When it comes to the legal agreements between businesses, two types of agreements are commonly used: contract and service level agreement (SLA). Although these two terms are often used interchangeably, they have distinct differences. Understanding these differences can be crucial in creating a legally binding agreement.

What is a Contract?

A contract is a legal agreement between two parties that outlines the terms and conditions of a business transaction or relationship. It typically includes the payment terms, delivery date, and other details relevant to the business deal. Contracts can be either verbal or in writing, but it is always better to have a written document that defines the obligations and responsibilities of each party.

Contracts can be used for various purposes, including employment, partnership, sales, and procurement. The most important element of a contract is that it binds both parties to follow the agreement and holds them accountable for any breach of the terms.

What is a Service Level Agreement?

A service level agreement (SLA) is a contract between a service provider and a client that outlines the expectations and responsibilities of both parties in a service-based relationship. SLAs are commonly used in IT services, such as network uptime, software support, and web hosting.

An SLA defines the level of service that the client can expect and the consequences if the service provider does not meet those expectations. It typically includes the service level objectives, such as uptime, response time, and resolution time, as well as the support hours and escalation procedures in case of service disruptions.

What are the Key Differences?

The key difference between a contract and an SLA is the type of agreement. A contract can cover a wide range of business transactions, while an SLA is limited to service-based relationships. Additionally, contracts can be either verbal or written, while an SLA is always a written document.

The second difference is the focus of the agreement. A contract outlines the terms and conditions of a business transaction, while an SLA defines the level of service that the client can expect from the service provider. Contracts are typically more comprehensive than SLAs, as they include legal obligations and responsibilities, whereas an SLA is more focused on service delivery.

The third difference is in the consequences of non-compliance. A contract typically includes penalty clauses or the right to terminate the agreement if one party does not fulfill their obligations. In contrast, an SLA defines the remedies and compensation if the service provider fails to meet the service level objectives.

Conclusion

In summary, while both a contract and an SLA are legal agreements, they serve different purposes. A contract deals with a broad range of business transactions and obligations, while an SLA is focused on service delivery. Understanding the differences between these two agreements is essential in creating legally binding agreements that protect the interests of both parties.