Service Level Agreement (SLA) Meaning: Complete Business Guide

Last updated: 13 June 2025

A Service Level Agreement (or SLA) is a contract between 2 parties, where the level of service to be provided is clearly defined to ensure both parties have a common understanding of the final outcome.

A Service Level Agreement is for the benefit of both the service provider and the customer. It is beneficial for the service provider as they are defining the scope and describing the service they are providing. It is also beneficial for the customer as they have a certain level of service that they can expect that should fit their needs and requirements.

What types of service levels can a Service Level Agreement cover?

A Service Level Agreement can define any number of specific service levels, such as:

• Delivery or completion date by which the service must be provided
• Performance levels that are expected (e.g. uptime for web hosting)
• Exact materials to be used (e.g. marine grade stainless steel)
• Procedures to be carried out when completing tasks, etc.

In addition, guarantees and warranties for the services to be provided are typically included in an SLA, with penalties for missed service levels.

What can a Service Level Agreement be used for?

Service Level Agreements can be used for short and long-term projects and small and large-scale projects.

A consumer example would be the signing up of a customer for ISP (Internet service provider) services. In this case, the customer has relatively low bargaining power with the service provider with respect to the level of service to be provided. The provider’s contract would be a Service Level Agreement that specified expected download speeds, guaranteed uptime, etc.

A small-scale business example would be the engagement of a contractor for office cleaning services. The Service Level Agreement would typically include a specified start time, defined cleaning duties and frequency.

A large-scale business example would be a construction project where the construction company needed to rent equipment under a Service Level Agreement. The company supplying the equipment would need to outline its responsibilities in the agreement and ensure the equipment was capable of working in the planned working conditions. The construction company would need to ensure that they were using the equipment within the guidelines provided. In this case, both parties would want to have a detailed understanding of each other’s responsibilities and expectations in order to agree on the service required.

Overall, from a service provider and customer’s standpoint, a Service Level Agreement is beneficial to ensure clarity and certainty of the service as well as to ensure the rights of both parties are understood and protected.

About the Author: Vanessa Emilio

Vanessa Emilio (BA Hons, LLB, ACIS, AGIA) is the Founder and CEO of Legal123.com.au and Practice Director of Legal123 Pty Ltd. Vanessa is a qualified Australian lawyer with 20+ years experience in corporate, banking and trust law. Click for full bio of Vanessa Emilio or follow on LinkedIn.

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