Service level agreements – managing expectations and liability

Service level agreements are essential tools for businesses in England and Wales, providing clarity on service standards, responsibilities, and recourse if things go wrong. Whether your company provides IT support, facilities management, or professional services, a well-crafted service level agreement can help manage expectations and limit liability. For tailored legal support in this area, visit our Business Solicitors page.

A service level agreement (SLA) is a legally binding document between a service provider and a client that defines the level of service expected, the metrics by which service is measured, and the remedies or penalties if standards are not met. In the context of UK business legal standards, service level agreements are fundamental to managing risk, maintaining strong client relationships, and ensuring both parties understand their obligations. SLAs are especially prevalent in sectors such as IT, telecommunications, logistics, and outsourced business functions, where consistent delivery and accountability are crucial.

Key elements of service level agreements

A robust service level agreement should address the following elements to ensure service expectations and liability are clearly defined:

• Service description: Outline exactly what services are being provided, including any exclusions.
• Performance metrics: Establish measurable criteria, such as response times, resolution times, and system uptime percentages.
• Monitoring and reporting: Define how service delivery will be measured, reported, and audited.
• Responsibilities: Clearly allocate responsibilities between the provider and the client.
• Remedies and penalties: Set out what happens if the provider fails to meet agreed standards, including service credits or termination rights.
• Review and amendment: Allow for periodic review and amendment of the SLA to ensure continued relevance.

Managing expectations through service level agreements

Service level agreements act as a framework for managing client and supplier expectations. By documenting specific service targets and mutual obligations, an SLA reduces the risk of misunderstandings and disputes. Key strategies for managing expectations with SLAs include:

1. Engage both parties in detailed discussions before drafting the SLA.
2. Be specific and realistic with performance metrics.
3. Set clear procedures for reporting and escalation of service issues.
4. Schedule regular reviews to address changes in service needs or technology.

Liability and risk allocation in service level agreements

One of the primary purposes of a service level agreement is to address liability in the event of service failures. In England and Wales, an SLA typically includes clauses dealing with:

• Limitation of liability: Capping the provider’s liability to a fixed amount or a multiple of contract value.
• Exclusions: Specifying what types of loss are not covered, such as consequential or indirect loss.
• Indemnities: Circumstances under which one party must compensate the other for specific losses.
• Force majeure: Events outside either party’s control which excuse performance failures.

Clarity on these issues reduces the likelihood of expensive litigation and protects both parties’ commercial interests.

Common pitfalls in service level agreements (and how to avoid them)

• Vague service descriptions: Use precise language to avoid ambiguity.
• Unrealistic performance targets: Ensure targets are achievable given the resources and capabilities of the provider.
• Inadequate monitoring: Agree clear processes for measuring and reporting on service delivery.
• Failure to address change: Include provisions for periodic review and updates to reflect changing business needs.
• Insufficient remedies: Clearly specify what happens if service levels are missed.

Drafting and negotiating effective service level agreements

Both parties should seek legal advice when drafting or negotiating a service level agreement to ensure their interests are protected. Effective SLAs should:

• Reflect the real-world needs of the business relationship.
• Use clear, unambiguous language throughout the document.
• Be tailored to the specific service and sector involved.
• Balance the risks and responsibilities of each party fairly.
• Include mechanisms for resolving disputes, such as mediation or arbitration.

For complex or high-value contracts, consider engaging experienced business solicitors to review or negotiate the SLA.

Case scenario: How an SLA protected a UK tech firm

A London-based IT managed service provider entered into a service level agreement with a national retailer, promising 99.9% network uptime and rapid response to system failures. When a major outage occurred, the SLA’s monitoring and reporting provisions allowed both parties to confirm that targets were not met, triggering service credits as compensation to the retailer. Importantly, the liability cap in the SLA protected the IT provider from excessive claims, while the retailer had assurance of compensation. This example highlights how well-structured SLAs manage risk, maintain trust, and support continued business relationships.

Expert insights on service level agreements

• SLAs should be regularly reviewed to adapt to changing technology and business needs.
• Involve legal and operational stakeholders in drafting SLAs to ensure practical, enforceable terms.
• Clear reporting mechanisms reduce disputes by providing evidence of performance.
• Well-drafted remedies and penalties incentivise performance and protect both parties.
• Use sector benchmarks as a reference for setting realistic service levels.

Whether you regularly enter into certain types of agreement and could benefit from template terms or would like to start a new relationship or project in the right way, our Commercial experts can help support you and your organisation with our agreement review and drafting services.

Contact us for more information.

Benefits and challenges of service level agreements

• Benefits:
  • Clarifies service expectations and responsibilities.
  • Reduces the likelihood of disputes.
  • Protects against excessive liability.
  • Provides mechanisms for continuous service improvement.
  • Strengthens commercial relationships.
• Challenges:
  • Requires ongoing monitoring and administration.
  • Can be complex and time-consuming to draft.
  • May lead to inflexibility if not regularly reviewed.
  • Disputes may still arise over interpretation or evidence.

FAQs: Service level agreements

What is a service level agreement?

A service level agreement is a contract that defines the level of service expected from a service provider, including performance metrics, monitoring methods, remedies, and liability limitations.

Why are service level agreements important?

Service level agreements help manage client and supplier expectations, reduce disputes, and set clear standards for service delivery and liability.

How are service level agreements monitored?

1. Service delivery is tracked against agreed metrics (e.g., response time, uptime).
2. Regular reports are generated to provide evidence of performance.
3. Audits may be conducted for independent verification.

What happens if service levels are not met?

The SLA will specify remedies such as service credits, compensation, or, in severe cases, termination rights if service levels are consistently missed.

Table: Example of service metrics in an SLA

Where can I get help with drafting or reviewing an SLA?

You can consult experienced business solicitors for advice on drafting or reviewing service level agreements to ensure your legal interests are protected.

This article was produced on the 11th August 2025 for information purposes only and should not be construed or relied upon as specific legal advice.