service level agreement (frequently abbreviated as SLA)

A service level agreement (frequently abbreviated as SLA) is a part of a service contract where the level of service is formally defined. In practice, the term SLA is sometimes used to refer to the contracted delivery time (of the service) or performance.

In Simple words: A service level agreement is a document which defines the relationship between two parties: the provider and the recipient.

This is clearly an extremely important item of documentation for both parties. If used properly it should:

• Identify and define the customer’s needs
  
• Provide a framework for understanding
  
• Simplify complex issues
  
• Reduce areas of conflict
  
• Encourage dialog in the event of disputes
  
• Eliminate unrealistic expectations

Specifically it should embrace a wide range of issues. Amongst these are usually the following:

Services to be delivered
Performance, Tracking and Reporting
Problem Management
Legal Compliance and Resolution of Disputes
Customer Duties and Responsibilities
Security
IPR and Confidential Information
Termination

Detailed Definition on SLA:

A service-level agreement (SLA) is a negotiated agreement between two parties where one is the customer and the other is the service provider. This can be a legally binding formal or informal 'contract' (see internal department relationships). Contracts between the service provider and other third parties are often (incorrectly) called SLAs — as the level of service has been set by the (principal) customer there can be no 'agreement' between third parties (these agreements are simply a 'contract').

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 'target' and 'minimum', which allows customers to informed what to expect (the minimum), whilst providing a measurable (average) target value that shows the level of organization performance. In some contracts penalties may be agreed 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.

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 has become obsolete as organizations become more demanding and shift the delivery methodology risk on to the service provider.