Service Level Agreement Between Two Companies: What to Include and How to Draft One

If you’re a small business that relies on another company to deliver something important (IT support, logistics, SaaS hosting, customer service, manufacturing, marketing - you name it), you’ll know how quickly things can get stressful when expectations aren’t clear.

Maybe your supplier says they’ll respond “quickly” to issues, but your team is still waiting days later. Or your customer expects 24/7 support, but your business only staffs weekdays. Or a missed delivery deadline knocks on to your own customer commitments.

This is exactly where a service level agreement between two companies can make a huge difference. It sets clear standards, measurable targets, and practical processes so everyone knows what “good service” looks like - and what happens if it isn’t delivered.

Below, we’ll walk through what a service level agreement is, when you need one, what to include in the UK, and how to draft it in a way that actually protects your business (rather than just being a document that sits in a folder).

What Is A Service Level Agreement Between Two Companies?

A service level agreement between two companies (often shortened to “SLA”) is a contract (or contract schedule) that defines:

• what services will be provided;
• the performance standards the service provider must meet;
• how performance is measured and reported; and
• what remedies apply if service levels aren’t met.

SLAs are most common in B2B service arrangements where ongoing performance matters, such as:

• IT managed services (helpdesk, network maintenance, cybersecurity monitoring)
• SaaS or cloud hosting
• facilities management and cleaning contracts
• logistics, warehousing, and distribution
• call centre or outsourced customer support
• marketing retainers and campaign management
• maintenance contracts for equipment

An SLA can be a standalone agreement, but often it forms part of a wider contract (for example, a master services agreement) and focuses specifically on the measurable service commitments.

As a small business, the goal isn’t to make things overly complicated. It’s to remove ambiguity and reduce “he said, she said” disputes before they happen.

When Do You Need An SLA (And When Is It Overkill)?

You don’t need an SLA for every supplier relationship. For example, if you’re buying one-off services with a clear scope and fixed delivery date, your main focus may just be a well-drafted contract with a clear specification and timeline.

However, an SLA is usually worth it when:

• Service is ongoing (monthly/annual retainer, subscription, continuing support)
• Performance affects your customers (downtime, delays, poor quality has a knock-on impact)
• There’s operational risk (security incidents, failed compliance, system outages)
• You need measurable accountability (response times, uptime, throughput, accuracy)
• You’re scaling and can’t afford informal, ad-hoc arrangements

On the flip side, an SLA can be overkill if:

• you’re engaging a provider for a short, fixed project;
• the “service” is not measurable in any meaningful way; or
• the cost of negotiating and managing SLAs is disproportionate to the contract value.

A practical middle-ground for many SMEs is: keep the commercial agreement simple, and attach an SLA schedule that focuses on the few service metrics that truly matter.

What Should A Service Level Agreement Include In The UK?

A solid SLA is more than a list of ambitious targets. It’s a working document your operations team can use day-to-day, and your management team can rely on if something goes wrong.

Here are the key clauses and sections most UK businesses should consider.

1) Clear Service Scope (What’s Included And What Isn’t)

Start with the basics: what services are being provided, to whom, and in what locations (or systems). A common mistake is leaving the scope too vague and relying on assumptions.

Consider spelling out:

• the service description and objectives
• what deliverables are included (and format/standards)
• dependencies (what the customer must provide for the supplier to perform)
• what’s explicitly excluded (to avoid scope creep)

This section should line up with your broader Goods & Services Agreement or master services agreement so you don’t end up with conflicting promises.

2) Service Hours, Support Channels, And Escalation Paths

Many service disputes come down to mismatched expectations about availability.

Your SLA should usually address:

• service hours (e.g. Monday–Friday 9am–5pm UK time, or 24/7)
• support channels (email, ticketing system, phone line, portal)
• response vs resolution (they’re not the same thing)
• escalation tiers (who gets involved and when)

If you’re the provider, this helps you avoid committing to round-the-clock availability unless it’s priced in. If you’re the customer, it stops you being left in limbo when something urgent happens.

3) Performance Metrics (KPIs) That Are Measurable

This is the heart of an SLA between two companies. The best metrics are measurable, relevant, and hard to argue about later.

