Professional Services Agreements: What to Know & How to Use Them

I’ve briefly touched on Consulting Agreements and described MSAs in more detail in my last post. Another agreement that’s similar, but used in slightly different contexts, is the Professional Services Agreement. Today, I discuss how they’re different from Consulting Agreements and MSAs, and common terms to include.

How PSAs Differ

Professional Services Agreements, like Consulting Agreements, are often for short-term, one-off engagements. Where they differ is the scope of services provided and the type of service provider, both of which factor into how the terms are written. Typically, Consulting Agreements are often between tech companies and software developers or business consultants. While that may be the case for MSAs in longer term engagements, for PSAs, the service provider is often an industry professional, such as IT, software development/configuration, data analysis, architects, and other engineers, with provisions tailored specifically for business risks and issues in their industry. 

Often, the PSAs I encounter and draft are for IT and software services, usually for a discrete project and short period of time. Example use cases include software development, software installation, implementation or configuration, and business consulting in a technical area.

While there can be overlap in scope between MSAs, PSAs and Consulting Agreements, it’s important not to focus too much on the agreement name, and instead, focus on the scope of the relationship. From there, your commercial attorney can draft the appropriate agreement and terms to protect your business.

Key Common Terms

PSAs have agreement-specific terms that govern the following areas:

• Scope of work. What is the provider doing for you? And, on what schedule? 
• Payment. How will fees be paid, in installments or lump sum?
• IP rights. If the service provider is creating IP as part of their work (software code, business plans, etc.), you’ll need to own them via an ownership and assignment clause.  
• Warranties and remedies. Depending on the scope of services, you’ll want service-specific warranties as to quality, compliance, and remedies if there is a breach by the provider, such as for work product that doesn’t conform to requirements. This section often contains both general language as to compliance with applicable laws and industry- and service-specific language as to how the work will be performed. Remedies may also need to be tailored for the relationship. 
• Indemnity. You’ll need to discuss this section with your attorney to understand how aggressive to be in asking your provider to indemnify you. An indemnity for IP infringement for work product containing new IP often makes sense, but additional indemnities may also be appropriate, and is context-specific.

These are only some of the many key areas to consider when engaging with a professional service provider. Your commercial attorney can put together a PSA for you (or review one provided by your vendor), while walking you through common areas of concern.

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