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Let’s be honest: professional service agreements (PSAs) can be difficult to read, and they’re even harder to write.
But if you work in the creative industry or the knowledge economy, you’ll probably work with a business or individual providing professional services. There are around 910,000 professional services firms in the United States alone, employing some 9.5 million professionals.
Whether you work with professional services firms (PSFs), are employed by one, or are one, knowing how to read and write these agreements is vital. Learn how to get started writing your own professional service agreements with this comprehensive guide.
What are professional services agreements?
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Professional services agreements are contracts or agreements between an agency and a highly skilled (professional) vendor or partner. This partner could be anything from an enterprise service firm like IBM to an independent contractor who’s a subject matter expert.
This professional services agreement defines the nature of the relationship: what the vendor is expected to do or deliver, and what the agency provides in return.
A professional services agreement is similar to a retainer agreement, but more often has a finite window (such as a project schedule with start and end dates). It’s also somewhat like the marketing contract an agency would provide to a client.
The difference is one of direction: in a marketing contract, the agency is the professional or vendor. In a professional services contract, the agency is the client.
What kinds of services can a professional services agreement cover?
Professional services agreements (PSAs) are not limited to any specific set of services or industries. “Professional” is the key word here: any professional service offered by a third party, whether an individual or business entity, could conceivably be covered by a PSA.
We’ll give just one caveat: this kind of agreement is typically for an intellectual work product, not for physical products (where agreements can be defined in terms of quantity and cost-per-unit).
These are a few of the most common industries and specialties in which to use a PSA.
Consulting services
While the world of consulting is a broad one, most consultants work on a per-project basis. Complex services and sometimes-nebulous deliverables or value-adds make a professional services agreement a very good idea.
Both the consultant and the client business benefit by clearly defining:
The services being performed
The compensation involved
The projected timeline
What happens if the scope changes
Legal services
A PSA can help define what is and isn’t in scope for an individual or organization offering legal services. Similar to consultants, lawyers and law firms frequently work on a case-by-case basis. Law firms on retainer would use a retainer agreement, but those working a single case should use a PSA instead.
Marketing or advertising agencies
Creative agencies frequently enlist the services of professionals in a variety of fields. While some of these relationships make sense as retainer or simple contractor agreements, more technical services might require a PSA.
Accounting and financial services
Financial services agreements can be technical and complex, making them good candidates for a professional services agreement.
Technology services
Technology services agreements usually include numerous technical details, service definitions, exceptions, schedules, and so forth. This type of information is better off in a legally binding agreement.
Educational services
Organizations or individuals providing training or educational services often operate under PSAs.
Key components of professional services agreements
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A professional services agreement is made up of several parts, each of which can vary quite a bit depending on the nature of the service and the project the agreement is applied to.
1. Scope of work
Scope of work will be familiar to any professional services organization using project management, and it’s one of the most important elements in a professional services agreement.
The scope of work will contain at least these three sections:
Description of services: Detailed outline of exactly what will be provided
Deliverables: What the service provider will produce or achieve
Timeline: When each task will be performed and deadlines for deliverables
Most importantly, a scope of work defines what is not included in the project scope. A well-defined scope of work helps to combat scope creep, a frequent cause of missed deadlines and blown budgets.
2. Payment terms
No matter which end of the transaction you’re on, clarity on payment terms is crucial. Both agencies and the professionals they contract with will benefit from a clear written explanation of when money will change hands, what will trigger those payments, and what could disrupt the payment schedule.
Include at least these elements in your payment terms:
Fees and charges: The cost of the services, including hourly rates or fixed fees
Payment schedule: When payments are due, such as at specific milestones, on specific dates, or upon project completion
Expenses: How out-of-pocket expenses and reimbursements are handled
If there are any financial or performance penalties that will affect total costs, include those here.
3. Confidentiality
Creative agencies are frequently bound by confidentiality agreements with their clients, as some level of proprietary information is almost always required to complete creative work.
As a result, professional services agreements involving an agency often include language about confidentiality. If privileged information is passed along in good faith to the professional services provider, then they should be expected to keep it confidential.
