Your business will likely deal with many partners during the course of its existence.
A personal services agreement (PSA) can help you manage these relationships.
If you haven’t used one before, then you’ve come to the right place.
- A PSA helps businesses and independent contractors to enter into legally binding contracts.
- PSA agreements aren’t suited to every situation. They’re best used when hiring specialists or licensed service providers.
- You can use templates like those available from PandaDoc to help you create your professional services agreements.
What is a professional services agreement?
A PSA is a legally binding contract between two parties.
It’s a type of consulting agreement wherein an independent contractor helps a business to achieve a defined goal.
A PSA allows for the boundaries of the professional relationship between a client and service provider to be clearly defined.
This is done to ensure clarity and provide both parties with a degree of legal protection.
They are most often used when a business is hiring a consultant or specialist.
A professional services agreement is typically used for projects with defined scopes and timelines.
It will usually include information about compensation and pay rates and what’s expected of both parties.
PSAs aren’t only useful for one-off projects.
Blanket PSA agreements can also cover partnerships with contractors and subcontractors that are part of your regular operations.
Who might use a PSA?
A PSA can be used by anyone who wishes to either hire or provide professional services — essentially, they can be used by any individual or organization that deals with service contracts.
Examples of those who might use a PSA include:
- Freelancers. Self-employed and independent contractors, such as writers, graphic designers, and photographers, may sign PSAs before commencing work on a project.
- Legal firms often enter into contracts with clients too to define the legal services they’ll be providing.
- Consulting services. IT specialists, financial advisors, and other consulting services also regularly use PSAs.
- Marketing agencies. Advertising, digital marketing, public relations, and other services employed during marketing projects.
- Accounting firms. Certified public accountants may use PSAs when performing audits or offering tax services or financial planning.
These are just a few of the use cases for a PSA.
Any business that wishes to contract with an individual or organization offering professional services should use one for clarity and protection (for all parties involved).
Remember, you can use both online and offline resources to help you decide if a PSA is right for your circumstances.
Types of services a PSA can cover (and those it shouldn’t)
During standard business operations, projects are typically completed and progress is made.
This is all due to the help of your employees, consultants, subcontractors, suppliers, distributors, and other involved parties, and every one of these collaborative partnerships is bound by a legal contract or agreement.
Professional services contracts are suited to defining many of these relationships. However, most of the time, a PSA is best used when special or unusual services are needed.
This includes the hiring of licensed professionals who possess legally recognized certifications.
For example, if you were hiring a firm to conduct an environmental survey or an accountant for a financial consultation.
A PSA can also cover more niche services where the individual or organization has a unique professional approach.
Instead of a locally or federally overseen license, these parties may have serval advanced qualifications or highly specialized training.
They likely also have uniquely applicable experience and/or technical expertise.
One example would be writing out a PSA contract to hire IT professionals who are experts in legacy software.
An agreement for professional services is the best fit for services that run concurrently with a specific project. However, you can also use PSAs as “blanket agreements.”
PSA shouldn’t usually be used when hiring contractors, subcontractors, or other regular collaborators.
Unlike professional service providers, these parties are typically more involved with your organization and will provide ongoing work for months or years at a time.
They also usually have set performance goals and follow wider organizational rules when working on projects.
In many ways, their relationship is closer to that of an employee than a professional services provider.
When are professional services agreements most useful?
An agreement for professional services is most useful when highly complex projects are involved.
The tasks required to successfully complete these rely on niche subject matter experts that your organization doesn’t possess.
The contractors you regularly employ will also be lacking the skills and knowledge needed.
Typical use cases for hiring professional services providers include:
Even if you have a legal team on hand, you may require specialist services e.g. contract drafting, intellectual property law, regulatory compliance, potential lawsuits, and so on.
Innovative and complex projects
Alternatively, you may wish to implement new technology or develop projects that require niche expertise, like software development or engineering.
Accounting and the reporting of business finances can be difficult to navigate and may require special guidance at times.
Products, marketing, websites, and other projects might require a highly trained consultant to produce the design you need.
Training and development
Many businesses today need experts to train their teams on sensitive subjects such as diversity and workplace harassment too.
Additionally, if you add new technology to business processes, you may require seasoned experts to educate your employees and provide technical support.
What should you include in your PSA?
Drafting a professional service agreement takes some effort. You’ll need to include several different sections to ensure it’s legally enforceable and fit for purpose.
A PSA contract should include the following:
An opening statement
This defines the purpose or general nature of the agreement. Who’s hiring who and why?
This is an attached document that’s often referred to as “Exhibit A.”
