SLA vs MSA: what's actually in a service level agreement

Your vendor's sales deck promised 99.9% uptime. Then the platform went down for most of a business day at month end, and you went looking for what the contract gives you. The answer is usually a credit of around 10% of one month's fee, off your next invoice, provided you claimed it in writing within the window. That is the service level agreement working exactly as drafted.

A service level agreement contract sets the standard a service has to meet and what happens when it falls short. Most founders read the MSA closely and skim the SLA. The SLA decides what happens when the service fails, so it deserves the closer read.

What a service level agreement contract covers

An SLA turns words like reliable and responsive into numbers: the system is available 99.9% of the month, a critical fault gets a response within one hour and a fix or workaround within four.

SLAs turn up wherever a service is ongoing: software, managed IT, outsourced support, logistics, facilities. If the value of the service depends on it being there when you need it, the performance standard should be in writing.

SLA vs MSA: which document does what

An SLA usually sits under a master services agreement rather than replacing it. The short version is that each document has a different job.

The MSA holds the legal terms that apply across the whole relationship: liability, IP, confidentiality, termination and disputes.

The statement of work or order form sets out what is being delivered and for what price.

The SLA sets how well it has to be delivered, and what you get if it isn't.

Which document wins when the MSA and SLA conflict?

How the documents fit together matters most when they conflict. Say the MSA caps liability at the fees paid in the last 12 months, and the SLA says service credits are your sole and exclusive remedy for performance failures. Which governs a week-long outage that costs you customers? That turns on the order of precedence clause. We regularly see contracts that have no precedence clause at all, or that bury it in the recitals, where it may have no operative effect.

Also check whether the SLA is attached at all. A common pattern in vendor terms is a clause saying the service levels are published on the vendor's website and may be updated from time to time. That lets the vendor change the standard after you sign.

What's actually in an SLA

Scope. Exactly which services, modules or systems are covered. A 99.9% uptime promise on the core platform may not extend to the API you integrate with, or the reporting module your team relies on.

Measurement. Who measures, with what tool, over what period. Uptime is usually calculated monthly as the percentage of minutes the service was available. Read the definition of available closely. I have seen it defined so narrowly that the service could be useless to the customer and still count as up.

Service levels. Availability, plus response and resolution times by severity. The severity definitions do a lot of work here. If the provider alone decides what counts as critical, it decides which clock runs.

Exclusions. Scheduled maintenance (check the notice period and the monthly cap on it), outages the customer causes, third party failures and force majeure. A long list of exclusions can hollow out a strong headline number.

Reporting. Whether the provider reports performance each month, or you have to prove a failure yourself.

Remedies. Service credits, escalation and, in better drafted SLAs, a right to terminate for repeated failure.

Service credits carry most of the weight

A service credit is a reduction in future fees when a service level is missed. A typical clause gives 10% of the monthly fee for each hour below target, capped at 30%. Check three things.

Whether credits are your only remedy. Vendor terms almost always make credits the sole and exclusive remedy for missed service levels. Paired with a liability cap, that can mean a long outage gets you a partial refund and nothing more. Push to limit the sole remedy wording to minor misses, and keep your right to terminate and claim damages for serious or repeated failure.

How you claim them. Many SLAs require a written claim within a set period, often by the end of the following billing cycle, and credits are forfeited on termination. If nobody on your team diarises the claim, the remedy lapses. Our practical guide to contractual compliance covers how to keep on top of obligations like this one.

Whether they hold up. This one is for providers. A credit drafted as a price adjustment that reflects the reduced value of the service sits comfortably with Australian penalty law. A credit out of all proportion to your customer's legitimate interest reads as punishment for breach and is open to challenge as a penalty.

Two Australian rules the SLA cannot draft around

Unfair contract terms. If the SLA is a standard form contract and one party is a small business (fewer than 100 employees or annual turnover under $10 million), the unfair contract terms regime applies. Since November 2023, proposing or relying on an unfair term can attract a penalty as well as having the term declared void. The SLA terms most at risk are those letting the provider change service levels on its own, or decide by itself whether a breach occurred.

Consumer guarantees. Services acquired for $100,000 or less, or of a kind usually acquired for personal or household use, come with Australian Consumer Law guarantees, including that they are supplied with due care and skill. A sole remedy clause can limit liability for those guarantees in some cases. It cannot exclude them.

If you are the one giving the SLA

Write the SLA from your own supply chain backwards. If your platform runs on a cloud provider that commits to 99.9% and pays you a capped credit when it misses, promising your customers 99.99% leaves you carrying the gap with no one to pass it to. Keep your SLA back to back with your upstream ones, with their outages either listed as exclusions or built into your targets.

Get sales and legal looking at the same page. The number in the pitch deck and the number in the SLA should match.

What should you check before you sign an SLA?

Read the SLA alongside the MSA, and check the order of precedence, the sole remedy wording and the liability cap together, since they only make sense as a set. Make sure the SLA is attached and fixed, not a link that can move. Put the credit claim deadline in someone's calendar. If the service is critical to your business, get a right to walk away after repeated misses.

Common questions

What is the difference between an SLA and an MSA?

The MSA carries the legal terms for the whole relationship, such as liability, IP, confidentiality, termination and disputes. The SLA sets the performance standard the service has to meet and the remedy when it misses. The statement of work or order form, the third document in the set, covers what is delivered and the price.

Are service credits the only remedy when a vendor misses its service levels?

Only if the contract says so, and vendor terms almost always do. Combined with a liability cap, that wording can leave a customer with a partial refund after a serious outage. The usual push is to confine the sole remedy wording to minor misses and keep termination and damages for serious or repeated failure.

Can a vendor change the SLA after I sign?

It can if the contract lets it, most commonly through a clause pointing to service levels published on the vendor's website and updated from time to time. Insist that the SLA is attached to the contract and fixed. Where the small business unfair contract terms regime applies, a term letting the provider change service levels on its own is among those most at risk.

When do I have to claim a service credit?

Within whatever window the SLA sets, which is often the end of the following billing cycle, and usually in writing. Miss the window and the credit is generally gone, and credits are typically forfeited on termination too. Diarise the deadline as soon as the contract is signed.

Can a service credit be an unenforceable penalty?

It can, if the credit is out of all proportion to the customer's legitimate interest and operates as punishment for breach. A credit drafted as a price adjustment reflecting the reduced value of the service sits comfortably with Australian penalty law. Providers should draft with that distinction in mind.

Talk to us

If you are about to sign or issue a service level agreement contract and want a second read, send us the MSA, the SLA and any order form, or book a fifteen minute call. We will tell you where the gaps are and which points are worth pushing on.

This article is general information only and is not legal advice.