Common SLA metrics include:

• Uptime / availability (e.g. 99.9% monthly uptime, excluding planned maintenance)
• Response times (e.g. acknowledge Severity 1 incidents within 30 minutes)
• Resolution times (e.g. resolve Severity 1 incidents within 4 hours)
• Delivery times (e.g. next-day shipping cut-offs, on-time delivery percentage)
• Quality measures (e.g. defect rate, rework percentage, error rates)
• Customer satisfaction (e.g. CSAT scores, complaint thresholds)

A common drafting tip: avoid relying solely on “reasonable endeavours” wording in an SLA. SLAs are usually about measurable commitments. (If you do use that language, be precise about what it means in practice.)

4) Priority Levels And Incident Definitions

To make KPIs workable, you’ll need an agreed “severity” system. Otherwise, everything becomes urgent - and nothing is.

For example:

• Severity 1 (Critical): total outage, security incident, business operations halted
• Severity 2 (High): major degradation, significant users affected
• Severity 3 (Medium): partial impairment, workaround available
• Severity 4 (Low): minor issue, general queries, cosmetic defects

Define how incidents are logged, who can log them, what information must be provided, and when the service provider is entitled to reclassify the severity level.

5) Service Credits, Remedies, And Practical Consequences

An SLA without consequences can be hard to enforce commercially. On the other hand, remedies that are too harsh (or structured as punitive “penalties”) can be risky, and need careful drafting to make sure they’re enforceable under UK law.

Many SLAs use service credits (for example, a percentage reduction in monthly fees if uptime falls below an agreed threshold). This tends to be more commercially realistic than trying to quantify losses every time performance drops.

Your SLA might cover:

• when a service credit applies and how it’s calculated
• whether credits are the sole and exclusive remedy for SLA breaches (this needs careful drafting)
• notification and claiming procedures (so credits aren’t automatic unless you want them to be)
• repeat failure triggers (e.g. right to terminate after 3 consecutive months of missed targets)

This should sit alongside an appropriate limitation of liability framework in the main contract. A tailored Limitation of Liability approach can be critical if service failures could cause major loss.

6) Reporting, Reviews, And Audit Rights

Service levels aren’t just a legal exercise - they’re something you manage over time.

Consider including:

• how and when performance reports are provided (weekly/monthly dashboards)
• what data sources are used (system logs, third-party monitoring tools)
• review meetings (e.g. quarterly service reviews)
• rights to request information and (where appropriate) audit performance

For small businesses, even a simple “monthly service report + quarterly review call” can prevent issues building up quietly until the relationship breaks down.

7) Change Control (How You Update The SLA Without Chaos)

Businesses change. Your SLA needs a sensible method for updating scope, KPIs, or support hours without re-negotiating the entire deal from scratch.

This often includes:

• a process for submitting change requests
• timeframes for responding to change requests
• how changes affect fees and timelines
• who must approve changes

This is particularly important where the SLA is attached to a longer-term agreement, like a Managed Services Agreement.

8) Data Protection And Confidentiality (Especially If Personal Data Is Involved)

If the service provider is processing personal data on your behalf (think customer lists, employee data, platform users, patient data, and so on), your contract can’t just rely on the SLA. You’ll typically also need UK GDPR-aligned terms.

In practice, that may mean:

• a data processing schedule (controller/processor obligations, security measures, sub-processors)
• rules about breach notification and incident response
• confidentiality obligations around non-public business information

Often, this sits within a broader agreement alongside documents like a Data Processing Agreement and, where appropriate, a Non-Disclosure Agreement.

Even if no personal data is involved, confidentiality is still important - especially where the provider will access internal systems, pricing, IP, or customer information.

9) Business Continuity, Disaster Recovery, And Security (Where Relevant)

If downtime would significantly impact your business, you’ll want more than a generic uptime target.

Consider whether the SLA should address:

• backup frequency and retention periods
• disaster recovery time objectives (RTO) and recovery point objectives (RPO)
• security standards (e.g. access controls, encryption, vulnerability patching timeframes)
• who pays for remediation after an incident (this can get complicated)

This is a “risk-based” area: the right approach depends heavily on your business model, what data is involved, and what your customers expect from you.

How To Draft An SLA That Actually Works (Not Just A Template)

One reason SLAs fail is that they’re drafted as generic, overly optimistic checklists. They look impressive but don’t match how the service is really delivered - which makes them hard to follow and even harder to enforce.

Here’s a practical way to approach drafting.

