Software development is a complex process, and the language that comes with it can be equally complicated. Service level agreements (SLAs), operational level agreements (OLAs), and underpinning contracts (UCs) are just some of the terms you may come across.

SLAs, OLAs, and UCs are all parts of the same process, so confusion among the three terms is understandable. As similar as they may be, it’s important to understand their differences. With that in mind, here’s a closer look at what OLAs, SLAs, and UCs are and how they’re different.

What Is an SLA?

An SLA is likely the most familiar term to most professionals. Service-level agreements are contracts between service providers and their customers that help hold both parties accountable and track performance against expectations.

An SLA is not the agreed-upon availability level or other goals a provider promises, but it outlines these commitments. SLAs also often include penalty policies that apply if the provider doesn’t deliver on their side of the arrangement.

What Is an OLA?

Operational level agreements, also called operating level agreements, seem remarkably similar at first. Like SLAs, they’re contracts between two parties that outline a project's objectives, roles, and responsibilities. Unlike SLAs, though, OLAs are internal documents that signify an agreement between teams or workers within the same organization, not service providers and customers.

OLAs enforce internal agreements to ensure smoother workflows, just as non-compete agreements prevent employees from abusing access privileges. IT services are often complicated, requiring effort from the service desk, network administrators, operations management, support groups, and more. Operational level agreements help ensure every party plays its part in delivering value to customers.

An OLA could specify a team’s scope of work, expectations and due dates, as well as supplementary information like their schedule and contact information. Service providers may have to adjust their workflows as the project progresses, so the OLA may also include rules and processes for updating these agreements.

What Is a UC?

An underpinning contract is similar to an OLA in that it supports behind-the-scenes operations in a project. However, while OLAs are agreements between internal teams, UCs represent agreements between the service provider and a vendor or supplier. UCs ensure suppliers support service providers, just as an SLA holds providers accountable to their customers.

You won’t be able to uphold your end of an IT services agreement if you can’t get ahold of the necessary resources in time and on budget. That’s where the term “underpinning” comes in. Without these agreements, service providers have no legal basis for holding their suppliers accountable should an error on their end impact customers.

UCs could apply to hardware vendors, software providers, payment processors or any other third party you rely on to serve customers. These may last longer than SLAs and OLAs since they often apply across multiple projects.

How SLAs, OLAs, and UCs Differ

Service level agreements, operational level agreements, and underpinning contracts are all similar but separate. One of the easiest ways to differentiate them is to consider to which parties they apply. Each term refers to a formal agreement, but they represent different commitments between different parties:

• SLAs are agreements between service providers and their customers.

• OLAs are agreements between internal service provider teams or workers.

• UCs are agreements between service providers and third-party vendors or suppliers.

SLAs, OLAs, and UCs also differ in their purposes, although these can be similar. SLAs set expectations and penalties for providers’ services, while OLAs aim to ensure internal workflows operate efficiently. They help clarify each team’s roles and responsibilities to prevent confusion and conflict, enabling them to work well together.

An underpinning contract aims to ensure consistent, reliable service from third-party vendors. They provide assurance for service providers trying to meet clients’ expectations by holding the companies they rely on accountable.

Where SLAs, OLAs, and UCs Overlap

These three agreement types are all distinct, but there’s considerable overlap among them. These close ties may result in confusion over the terms, but it’s also important to understand these relationships to make the most of each agreement.

OLAs and UCs support service providers as they uphold their end of an SLA, just as SLIs and SLOs help guide SLAs. If serving customers is a provider’s ultimate goal, then the SLA is arguably their most important commitment, as it defines customers’ expectations. The other two contract types help guide them in meeting those goals.

Internal teams that can’t work together efficiently risk missing the deadlines and performance metrics the SLA outlines. Operational level agreements help prevent those situations, providing more clarity and organization as the service provider completes its end of the SLA.

Similarly, underpinning contracts help ensure service providers have the resources to uphold SLAs. It may be difficult to determine if a vendor meets the performance metrics you need to support your SLAs without a UC. These contracts also provide a basis for any necessary penalties if a vendor error affects your end of the SLA.

Why Does It Matter?

Understanding SLAs, OLAs and UCs is crucial for delivering the most value to clients. You likely already know the importance of an SLA, but you may struggle to meet these expectations without OLAs and UCs.

Service provider teams may already use OLAs and UCs without realizing it. However, knowing the formal differences between them can help you create optimal agreements for each relationship in the software development process. UCs carry different consequences and considerations than OLAs, as OLAs differ from SLAs. You can customize each agreement to fit its unique situation better when you understand these differences.

The IT managed services market could grow to $274 billion by 2026, which, while promising, means rising expectations. Companies are increasing IT spending and new competitors are arising in the industry, so service providers must optimize their operations. That means capitalizing on OLAs and UCs.

Understand the Differences Between Agreements

Operational level agreements and underpinning contracts may not receive the same publicity as SLAs, but they’re critical. Knowing more about them can help you uphold future SLAs better. You can then deliver more value to clients and pull ahead of competitors.