penalties and Remedies
The service provider's failure to meet an "availability" calculation may entitle the customer to a remedy—intending to deter continued poor performance by the service provider, and to rectify the situation for a customer who has paid for a quality and availability of services that the customer has not received. The percentage of credit granted to a customer, and a service provider's own ability to "earn back" credit (an "earn back clause"), will depend on the terms of each SLA, which will vary from agreement to agreement. In the event the provider commits serious or repeated failures, a customer may also be entitled to "step-in rights" (permitting the customer to take over the services as a whole) or rights to terminate the overall service agreement entirely. An SLA, however, may excuse a service provider from not meeting its support or availability requirements in the event of certain unanticipated "force majeure" circumstances.
A service-level agreement can be beneficial to a customer entering into an online or cloud-based service provider agreement. Companies in negotiations with a service provider should work to ensure that the standards and remedies within the SLA consider the company's needs and address the expectations of the service provider.
If you or your company would like to talk about service-level agreements, please contact A.J. Zottola or Channing D. Gatewood. And click here to learn more about Venable's IP Tech services.
Special thanks to Angelique Ball for assistance with this article