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A service-level agreement (SLA) is a contract between a service provider and its client. It details the client’s obligations, the standards of the terms or services of vendors and their clients, and reduces the potential for disagreements and problems that might negatively affect projects and relationships.

SLAs initially became an essential document with IT service providers. The use of SLAs expanded with the emergence of IT outsourcing in the late 1980s and are now broadly used in numerous other fields including project management. SLAs are used as a way to govern the relationship between service providers, as well as internal and external customers.

SEE: Service level agreement (SLA) policy (TechRepublic Premium)

How to use SLAs in project management

Vendor services is often a minefield for misunderstandings and disappointment, making SLAs of particular importance in project management. These vital agreements define the performance characteristics of a vendor and establish ways to address service-based issues.

Depending on the nature and duration of the service being contemplated, a project manager should request an SLA to reduce the risk of unintended consequences–especially after a project has ended.

Key components of SLAs

Due to potential misunderstandings and conflict, SLAs should include at the very least a statement of objectives, a list of the services to be provided, describe the duties of the service provider and client, and any means for conflict resolution. Depending on the type of service, other elements might include the following.

  • Availability and uptime: The time period and frequency for which the services are provided must be available to the customer. Uptime percentage is usually measured and reported on a monthly basis.
  • Performance standards: These are specific benchmarks that are determined by the client. Actual vendor service-level performance is measured against these benchmarks to ensure the performance standards have been met.
  • Response time: The minimum and maximum amount of time that a vendor is allotted for responding to a request or communication of some kind.
  • Resolution time: The minimum and maximum amount of time that a vendor is given to resolve a particular task or issue.

The vendor or service provider should be bound to meeting the level of service as outlined within the SLA. All the components in an SLA are of great importance to a project manager, as he or she is charged with the responsibility of dealing with vendors to successfully complete a project.

Why measuring performance is important

The vendor’s performance needs to be analyzed according to a set of attainable, predetermined, and agreed to metrics. Response time and resolution time are among the key metrics included in an SLA since they relate to how the service provider deals with service interruption.

Including penalties or other remedies in an SLA

An SLA should include a plan to address any penalties, compensation, or other remedies relating to non-performance or underperformance by a service provider. Some remedies may include:

  • Service credits: Service credits are one option in the case of underperformance or breach of contract. In this situation, the vendor is expected to issue credits to the customer on the basis of SLA-specific calculations. Vendors may provide credits that are directly proportionate with the amount of time it exceeded relating to the terms and conditions of the contract.
  • Exclusions: The service-level agreement might also include an exclusion list that outlines any unforeseen events that a vendor should not be held liable for.