A service level agreement is a contract between the service provider and the customer that specifies what services will be delivered, as well as their quality and frequency. It also details what the customer must do to ensure services received are of the requisite quality and timeliness. Customers often employ performance metrics or key performance indicators to help them do this.

Outsourcing partnerships are not easy. Disputes invariably arise. Resolving disputes is the job of carefully crafted service level agreements (SLAs). An SLA is a document that identifies the agreed-upon services that will be provided to an organization or department in an outsourced setting. Its objective is to ensure that the delivered service satisfies the customer. The SLA identifies customer expectations and defines the boundaries of the service, stating previously determined service level goals, operating practices, and reporting policies.

SLAs are critical in defining the responsibilities of the service provider and the customer. The purpose of any SLA is to describe and define the following:

Companies initiating outsourcing should think through the different elements of the SLA before negotiations. They include:

 Definition of service provided, parties involved, and effective dates of agreement,
 Specification of the number of users and locations for which the service will be offered,
 Explanation of problem-reporting procedures, including conditions of escalation to next higher tier of    support, and Procedures for revising the SLA to reflect operational changes.

The scope and scale of SLAs varies depending on the situation. Some companies contemplate outsourcing whole departments; others outsource individual projects.

The bottom line: Creating, managing, and maintaining SLAs is difficult. In fact, it's often the number-one reason why large companies outsource to third-party vendors that have world-class capabilities and experience in outsourcing partnerships with large, complex organizations.