Standard Clauses in Service Level Agreement & How to Write One
A Service Level Agreement (“SLA”) is used where a service provider is contracted to provide a service to a customer. It is typically a written commitment between a service provider and the client which lays out the quality expectations, pricing, performance metrics, duties and responsibilities of the parties, penalty for breach and dispute resolution mechanism.
SLAs are commonly used in industries such as information technology (IT), telecommunications, healthcare, banking, and manufacturing.
We will now examine some key and salient provisions which must be included in an SLA.
Introductory Clause
This clause introduces the parties by stating their names and address. Where a company is involved, it is advisable to provide the registered address of the company and the registration number i.e., RC number.
The RC number is the unique identifier of a company such that if the name of the company is changed in future, the RC number is retained and would be used to identify the company.
It is also important to indicate if the agreement would survive the parties and the rights and obligations transferred to personal representatives, heirs and assigns of the parties. The purpose of this clause is to properly identify the parties.
This clause may be drafted thus “This Service Level Agreement is made this ….. day of ……..202.. between ……(name, address and RC no.) where the context so admits shall include the heirs, personal representatives and assigns of the first part”.
Background/Recital
This clause summarizes the reason, facts or events that led to the formation of the SLA. It helps third parties, who are new to the agreement to understand the essence of the agreement.
This clause may be drafted thus “whereas …….. is a company that carries on the business of …….; the company has approached …….. who is into the provision of IT services to supply …….network cables for use by the company; the parties intend to enter this agreement under the following terms and conditions.
Definition and Interpretation Clause
This clause, just as the name suggests, provide a clear explanation and meaning of words or phrases used in the SLA.
The definition and interpretation should be clear, concise, and devoid of ambiguity to bring to fore, the intentions of the parties.
Scope of Service
This clause outlines the services to be rendered by the service provider with set timelines. It is usually tidier to include it as a schedule to the agreement.
This clause may be drafted thus “the …..shall render the services as provided in schedule A following the set timelines provided in schedule B to this agreement”.
Consideration
This is the most fundamental clause in every typical agreement including an SLA. Consideration is the inducement, cause, motive, price or compelling factor that influences a person to enter into the agreement. It is the benefits, rights, profits accruable to one party as well as the responsibility, obligation, undertaken by the other party.
This usually takes the form of a financial reward. This clause may be drafted thus “In consideration of the Service to be provided by ………, the …… shall pay a Service Charge in the sum of ……… “.
Obligations of the Parties
This clause sets out the duties and responsibilities of the parties to the agreement. The customer/client would typically be expected to pay for the service and the service provider would in turn be expected to render the services in line with set industry standard applying due diligence and care.
These obligations may vary depending on the industry and the nature of the services.
Duration and Renewals
It is very important to set out the time frame of the agreement. SLAs are not meant to inure in perpetuity. In addition, it must be specified if the agreement is renewable and the procedure which must be followed for the renewal to take place.
A simple way of drafting this clause is as follows; “Notwithstanding the date of execution, this SLA shall commence from ……… 202… (“the Effective Date”) and remain in force for a term of one (1) year unless earlier terminated in accordance with the provisions of this Agreement.
This SLA may be renewed for subsequent periods subject to mutually agreed terms in writing.”
Performance Metrics
This clause simply provides the parameters for the assessment of the performance of the service provider. It is the clause that sets out the parameters to be used by the client/customer to measure the quality of the service rendered by the service provider.
Where the quality of service is below industry or set standards, it could be a ground for termination of the SLA. In a typical contract for the supply of internet service, a performance metric could demand that every downtime should not exceed 2 (two) working hours.
In the event that the customer experiences downtime beyond this period on numerous occasions, then the service provider may be deemed to have underperformed the service.
Representations and Warranties
This is another key clause in every typical SLA. It is used to allocate risks between the parties. Each party would ordinarily represent and warrant that it has the power to enter into the contract, the execution of the contract does not contravene any law or commitment binding on the party, with a pledge to indemnify the other party for a breach of any representation or warranty made.
Confidentiality/Non-Disclosure
During the course of the execution of an SLA, parties typically exchange vital business information which are crucial to their businesses.
To safeguard the use of these vital information, a confidentiality clause must be inserted in the SLA to prevent a party from disclosing these vital pieces of information to third parties with a penalty for breach.
The confidentiality clause would ordinarily exclude information already in the public domain or any disclosure required by law or a court of competent jurisdiction. When drafting a confidentiality clause, it is advisable to insert a duration.
Depending on the nature of the service and industry, a confidentiality clause could be between a period of six (6) months – three (3) years.
Termination
The right of termination of an SLA is synonymous with the right to voluntarily enter the SLA. The termination clause gives the parties the right to exit the agreement following laid procedures and upon fulfilment of certain conditions.
It is impossible for lawyers to anticipate and prevent every risk associated with an SLA, hence the importance of an exit clause. This clause may be drafted thus “Either party may terminate this agreement upon giving ….days’/months’ notice to the other party, the terminating party must ….. before the termination of this agreement”.
Dispute Resolution
In every arrangement between two or more people, there is always bound to be dispute, therefore the need for a dispute resolution mechanism.
The various dispute resolution mechanisms include amicable resolution, mediation, arbitration, and a lawsuit. The choice of the applicable dispute resolution mechanism to be adopted would depend on the industry and the financial capacity of the parties.
Arbitration and lawsuits are usually more expensive and should be adopted in high value SLAs.
Non-Partnership Clause
The execution of an SLA between two businesses may give rise to the presumption that a partnership has been formed between these businesses. This partnership would give rise to joint benefits and liabilities which may not be the intention of the parties.
It is therefore paramount to state that the parties to the SLA retain their separate and individual corporate identity and either party does not have the power to represent or act on behalf of the other beyond the scope of the duties as specified in the SLA.
Governing Law
This clause discloses the law that governs the execution and enforcement of the contract. Parties are at liberty to subject themselves to the laws of other countries even in instances where the agreement is to be performed in Nigeria, however, it is usually advisable to make use of the law of the country where the agreement is to be performed.
This clause may be drafted thus “This agreement shall be governed by the laws of ……..”.
Execution
Parties are only bound by an agreement they have voluntarily entered into. The mode of execution varies depending on whether either party is an individual or a company.
Where a private company is involved, the agreement must be signed by the director or the duly authorized representative of the company with at least one witness.
Conclusion
It is important to ensure that Service Level Agreements are drafted to reflect the intention of the parties. These clauses highlighted above play a major role in bringing to fore, the intentions of the parties as well as offer legal backing and protection to the parties.
Some additional clauses may be required depending on the industry sector. Understanding the roles of these clauses is very fundamental.
Berkeley Legal is a leading business law firm in Nigeria. We provide comprehensive and sophisticated range of specialized and personalized legal services that are designed to meet the various needs of highly diversified local and international businesses.
If you would like to know more about the key provision in an SLA or require a draft or review of an SLA, please contact info@berkeleylp.com
The information provided in this article is for general informational purposes only and does not constitute legal advice.
