7 Issues to Look for in a Service Level Agreement (SLA)

How to negotiate an SLA (for Software-as-a-Service (SaaS), Subscription Services, or Downloadable Software or other tools)

Most subscription services or SaaS agreements include provisions regarding support, maintenance, uptime and repairs. These terms cover how often the services work, how often they might experience “downtime” or unavailability, and what to do when that occurs (who do you contact, how quickly must they respond, etc.). These terms are often in a separate document or exhibit, typically called a Service Level Agreement or SLA.?

If you are the customer paying for and receiving these services, you obviously want to know that the service is going to work when you need it, and that if there are problems, they will be remedied promptly. This article is written from the point of view of the customer receiving the services, but I have represented many clients that are vendors as well as customers, and have used that experience to present reasonable and typical positions.

Here are seven (7) typical issues to consider as a customer reviewing any proposed SLA:

1. Uptime (Availability) & Downtime.?Look for an “uptime” or “availability” commitment (usually saying that the service will be available to you 99.99% of the time in any given month). It’s typical for the vendor to carve out some “permitted downtime.” The two most common and reasonable carve outs for permitted downtime are (i) things outside the vendor’s control, such as internet downtime, and (ii) routine maintenance. Review these clauses carefully, as they often can be overly broad. For example, one common problem I see is also excusing any “emergency” maintenance.?By definition, whenever there’s a problem, all fixes are “emergency maintenance,” so this is an exception that swallows the rule. Emergency maintenance should not be considered permitted downtime. Also, check you be sure that routine maintenance is adequately defined, only as meeting all of the following conditions: it must be routine, scheduled in advance, and be done outside of normal business hours (or other peak seasons, e.g., if you’re a retailer, not on Black Friday).

2. Support Hours.?If the services are critical to your business, make sure support hours are 24/7/365, so you can reach someone nights and weekends if there’s an urgent issue.

3. Response and Repair Times. Response times state how quickly the vendor must respond back to you when you report a problem (just to confirm they received your request and are working on it). These are often listed as non-binding “targets,” but you want them to be binding deadlines, with a remedy if missed. Repair times (i.e., deadline for the problem to be fully solved) can also be stated as non-binding targets, or often are left out entirely. You want a firm deadline to solve the problem. Vendors may tell you they left out repair times on purpose because they can’t determine how long it will take to fix any issue until they know the root cause. That’s a fair point, but at some point, no matter the cause, you are paying for a service you are not getting. Therefore, it is entirely reasonable for you to ask for a deadline, or get money back in the form of SLA Credits (see below). You don’t care why it’s not working, you only care that it works when you need it. Keep in mind, this only applies to things that are the vendor’s “fault” (see “Uptime” above), so this is fair for you to ask, regardless of the root cause of the problem.

4. Severity Levels. Some SLAs have charts or tables with different response and repair times depending on the severity of the issue. Issues may be categorized into those which are most urgent or critical versus those which are more minor and less important. Customers often glaze over the definitions of severity levels in these charts assuming they are all standardized, but they are not. Be sure that you agree with how the vendor characterizes what they deem to be more or less significant issues. For example, the vendor may classify as the most urgent issue only if the entire service is completely unavailable, but classify as minor if the service is partially available, with one or more features not working. However, you could be severely impacted by lack of certain key features or functionality, so that could still be an urgent or critical issue to you.

5. SLA Credits.?You want a refund or SLA “credits” for downtime and for each time any of the repair or response deadlines are missed. The credits should be meaningful, not negligible. These are the “teeth” that motivates the vendor to keep the service running, and to meet their deadlines. The rest of the SLA could be airtight, but it would not help you if you have no remedy, or only negligible credits, if and when breached. Sometimes the credits for downtime depend on how long the downtime lasts (this could be in the form of another chart or table, with X% credit for availability under Y% of the time). (a) Review these percentages to make sure they are reasonable. A 99.99% uptime “guarantee” is meaningless if you get the same remedy whether actual availability is 95% or 99%, so the remedy should increase quickly as the availability goes down by ?% or 1%. (b) The credits should be impactful (starting at 5-10% and working up to 50-100% of the monthly payments. (c) Remedies should kick in right away, not only after multiple breaches.?(d) It is OK for the vendor have reasonable caps on these credits – for example, they should not have to pay you back more than you paid them for the month. But beware of low caps that remove all the teeth (e.g., maximum credits of 5-10%). Caps of 50-100% of monthly payments to be credited in any month for the longest outages or repeat offenses are common and fair. (e) Also, be sure the SLA Credit is calculated based on the entire contract amount. One carve out I often see is that the SLA credit only applies against the fees for the particular portion of the service causing the problem. In other words, if a service has 100 features and only one of them is not working, you only get 1/100th of your monthly fees back. But even if only one feature is not working, if it is a significant enough feature, then for all practical purposes, you cannot use the entire tool, or are not getting your money’s worth.

6. Notice. Notice sounds like an unimportant provision, but in an SLA it can have important consequences. An SLA might require that you notify the vendor in a very specific way (e.g., to a specific email address or phone number, or via a specific online reporting tool) before any of your rights kick in. You may need to use one specific method to report a problem before the repair and response times begin (i.e., before the “clock starts ticking”), and possibly another separate method to request your SLA Credits, also within a certain small time window (e.g., within 5 days) or lose your rights to get these credits. For specific notice requirements for response and repair times, be sure these notice requirements are reasonable and make sure you strictly follow them to report every issue. For specific methods and deadlines to request SLA credits, try to delete this requirement entirely. The vendor should already be tracking uptime/downtime, and its own response and repair times, and so they should know even before you do whether any credit should be due.?Therefore, credits should be tracked by the vendor and paid to you automatically. If you cannot successfully negotiate these requirements away, then be sure these notice requirements are reasonable and make sure you strictly follow them.

7. Termination Right.?There should be a provision giving you a termination right for multiple SLA violations. As you may know, a typical termination provision for breach of a standard agreement will usually have a 30 day cure period. If response and repair times are measured in days, or even in hours, then a 30 day cure period under the main agreement is far too long to be meaningful. That’s why you need a separate termination right in the SLA itself, based on frequent downtime or multiple missed deadlines. At some point you want the right to choose to terminate instead of getting credits back, if the issues are occurring too often or becoming habitual. This could be based on the number of times an SLA is breached (e.g.. more than 3 offenses in any 3 month period) and/or for extreme downtime (e.g., availability below 90%).

No two SLAs are alike, and how much you care about each of the above issues depends on the nature of the services and how you are using them. But these are some of the most common issues to look out for as a customer.

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About the Author:

Brian is a tech lawyer and "deal guy".?He is a partner at Outside GC, a revolutionary new “virtual” law firm. See Brian’s full bio here: https://www.outsidegc.com/brian-heller/?Because Outside GC is 100% virtual, with no overhead, they charge about 1/3 what a larger more traditional firm might charge, yet all their lawyers have the same “big firm” experience, and in-house practical business experience, too. Outside GC is an innovative approach to legal services for growing and mature businesses. Companies who engage Outside GC fall into two main categories: (1) those?without in-house counsel?who need regular, on-going legal support but do not wish to hire a full-time in-house lawyer, and (2) those?with in-house counsel?who do not wish to add more full-time resources to their existing in-house staff. Contact Brian at [email protected] or 202-365-3940 if you are interested in learning more.

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