A Professional Services Agreement is a legal contract that lays down the foundation of an association between the service provider and the client. It can also be taken as a legal confirmation of the services provided by the service provider to the client.
It holds the record and details of the kind of services that will be provided by the providers and the remuneration that they will receive. Such an agreement is extremely common and thus, less complex too. However, there are some very crucial details that shouldn’t be missed while drafting it. Professional Services Agreement is often referred as PSA.
When Is Professional Services Agreement Needed?
Professional Services Agreement is needed for projects that are extremely specific in nature. For instance, if a project requires a certain level of education, experience or knowledge and is a one-time deal, both the service provider and the client can get into a Professional Services Agreement.
It should be noted that the services included here can be frequent too but, in most cases, they are infrequent or one-time deals.
The services provided in these cases don’t require maintenance in the future, or the client’s existing employees can take care of it.
Purpose of A Professional Services Agreement:
- To fulfill a client’s need for the services that can’t be provided by its internal team
- To use an expert with required experience and qualification for a particular service
- To assist the client with his increasing responsibilities
- To reduce pressure on the client
- To provide opportunities for better talent
- To use freelancers or consultants who naturally have more exposure & flexibility
Inclusions in Professional Services Agreement
Professional Services Agreement must include details about the services that will be provided by the provider to the client. If it’s a long project, then there should be details of the projects and time period. It is essential to add a list of the deliverables in almost all cases to reduce any future conflict.
Here are some more inclusions –
- The process in which services will be provided
- The timeline of the deliverables if applicable
- Details of the remuneration or compensation received by the service provider
- The governing law under which the agreement is drafted
- The process of agreement cancellation
- The process of dispute resolution
- Information about the taxes
How to Draft Professional Services Agreement?
To draft a PSA, it is extremely important for both the parties to be aware of all the service details, methods and payment structure. To avoid any future breach or conflict, it is always better to first lay down all such details in person. Once the service provider and the client are on the same page, they can start the agreement procedure.
Here is a step by step procedure –
- Exchange the documents of guidelines and rules
- Read the rules, terms, clauses and guidelines carefully
- Set clear expectations
- Mention adequate details of services or deliverables
- Elaborate pay structure and fee
- Customize the agreement if need be
- Understand the tax structure
- Understand the termination and cancellation provision carefully
Benefits of Professional Services Agreement
Like most other services agreement, Professional Services Agreement too helps in putting everything on record at one place. If a company or client decided to take services from outside their internal staff, then the details of those services and pay structure should be on the agreement to benefit both the parties.
Advantage of Professional Services Agreement –
- Beneficial for limited duration partnership
- Save money
- profitable for both the client and service provider
- Improved confidentiality and risk management
- Fast services and work
- Easier renewals
- Services from experts and experiences providers
Key Clauses in Professional Services Agreement
Many people might avoid reading or understanding each and every clause of the agreement but for both the service provider and the client, it is paramount to pay attention to them. For the client, it is crucial that he gets all the services and deliverables from the provider and for provider, it’s of utmost importance that they get the fee they have been promised of.
Some important key clauses are –
- Liability and damage
- Dispute resolution
- Terms and termination
What Happens When You Violate Professional Services Agreement?
Both the client and the service provider have the right to sue and take legal help if the violation takes place. Common situations are a failure of payment by the client, lapses by the service providers in providing promised deliverables, etc. In case of any property damage, the client can charge the service provider. However, it’s suggested to add this information in agreement in the start itself.
[Also Read: General Contract for Services]
Sample of Professional Service Agreement
It is highly suggested that one should take an expert’s opinion on such important agreement. However, PSA is a little less complicated and complex so you can download an attorney made sample from here. You can customize it as per your need.