A service-level agreement (SLA) is a part of a service contract where a service is formally defined. In practice, the term SLA is sometimes used to refer to the contracted delivery time (of the service or performance). As an example, Internet service providers and telcos will commonly include service level agreements within the terms of their contracts with customers to define the level(s) of service being sold in plain language terms. In this case the SLA will typically have a technical definition in terms of mean time between failures (MTBF), mean time to repair or mean time to recovery (MTTR); various data rates; throughput; jitter; or similar measurable details.
A service-level agreement is agreement between two or more parties, where one is the customer and the others are service providers. This can be a legally binding formal or an informal "contract" (for example, internal department relationships). Contracts between the service provider and other third parties are often (incorrectly) called SLAs – because the level of service has been set by the (principal) customer, there can be no "agreement" between third parties; these agreements are simply "contracts." Operational-level agreements or OLAs, however, may be used by internal groups to support SLAs.
The SLA records a common understanding about services, priorities, responsibilities, guarantees, and warranties. Each area of service scope should have the "level of service" defined. The SLA may specify the levels of availability, serviceability, performance, operation, or other attributes of the service, such as billing. The "level of service" can also be specified as "expected" and "minimum," which allows customers to be informed what to expect (the minimum), while providing a measurable (average) target value that shows the level of organization performance. In some contracts, penalties may be agreed upon in the case of non-compliance of the SLA (but see "internal" customers below). It is important to note that the "agreement" relates to the services the customer receives, and not how the service provider delivers that service.
SLAs commonly include segments to address: a definition of services, performance measurement, problem management, customer duties, warranties, disaster recovery, termination of agreement. In order to ensure that SLAs are consistently met, these agreements are often designed with specific lines of demarcation and the parties involved are required to meet regularly to create an open forum for communication. Contract enforcement (rewards and penalties) should be rigidly enforced, but most SLAs also leave room for annual revisitation so that it is possible to make changes based on new information.
SLAs have been used since late 1980s by fixed line telecom operators as part of their contracts with their corporate customers. This practice has spread such that now it is common for a customer to engage a service provider by including a service level agreement in a wide range of service contracts in practically all industries and markets. Internal departments (such as IT, HR, and real estate) in larger organizations have adopted the idea of using service-level agreements with their "internal" customers — users in other departments within the same organization. One benefit of this can be to enable the quality of service to be benchmarked with that agreed to across multiple locations or between different business units. This internal benchmarking can also be used to market test and provide a value comparison between an in-house department and an external service provider.
Service level agreements are, by their nature, "output" based – the result of the service as received by the customer is the subject of the "agreement." The (expert) service provider can demonstrate their value by organizing themselves with ingenuity, capability, and knowledge to deliver the service required, perhaps in an innovative way. Organizations can also specify the way the service is to be delivered, through a specification (a service level specification) and using subordinate "objectives" other than those related to the level of service. This type of agreement is known as an "input" SLA. This latter type of requirement is becoming obsolete as organizations become more demanding and shift the delivery methodology risk on to the service provider.
Service level agreements are also defined at different levels:
- Customer-based SLA: An agreement with an individual customer group, covering all the services they use. For example, an SLA between a supplier (IT service provider) and the finance department of a large organization for the services such as finance system, payroll system, billing system, procurement/purchase system, etc.
- Service-based SLA: An agreement for all customers using the services being delivered by the service provider. For example:
- A car service station offers a routine service to all the customers and offers certain maintenance as a part of offer with the universal charging.
- A mobile service provider offers a routine service to all the customers and offers certain maintenance as a part of offer with the universal charging
- An email system for the entire organization. There are chances of difficulties arising in this type of SLA as level of the services being offered may vary for different customers (for example, head office staff may use high-speed LAN connections while local offices may have to use a lower speed leased line).
- Multilevel SLA: The SLA is split into the different levels, each addressing different set of customers for the same services, in the same SLA.
- Corporate-level SLA: Covering all the generic service level management (often abbreviated as SLM) issues appropriate to every customer throughout the organization. These issues are likely to be less volatile and so updates (SLA reviews) are less frequently required.
- Customer-level SLA: covering all SLM issues relevant to the particular customer group, regardless of the services being used.