Usually, this element takes the form of a nondisclosure provision. These describe the protected sensitive information that may be shared in the course of the contract, as well as expectations and liabilities surrounding it.
4. Termination clauses
Not every project succeeds. Neither does every professional relationship.
There are numerous reasons a professional services agreement might need to be terminated, such as if the project in question gets canceled. Unfortunately, not every professional services relationship ends up producing the quality a business or agency might require.
To avoid legal trouble, any clauses outlining possible reasons for severability should be included in the PSA itself.
Include at least these two elements in this section:
Grounds for termination: Circumstances under which the termination of this agreement may be executed (project cancellation, failing to meet performance standards, etc.)
Notice requirements: How much notice must be given for termination
5. Warranties and representations
This section contains guarantees (warranties) of what and how the professional services firm will operate during the agreement.
If a professional relationship will involve laws or industry regulations, those should be listed here. If there are expectations for both parties, both sets should be listed.
Representations are the points on which a client represents itself (for example, how much cash is on hand or the total operating budget). It’s essentially putting information into a legally binding contract so that both parties can see what was represented (or agreed upon, disclosed, or claimed) in the agreement.
You might see a representation from the client business that essentially puts their revenue claims “under oath,” or one from the professional providing services doing the same about skills, credentials, and the like.
There are usually two elements in this section:
Quality assurance: Guarantees about the quality or level of service
Compliance with laws: Assurance of adherence to relevant legal and regulatory requirements
6. Intellectual property
The types of services that tend to require the use of a PSA very often deal in intellectual property (IP). A consultant firm would likely need access to proprietary IP from the client to do its work, and it’s a good idea to put in writing any expectations surrounding this.
From the opposite angle, any non-tangible deliverable (such as a piece of copy, a piece of software, market research, or an entire marketing campaign) typically becomes the intellectual property of the client business. The agency or professional that created the material relinquishes their claim of ownership.
The specifics here will vary, of course. The key is that, whatever the details look like in your case, they’re written down in the professional services contract.
At a minimum, you’ll want this heading included:
Ownership and usage rights: Who owns the intellectual property created and how it can be used
In creative or agency contexts, consider including a provision on whether (or to what extent) the professional can use IP they create for their own portfolio or advertising purposes.
Just as an agency might put a similar clause in its marketing contracts to avoid surprises or disputes down the road, including one for the professional services provider helps clarify what is and isn’t acceptable.
7. Miscellaneous provisions
Miscellaneous provisions are any other details that one or both parties require be included in the PSA. If a given provision of this agreement doesn't fit in any other category, you’ll typically stick it here.
By definition, this section could contain just about anything, but these are three of the most common categories:
Governing law: The legal jurisdiction governing the agreement
Dispute resolution: How disputes will be resolved, such as arbitration or litigation
Entire agreement clause: Stating that the document contains the entire agreement between the parties
In creative contexts, a provision about portfolio use of creative materials might go here (if it wasn’t included in the IP section previously).
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How to draft a professional services agreement
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Now all that’s left is the drafting… but where exactly should you start?
We are not lawyers, and it’s probably wise to consult one before following this advice. We can’t account for every applicable law in every state and industry.
That said, the list that follows is based on Nolo’s legal encyclopedia, which goes into greater detail on each step.
Shelly Garcia, the author of the entry, puts it this way:
“A written service agreement is a way to manage expectations while the work is underway. It also assures both parties that they will get the work and fees they bargained for in the time frame they expect.”
So, let that succinct definition guide you as you begin drafting:
Describe the parties involved in the services agreement (who you are and who your client is).
Describe the services you will provide for the client.
Outline the payment structure, fees, bids, totals, and whatever else you need committed to writing. Be sure to include payment dates or timeframes.
Include time limiters, including the date you’re producing the agreement, when the work is expected to begin, and the completion effective date.
Define the terms and conditions that must be met to terminate the professional services agreement.
Once you’ve completed these five steps, return to the “key components” section earlier in this article and add anything listed there that you haven’t yet included.
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