A service level agreement (SLA) is a key component of an IT organization’s overall service level management (SLM) strategy. By definition, an SLA is an agreement—not a contract, however it is included in many service contracts and generally have SLA penalties (or credits) attached to protect the customer for case the provider does not meet the expectations of the service offered. In some cases there are also SLA bonuses if the provider exceeds the level of services offered.

These bonuses are a very good mechanism for attaching a monetary benefit for overachieveing the Service Levels and the penalties (credits) should be seen as a deterrant rather than actual compensation for loss of service. That is because no service provider will offer a credit bigger that the cost of the services, however the loss of service would mean a lot of monetary loss for the customer, and a comparison does not make sense.

That is way it is not possible to depend only on one single provider for any service. When you loss the service of your main provider the credits will apply but only up to certain point. It is the responsibility of the customer to have an alternative provider.

Some good practives for SLAs:

- Guarantee a certain level of end-to-end service performance for applications. (including availability, latency, throughput).
- If there is a depedency on SLAs of additional providers of your provider. The SLA in place it must be disclosed at the time of the contract and at any subsequent change.
- Credit for prolonged circuit outages should be reimbursement of the cost of the back-up services used. Normally backup services cost more than primary services.
- The protection from repeated failures should include the opportunity to augment/replace defective services with more reliable services from another vendor or use a different technology at no additional cost.
- Option for getting out of a contract or changing of minimums of use or type of use for failure over a prolonged period of time without penalty.