Step 1: Start With The Real-World Relationship

Before writing any KPIs, ask:

• What does “good service” look like for this relationship?
• What does “bad service” look like - and what’s the impact?
• What parts of performance can we measure objectively?
• What assumptions are we making about each other?

This makes the SLA fit the business reality, not the other way around.

Step 2: Use A Small Set Of High-Value Metrics

It’s tempting to measure everything. But too many KPIs can lead to confusion and admin overload.

For most SMEs, 3–8 core metrics is often enough, such as:

• uptime
• critical incident response time
• resolution time
• on-time delivery rate
• quality/error rate

Make sure each metric is defined (how it’s measured, what time period applies, what exclusions exist).

Step 3: Align The SLA With The Commercial Terms

SLAs don’t live in isolation. They need to match the broader deal, including:

• fees and payment terms
• term length and renewal
• termination rights
• liability caps and exclusions
• ownership of deliverables and IP

If your SLA promises next-day delivery but your payment terms allow you to pay 60 days late (or vice versa), you’ll create friction fast.

Where you’re putting the overall relationship in writing, a well-structured Service Agreement can set the foundation and then the SLA can add the performance layer.

Step 4: Make It Easy To Follow Internally

Ask yourself: could your team use this without calling a lawyer every time?

Practical drafting tips:

• use tables for KPIs (target, measurement method, reporting period, remedy)
• define key terms up front
• keep severity definitions tight and unambiguous
• include a simple escalation flow (names/titles can sit in a schedule)

An SLA is most useful when it’s operational - something your staff can refer to during the relationship, not just during disputes.

Step 5: Be Careful With “Boilerplate” Clauses

It’s common for SLAs (especially in tech) to include terms like:

• “sole remedy” clauses for service credits
• wide exclusions for downtime outside the provider’s control
• limitations on the customer’s ability to terminate
• automatic renewals and unilateral changes

Some of these can be commercially reasonable, but they need to be balanced. If you’re the customer, you don’t want an SLA that looks protective on paper but gives you no real options when performance repeatedly fails. If you’re the provider, you don’t want to take on unlimited risk for things outside your control.

This is where tailored legal drafting matters most - especially when you’re relying on the service to fulfil your own customer promises.

Common Mistakes SMEs Make With Service Level Agreements

Even well-meaning businesses can accidentally build an SLA that creates more problems than it solves. Here are some of the issues we see often.

Vague Commitments That Are Hard To Enforce

Phrases like “prompt support”, “industry standard uptime” or “best efforts” can sound fine, but they’re hard to measure. If you’re going to use them, define them in practical terms (timeframes, targets, scope).

KPIs That Don’t Match The Pricing

If you want 24/7 incident response, high availability, and rapid resolution, the provider needs the resources to deliver that. If the fees don’t match the expectations, performance problems are likely.

No Process For Customer Responsibilities

SLAs often fail because the provider can’t perform without something from the customer - access credentials, approvals, a single point of contact, accurate data, and so on.

Spell out the customer’s obligations so the provider isn’t blamed for delays caused by missing inputs.

No Exit Plan For Repeat Failure

A single missed KPI might be manageable. But repeat failures are where small businesses can really get hurt, particularly if you’re locked into a contract term with no realistic termination right.

Consider including “chronic failure” triggers and rights to terminate if service levels aren’t met over a defined period.

Ignoring Data Protection And Security

If personal data is involved, you’ll need more than an SLA. UK GDPR and the Data Protection Act 2018 require appropriate contractual safeguards when another company processes data on your behalf.

It’s not just about compliance - it’s about reducing business risk if a breach or incident occurs.

Key Takeaways

• A service level agreement between two companies helps you set clear, measurable service expectations and reduces disputes about performance.
• A strong SLA should cover scope, service hours, KPIs, severity levels, reporting, escalation, remedies (like service credits), and a process for changes.
• Make sure the SLA aligns with the main commercial contract terms, including termination rights and limitation of liability.
• Be realistic: service levels should match pricing and operational capability, otherwise the relationship will struggle.
• If personal data is involved, build in appropriate data protection and security provisions - SLAs alone usually aren’t enough.
• Templates can be a starting point, but a tailored SLA is far more likely to protect your business and reflect how the service is actually delivered.

If you’d like help drafting or reviewing a service level agreement between two companies, you can reach us at 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat.