Negotiating Service Level Agreements

Service Level Agreements (SLAs) are increasing in importance as enterprises rely on vendors for more and more services. Especially with the penetration of cloud computing in the enterprise, organizations need to protect their reputation by setting clear expectations with the vendors.

Vendors have to protect their own interests, so good vendors are not going to accept any agreement proposed by a single customer. Reaching a SLA will be a tough negotiating process, but it should be done as part of almost any contract negotiation.

There will be a lot of exceptions listed in any detailed SLA. This is the time to identify the exceptions that are of the most concern to your organization, and to demand mitigating actions to be taken by the vendor. (Keep in mind that the cost of these mitigations will be transferred to you in your bill from the vendor, but your organization's reputation needs to be protected against major risks.)

One of the attractive features of cloud computing in particular is that the costs can be spread out over time and across the vendor's customer base. To the extent that you request industry-standard protections, you may be able to spread the costs across your utilization rather than having to pay a lump sum or fixed fee.

A well-designed SLA will contain allowances for necessary maintenance activities and for force majeure. It is common for penalties to be granted as service credits, and it is also common for penalties to be capped at a fixed percentage of recurring costs.