How to Request SLAs When Negotiating a Vendor Contract

When entering a relationship with your vendor, it is important to note the expectations that you have for your vendor as well as what you expect from the products or services that they will provide your organization. A service level agreement, also known as an SLA, is a key component to setting these expectations and forging your contractual relationship with your vendors.

What Is a Service Level Agreement (SLA)?

An SLA is a document developed by you and your vendor, which describes the services that the vendor will be providing, the level of service that you expect from your vendor, as well as the terms of what will happen if the SLA is broken.

The SLA will contain important information and ensure that you and your vendor are on the same page. Additionally, if the vendor does not provide the services that were agreed upon, the SLA should include the terms of penalties or exit opportunities from the relationship.

While the language and information in the SLA will vary and be tailored to each specific vendor, it should be comprehensive of your expectations. This can include the documentation you should receive or the performance levels of your vendors.

How to Request SLAs During Vendor Contract Negotiation

When drafting an SLA, all parties should be involved in the process – this will typically include you and your vendor. Managers from your organization, as well as your vendor’s managers, should participate alongside legal teams. Work with your vendor to agree on specific terms for how the vendor will be measured, and consider how you will resolve any future disputes, in the case one might arise.

When deciding what should be included in the SLA, you should be accurate and comprehensive, also bearing in mind best practices for risk management. Consider the following questions:

1. What are your specific standards for your vendor and their services? Depending on the vendor, this will vary, but should be specific and consistent, as you will hold the vendor to these standards throughout the course of your relationship.
2. What metrics will you use to evaluate your vendor? Your management team will require accurate reports to analyze your vendor’s performance.
3. Who will be serving as the point person? You must choose who is responsible for overseeing the vendor and know who you can speak to from the vendor’s team. Also, know who will serve as an alternative point person, if needed.
4. What are the terms regarding SLA non-compliance? If the vendor does not comply or is unable to meet the expectations in the SLA, there should be a procedure in place that dictate next steps.
5. How will a change in management effect the SLA? Change happens – and how you will respond to changes in management or other factors may alter the terms of your agreement.
6. How will you handle disputes with your vendor? For example, if a vendor fails to meet a specific standard and disagrees with the evaluation, there should be a procedure in place to manage the situation.

Throughout your due diligence process, you can determine the language and components of the SLA by making notes of what documentation or reports you would like your vendor to provide. For example, if your potential vendor is a core processor, then they should provide reports related to accuracy and technical response time, while you might require a call center to give you reports that detail call abandon rates.

And, be specific. Since the SLA contains information that will determine how successful your relationship with the vendor is, you should be specific and detailed so that your vendor will know exactly what is expected.

Reviewing SLAs When Renewing a Vendor Contract

It is quite common to work with a potential vendor to create an SLA during the negotiation stage, before you sign a contract. But, what should you do if one of your existing vendors does not have an SLA in place? What if you need to revisit an existing SLA with one of your vendors? In these cases, you should consider evaluating your vendor’s performance and requesting a new or updated SLA be written prior to a contract renewal. Remember your vendor will be eager for you to renew, so use that to your benefit!

When renewing a contract from an existing relationship, you should also review the SLA. As your relationship continues, you might consider revisiting the previous expectations that you have set for the vendor to determine if they have fulfilled their previous obligations and if they will continue to meet the needs of your organization.

Just as you will continue to monitor the vendor’s performance, you should ensure that your expectations will be set and understood for the future. Continue to work with you vendor to set clear goals and ensure that you are on the same page for what you hope to gain from the relationship.

Additionally, do not let yourself fall into complacency – just because a vendor provided strong performance for a year, does not mean that they do not still need to be monitored. Your SLA should continue to help drive efficiency and set the standards of what you each expect and how the services will be monitored.

An SLA is a key tool into gaining a better level of understanding the mutual expectations you and your vendor have. While negotiating a contract, it is important to be on the same page and set the foundation for your future relationship by establishing clear and effective language.