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Contrary to its name, service level agreements (“SLA”) are in fact, not standalone agreements. SLAs are typically an annexure, or a clause an outsourcing, technology vendor, cloud services or professional service agreement.

In this article, we give you a flavour of what an SLA is, the key components of a well-drafted SLA, and some variable elements or negotiation points for both vendors and clients when finalizing an SLA.

What is an SLA?

An SLA sets out a quantifiable metric by which services are measured, in the course of the provision of services by a vendor to the client.

These quantifiable metric removes the guess work in determining whether the vendor has complied with or breached the SLA, which may then allow the client to be reimbursed / compensated for said breaches by the Vendor.

What are the components of an SLA?

The content of an SLA will depend on the type of agreement the SLA is for. However, the general components below should be present in an SLA.

Types of services

The SLA should set out in detail the types and description of services made available to the client. Examples of such services are help desk support, monitoring of the software / services, bug-fixing or any other forms of correction of faults, enhancements, and / or updates etc.

The SLA should also set out the support hours (i.e. the hours for which support services is made available by the vendor).

Additionally, it should be clarified if the support services will be rendered on-site, remotely, or a mixture of both.

If in doubt, the SLA may also specifically exclude services that are outside of the scope of the services.

Access

When rendering support services, it may be necessary for the vendor to be able to access the client’s site, files, equipment, and personnel.

If such access is needed, the SLA should provide for the client’s responsibility to allow the vendor reasonable access to the site, files, equipment, and personnel, subject to confidentiality obligations by the vendor.

Escalation

Closely connected with the above, the SLA should also set out details relating to escalation of support requests or requests for higher level support. This could include situations in which higher level support can be requested by the client and a contact list for personnel responsible for providing higher level support.

Support Response and Resolution Times  

An SLA should set out the time window after receiving a support request by the clients within which certain faults must be remedied by the vendor. This is normally presented in a table, which classifies the faults or failures in the software or services into different levels.

An example of the classification of faults or failures is as set out below:

  • Level 1 for critical failures or faults;
  • Level 2 for critical failures or faults with workarounds; and
  • Level 3 for minor failure or faults etc, and the response time for each level of failure.

The more critical the failure or fault, the shorter the time window for the vendor to respond to and resolve the failure or fault.

Support Request

Since the support response and resolution time also starts at the point of receipt of support request, the SLA should set out how a support request can be made by the client to the vendor, e.g. via email to a designated email address.

Additional details that can be requested by the vendor for a support request are that clients have to include description of the fault, and any other information or documentation that can allow the vendor to reproduce the fault.

On the other hand, clients can specifically exclude the ability to reproduce a fault as part of the support request.

Service Credits

Service credits is a mechanism which compels the vendor to compensate the client via deductions to the fees to be paid under the agreement for failure of the vendor to comply with metrics under SLA, e.g. not meeting the support response and resolution time.

Service credits are typically calculated as a percentage of the fees due to the vendor.  The more critical the failure or fault is, the more service credits are due to the client if the vendor fails to respond to and resolve the failure or fault.

For added protection, vendors tend to draft the agreement in a manner in which service credits are the sole remedy to the client in the event of a breach of the SLA. However, this is not set in stone.

Clients can, and should, negotiate to not limit the remedies to service credits. This is because a failure by the vendor to comply with the SLA, particular with regard to response and resolution times for critical faults or failures can lead to catastrophic consequences to the client.

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This article was written by Shawn Ho (Partner) & Ian Liew (Associate) from the corporate practice group of Donovan & Ho.  Shawn leads the corporate practice group of Donovan & Ho, and has been recognized as a Notable Practitioner, whilst the firm has been recognized as a Notable Firm for Corporate and M&A by Asialaw Profiles 2020.  We are also ranked a Recommended Firm by IFLR1000 2020.

 Our corporate practice group advises on corporate acquisitions, restructuring exercises, joint venture arrangements, shareholder agreements, employee share options and franchise businesses, Malaysia start-up founders and can assist with venture capital funds in Seed, Series A & B funding rounds. Feel free to contact us if you have any queries.

 

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