The basis of every contract or business relationship is churning out excellent deliverables. However, the word ‘excellent’ is only relative when it comes to contracts. From the onset of any project, it is important that a client gets an idea of what to expect from a service provider or contractor. The proper way to lay out these expectations is through a service agreement.

A PSA is typically used by a client and a hired professional to lay out in clear terms, the quality of expected deliverable, among other things. This article discusses in detail all you need to know about a professional service agreement.

What Is a Professional Services Agreement?

A professional services agreement is a contractual document used to hire a professional or organization to take on specific tasks or provide particular services to the client. The tasks defined by the document would usually attract a form of remuneration on completion of the job following the provisions of the document.

The professional services contract is typically used by a client who needs to hire the services of an independent contractor. The relationship between the client and the contractor is usually a ‘contract for service’ as opposed to a ‘contract of service’ that exists between an employer and his/her employees. A relationship cemented by a professional services agreement is usually preferred over a subcontractor relationship for a job with limited scope or duration.

What Should Be Included in a Professional Services Agreement?

Every professional services agreement template should contain the following elements:

  • Services: Here, the contractor agrees to carrying out the job in a timely and professional manner.
  • Compensation
  • Terms of agreement
  • Conditions of termination
  • Relationship: In this section, both parties must attest to an understanding that the hired professional is only a contractor and not an employee, hence, not entitled to the client’s employment benefits.
  • Changes: In this section, it is highlighted that the client may order for modifications, deletions or additions. All changes to be made are ordered using what is called a change order.
  • Consultant responsibilities
  • Work Quality: The expected work quality is highlighted in this section
  • Indemnification and Insurance

Why Is a Professional Services Agreement Important?

A professional services agreement is important for the following reasons:

  • Limits misunderstandings between the parties involved
  • Helps the hired professional/contractor understand the quality of the deliverable the client expects
  • Defines the terms of agreement
  • Highlights conditions under which the arrangement can be terminated.

A professional services agreement arrangement should be used when the task at hand is well-defined, specific in nature and requires high technical skill. It is mostly used when the services rendered are way beyond the technical abilities of the client company’s staff.

Services provided under this kind of agreement should be infrequent and not need so much maintenance. Should maintenance be involved, it should be such that it can be well handled by the client’s organization

What Is the Difference Between a Professional Services Agreement and Subcontract?

There are major differences between a professional service agreement and a subcontract arrangement. A professional services agreement is mostly used for one-time arrangements. The contractor or consultant in this case is referred to as a vendor. A subcontract arrangement is usually for a deeper relationship, where the subcontractor is more involved in what the client does and for a longer period too.

In general, a contractor is called a vendor if it:

  • Provides goods or services to support the progress of the project
  • Is not subject to internal compliance programs
  • Has several direct competitors who can provide the client with the same kinds of goods or services

A contractor is categorized as a subcontractor if it:

  • Can make critical decisions concerning the project at hand
  • Receives compensation for carrying out a project instead of supplying the client with goods or services
  • Is in a place to determine who receives financial support
  • Has outlined some performance goals which are consequential and score points when an evaluation of the overall project’s failure or success is calculated.
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A detailed professional services agreement is important for any client-consultant business relationship as it highlights from the get-go the quality of the deliverable to be expected. Are you clueless as to how to draft one? CocoSign has several simple employment agreement templates for you to try

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