Service Level Agreements are supposed to protect your organization from vendor underperformance. They're the contractual backbone of vendor accountability, the lever you pull when things go wrong, the insurance policy for your critical services.
But when a major vendor outage actually hits, most organizations discover something uncomfortable. Their SLAs look way more protective on paper than they are in practice.
The story will sound familiar. The vendor was "technically" available 99.9% of the time. The outage "didn't count" because it happened during a maintenance window you didn't know was scheduled. The refund you're entitled to is a service credit worth a tiny fraction of the business impact you suffered. Performance metrics are measured using the vendor's internal tools, with data you can't independently verify.
The problem isn't that SLAs don't work, it's that most organizations negotiate them wrong. I have personally read through hundreds of SLAs, the good ones, the bad ones, the ones the protect customers, and the ones that only protect vendors. Folks are constantly asking me “What makes a good SLA?”, so I thought I’d put together a practical guide on how to build SLAs that actually protect a business when it matters most.
Most SLA negotiations begin with the vendor's template, which always emphasizes uptime percentage. "We guarantee 99.9% availability" sounds impressive until you do the math. That's 8.76 hours of downtime per year, or 43.8 minutes per month.
For a payment processor during holiday shopping season, 43 minutes of downtime could cost millions. For a customer communication platform, even 10 minutes can create chaos. Uptime percentage alone doesn't capture business impact.
A better approach is to define SLAs around the specific outcomes your business needs.
These could be outcomes like:
When negotiating with a vendor, start by articulating what "good service" means for your specific use case. Don't accept their generic uptime metric if it doesn't align with how you actually use the service.
Most SLAs fall apart at measurement time. Usually, the vendor measures their own performance using their own tools, and you have no way to verify it.
The vendor says they had 99.95% uptime last quarter. Your users experienced multiple significant outages. Who's right? Without independent measurement, the vendor's word is the only data point you have.
I recommend addressing a few critical questions during SLA negotiation:
The best SLAs include language explicitly granting you the right to independently monitor service performance. If a vendor resists this, ask yourself what they're worried you'll discover.
SLA penalties typically take the form of service credits. Partial refunds applied to future bills. Unfortunately, these credits are usually calculated as a small percentage of your monthly spend and capped at a maximum that's far below the actual business impact of poor performance.
A vendor might offer 10% service credits for missing their uptime target. If you pay $10,000 monthly and they're down for a full day, you get $1,000 back. But what if that day of downtime cost you $100,000 in lost revenue or customer trust?
I recommend negotiating stronger SLA remedies with special terms:
For your most critical vendors, consider negotiating business impact clauses that go beyond simple service credits to address consequential damages. Vendors typically resist these strongly, but they're worth pushing for.
An SLA is only as good as your ability to verify compliance. Yet many organizations sign agreements without ensuring they'll have the visibility needed to actually track vendor performance.
The most sophisticated organizations are moving beyond waiting for vendor reports to implementing their own continuous monitoring. Independent visibility means you know about problems when they happen, not when vendors get around to reporting them.
Along the same lines, the most important provision many organizations overlook is the right to audit vendor SLA compliance. Without audit rights, you're entirely dependent on vendor self-reporting. With audit rights, you have leverage to demand proof of compliance and investigate discrepancies between vendor reports and your own experience.
When vendors know you have independent visibility into their performance, they're incentivized to meet their commitments. When they know you're only checking quarterly reports they provide, there's less pressure to maintain consistent quality.
Every vendor relationship eventually encounters scenarios that weren't considered when the contract was signed. The time to address these is during negotiation, not during a crisis.
Lookout for these common SLA traps:
Even with perfectly negotiated SLAs, your leverage is limited. If you're dependent on a vendor for critical services, your real goal isn't to win SLA disputes, it's to prevent problems in the first place.
The best use of strong SLA terms isn't to collect service credits after outages, it's to signal to vendors that you're a sophisticated buyer who takes service quality seriously. Vendors often prioritize the customers they know are watching closely. Squeaky wheel gets the grease as they say.
In cases where you lack the leverage to negotiate better SLAs, be sure to do your research up front on the vendor’s operational history. Look into historical uptime and incident reports and weigh your options to ensure you’re choosing a high performing vendor.
Negotiating effective SLAs requires thinking beyond the vendor's template to address your specific needs, measurement methods, meaningful remedies, transparency requirements, and edge cases. It means being willing to push back on standard terms that don't adequately protect your organization.
Most importantly, it means recognizing that the SLA is just the beginning. The real protection comes from having the visibility to know when vendors aren't meeting their commitments and the operational discipline to hold them accountable.
Your vendors will perform to the standards you accept, not the standards you negotiate. Make sure you're equipped to verify the difference.
Ready to move beyond hoping vendors meet their SLAs? Contact Clarative to learn how continuous monitoring gives you the independent visibility needed to verify vendor performance and hold them accountable to their commitments.