- Service-level SLA: covering all SLM issue relevant to the specific services, in relation to this specific customer group.
Service level agreements can contain numerous service performance metrics with corresponding service level objectives. A common case in IT service management is a call center or service desk. Metrics commonly agreed to in these cases include:
- ABA (Abandonment Rate): Percentage of calls abandoned while waiting to be answered.
- ASA (Average Speed to Answer): Average time (usually in seconds) it takes for a call to be answered by the service desk.
- TSF (Time Service Factor): Percentage of calls answered within a definite timeframe, e.g., 80% in 20 seconds.
- FCR (First-Call Resolution): Percentage of incoming calls that can be resolved without the use of a callback or without having the caller call back the helpdesk to finish resolving the case.
- TAT (Turn-Around Time): Time taken to complete a certain task.
- MTTR (Mean Time To Recover): Time taken to recover after an outage of service.
Uptime is also a common metric, often used for data services such as shared hosting, virtual private servers and dedicated servers. Common agreements include percentage of network uptime, power uptime, number of scheduled maintenance windows, etc.
Many SLAs track to the Information Technology Infrastructure Library specifications when applied to IT services.
Backbone Internet providers
It is not uncommon for an Internet backbone service provider (or network service provider) to explicitly state its own service level agreement on its Web site. The US Telecommunications Act of 1996 does not expressly mandate that companies have SLAs, but it does provide a framework for firms to do so in Sections 251 and 252. Section 252(c)(1) for example (“Duty to Negotiate”) requires that ILECs negotiate in good faith regarding things like resale, access to rights-of-way, and so forth.
A web service level agreement (WSLA) is a standard for service level agreement compliance monitoring of web services. It allows authors to specify the performance metrics associated with a web service application, desired performance targets, and actions that should be performed when performance is not met.
WSLA Language Specification, version 1.0 was published by IBM on January 28, 2001.
The underlying benefit of cloud computing is shared resources, which is supported by the underlying nature of a shared infrastructure environment. Thus, service level agreements span across the cloud and are offered by service providers as a service based agreement rather than a customer based agreement. Measuring, monitoring and reporting on cloud performance is based upon an end user experience or the end users ability to consume resources. The downside of cloud computing, relative to SLAs, is the difficultly in determining root cause for service interruptions due to the complex nature of the environment.
As applications are moved from dedicated hardware into the cloud (alternatively, grid computing), these applications need to achieve the same or even more demanding levels of service as classical installations. SLAs for cloud services focus on characteristics of the data center and more recently include characteristics of the network (see carrier cloud) to support end-to-end SLAs.
Any SLA management strategy considers two well-differentiated phases: the negotiation of the contract and the monitoring of its fulfilment in real-time. Thus, SLA Management encompasses the SLA contract definition: basic schema with the QoS (quality of service) parameters; SLA negotiation; SLA monitoring; and SLA enforcement—according to defined policies.
The main point is to build a new layer upon the grid, cloud, or SOA middleware able to create a negotiation mechanism between providers and consumers of services. An example is the European Union–funded Framework 7 research project, SLA@SOI, which is researching aspects of multi-level, multi-provider SLAs within service-oriented infrastructure and cloud computing; while another EU-funded project, VISION Cloud has provided results with respect to content-oriented SLAs. 
A summary of the results of various research projects in the area of SLAs (ranging from specifications to monitoring, management and enforcement) has been provided by the European Commission. 
Outsourcing involves transfer of responsibility from an organization to a supplier. The management of this new arrangement is through a contract that may include one or more service level agreement(s). The contract may involve financial penalties and the right to terminate if SLAs metrics are consistently missed. Setting, tracking, and managing SLAs is an important part of the outsourcing relationship management (ORM) discipline. It is typical that specific SLAs are negotiated up front as part of the outsourcing contract, and they are utilized as one of the primary tools of outsourcing governance.
In Software Development, specific SLAs can apply to application outsourcing contracts in line with standards in software quality, and recommendations provided by neutral organizations like CISQ, which has published numerous papers on the topic (such as Using Software Measurement in SLAs) that are available to the public at http://www.it-cisq.org .
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