Professional Services Agreement: A Basic Guide

What Is a Professional Services Agreement?

A professional services agreement (PSA) is a form that firms or consultants can use to create a contractually binding arrangement with a highly skilled business or individual. These agreements usually cover single projects with defined scopes or timelines. As a legally binding contract, a PSA provides protection for both the consultant and the business that requests the services.

A PSA typically lists the services that the consultant will perform, the compensation that the business will provide, and the time frame for the contract. Because many PSAs also detail procedures, terms, and requirements for the service, they can be several pages long.

Who Needs a Professional Services Agreement?

Because PSAs tend to be detailed and lengthy, most organizations use them only when contracting a consultant to provide highly technical professional services. The “professional” aspect of a PSA can refer to two different definitions of the term:

• Professional license: Service providers may have required business licenses that legally allow them to offer skilled services in a designated region.
• Professional approach: Consultants may have specific qualifications, such as advanced certifications, a predetermined amount of high-level experience, or certain technical capabilities.

What Type of Services Can a PSA Cover?

Professional services typically cover intellectual deliverables rather than physical products. For example, a PSA wouldn't be appropriate for an organization providing manufacturing, labor, or construction services. However, your organization may need a PSA if you contract a consultant to provide services like:

• Auditing
• Cost estimation
• Data analysis
• Environmental studies
• Laboratory analysis
• Land surveys
• Management consulting
• Market research or analysis
• Project or campaign planning
• Program evaluation
• Software development
• Technical support
• Translation
• Web design or development
• Writing or editing

Here is an article with more examples of professional services.

When Should You Use a Professional Services Agreement?

Most organizations use PSAs for projects with clearly defined requirements, such as limited time frames or specific tasks. However, some PSAs cover ongoing services that require advanced technical skills, certifications, or licenses. PSAs can even serve as blanket agreements that allow a business to contract a consultant or firm for a set period of time.

No matter what your PSA covers, your organization should always prepare one before starting to work with a consultant. By signing a PSA before services commence, you can establish the scope of the project, the workflow, the time frame, the rate, and other key details.

What Information Goes Into a Professional Services Agreement?

You can customize a PSA to include almost any necessary stipulations or protections. However, most PSAs include a few standard sections:

• Purpose: States the general nature of the contract, such as the organization engaging the consultant to perform services as defined in an attached document, often labeled Schedule A
• Services or Duties: An attached document often labeled Schedule A that includes a description of the project, the scope of the work, and the deliverables that the consultant will provide
• Term: Specifies the start and end date of the PSA or the number of days, weeks, or months the agreement lasts
• Timetable: An attached document often labeled Schedule B that includes the dates by which the consultant will reach major project milestones
• Compensation: States the exact or maximum amount the organization agrees to pay the consultant and may include an attached document often labeled Schedule C that features a timetable for periodic payments
• Personnel: An attached document often labeled Schedule D that lists the individual consultants who will provide the stated services
• Relationship Between Parties: Establishes that the consultant remains an independent contractor and is not employed by the organization
• Confidentiality: Confirms that the consultant agrees to keep any data or other information involved in the project confidential
• Rights: Clarifies which party owns any data or intellectual property (IP) collected or produced as part of the project
• Indemnification: Confirms whether the consultant or the organization can be held liable for any damages that arise from the project
• Insurance: Lists the types of insurance coverage the consultant must have throughout the project, such as statutory workers' compensation, commercial general liability insurance, property insurance, automobile liability insurance, professional liability insurance, or crime insurance
• Compliance: Maintains that the consultant will adhere to any federal, state, or local laws and regulations that apply to the project
• Assignment: Confirms whether the consultant has the discretion to assign the agreement to another consultant or subcontractor
• Termination: States how, when, and under what circumstances the organization can terminate the PSA as well as whether the consultant will continue to receive compensation

Image via Unsplash by sctgrhm

How Do a Professional Services Agreement and a Subcontract Differ?

Subcontracts and PSAs are both binding agreements that outline the services a firm or consultant will provide for another organization. However, an independent contractor or subcontractor carries out the services included in a subcontract, while a vendor provides the services detailed in a PSA.

A subcontractor:

• Has a more involved business relationship with the organization
• Takes responsibility for important decisions regarding the project
• Is expected to reach performance goals related to the project
• Must follow project-specific rules established by the organization
• Receives payment for implementing a program or project
• Provides ongoing services over a period of months or years

A vendor:

• Provides services that aren't specific to a project or its unique requirements
• Has a number of competitors who provide the same or similar services
• Offers services that support the organization's programs
• Is not required to meet performance goals or internal metrics

What Other Types of Business Agreements Do Consultants Need?

In addition to PSAs, consulting firms and independent consultants often need a range of contracts and legally binding documents. As a consultant, you may have to prepare:

• Consulting Agreement: When consulting for another organization, many firms prepare a simple contract that states the scope of work, the time frame, and the consequences of breaching the agreement.
• Limited Liability Company (LLC) Articles of Organization: If you start a consulting firm, you may opt to form an LLC. In most states, you have to file articles of organization to register your LLC with the Secretary of State. Many LLCs must also create an operating agreement, which is an internal document.
• Nondisclosure Agreement: When working with confidential information, consultants often have to sign an NDA, preventing you from sharing proprietary information.

Do You Need an Attorney for a Professional Services Agreement?

Whether you need to customize a standard PSA or you want to create an agreement from scratch, it's important to have a lawyer draft the document. When you contract an attorney, you can benefit in a few key ways:

• Language: An experienced attorney understands how to interpret legal terms and what language to include to create a legally binding agreement.
• Customization: If you need to include an extra element like an NDA or a customized version of a standard component like a timetable, a lawyer can ensure that your PSA covers your unique project.
• Protection: An attorney can make sure a PSA offers protection for both parties involved. Most PSAs protect consultants from liability while providing adequate compensation, and they ensure that organizations receive the services as stated.
• Review: Before you sign the other party's PSA or agree to their requests to revise yours, a lawyer can review the document and ensure that it provides sufficient protection.

Here is an example of a standard PSA.

No matter what type of PSA you need, the ContractsCounsel team is at your service. Get a free proposal and take the first step toward creating a customized professional services agreement today.