It contains a description of what will be taking place and the scope of the project involved.
Here’s where you list what the vendor or consultant is expected to deliver. This section is similar but not equivalent to a service agreement or statement of work.
The duration of the project
How long will the agreement last? This is where specific dates should be given.
Alternatively, the duration can be tied directly to the completion of the project.
The project schedule
This section isn’t necessarily time-related, but it does allow you to set milestones that will trigger compensation or other clauses.
It’s also known as the “timetable” and is usually referred to as “Exhibit B.”
This section states the agreed payment to be made to the service provider. The total amount will be dependent on the contract terms being fully met.
Commonly referred to as “Exhibit C,” this is where you can define payment terms such as one-off or periodic payments.
Next, make sure you mention who will be providing the service. This section is also known as “Exhibit D.”
An independent contractor clause
Include a statement about your professional relationship too.
This is where you’ll need to explicitly state that this is a business and independent contractor rather than an employer-and-employee relationship.
Confidentiality and non-disclosure
Ensure the service provider agrees to keep all project and company information confidential.
Intellectual property (IP)
In addition, define who owns the IP rights to any content generated during the project. In most cases, the contracting party retains these.
Indemnification and insurance
Use this section to identify who’s liable for damages.
Also, outline what insurance coverage will be required for the contract’s duration. Insurance types include general liability, automobile, property, and so on.
You’ll also need to clearly state how and when the contract will terminate.
This includes circumstances that may result in early termination (before the project’s completion) and how this will affect compensation.
These are the essential sections to include in any PSA draft.
However, you’ll likely want to incorporate other terms that are more specific to your needs as well.
How using professional services agreement templates makes it easy to draft a PSA
As you can see above, a lot goes into drafting a professional services contract.
While generic PSA agreements can work well, the best practice is to draw up bespoke agreements instead.
However, creating custom legal documents whenever you need to hire a professional can seem daunting.
One option is to hire contract lawyers and consult them for legal guidance.
Of course, this will increase your operating costs, which could make it harder to grow your business and reduce your profit margins.
If only there were some affordable or free legal services available, like templates…
Luckily for you, PandaDoc is here to save the day! If you need to bring in some fringe industry expertise, you can download our free consulting contract template.
Fill this out as instructed, and you’ll be enlisting that consultant for your next project before you can even say PSA.
When contracting specialists, you might also want to rehire the professionals that meet your expectations and deliver on time.
Fortunately, the PandaDoc master service agreement makes it straightforward to not only define the terms of your current project but to retain providers and build longer-term professional relationships.
Let PandaDoc help with PSAs and other business-critical documents
Outsourcing to specialists is a necessity for most businesses; equally, you may be a professional who wants to protect yourself when offering your services.
Either way, you need to know your way around a PSA and plenty of other legal documents to succeed. You can’t afford to suffer unexpected losses due to unenforceable contracts and poorly written clauses.
Besides contracts and legal agreements, there are likely plenty of other business documents that are currently keeping your team occupied.
Wouldn’t it be nice if all of these could be generated and managed from the same place?
With PandaDoc’s document workflow software, you can alleviate the headache of managing these. Our templates help you create important contracts like professional services agreements.
Believe it or not, you can create, approve, track, and eSign all business paperwork 40% faster with PandaDoc than traditional methods.
If you’re an independent contractor or freelancer, PandaDoc has your back too.
Our proposal software can streamline your document generation so that soon you’ll be closing as efficiently as Don Draper!
Start your free 14-day trial today to find out for yourself.
Frequently asked questions
Yes — professional services agreements between a consultant and client are legally binding.
Like most legal contracts, it all comes down to whether or not the document is enforceable. Legality depends on the terms of the contract and the legal capacity of both parties to enter into the agreement.
To ensure adherence to the laws of your local jurisdiction, it’s best practice to use a service agreement template or seek legal advice from a professional.
You don’t need an attorney to draft a PSA. However, if you’ve never written one, you probably could do with some help.
Providers like PandaDoc offer free legal document templates to help you produce a legally binding agreement. Our templates also make sure you don’t leave any of the important stuff out.
As most consultants work as independent contractors, they often need to sign agreements beyond a PSA.
One of these will likely be a master services agreement (MSA). An MSA establishes an ongoing client-consultant relationship.
Another contract is a non-disclosure agreement (NDA), which helps clients maintain the confidentiality of sensitive information and trade secrets.
Other relevant agreement types may include service level agreements (SLAs), statements of work, and subcontractor agreements.
PandaDoc document workflow software can help you manage all your consultant-related legal documents.