A professional service agreement is typically used when a project requires an independent contractor.

What Are Professional Service Agreements?

When the requirements of a project are suitable for a vendor or an independent contractor, a professional service agreement will typically be used instead of a subcontract. The reason for this is professional service agreements can be used for a single project, whereas subcontracts are usually more long-term and require the business hiring the contractor to be more involved with the project.

These agreements are legally binding once they have been signed by both parties, so it's a good idea to learn a little more about these agreements before using one for your project. Professional service agreements are also known as blanket agreements, and their normal use is to contract the services of a consultant for a set time.

When A Professional Service Agreement Should Be Used

In general, a professional service agreement is used for a specific project that requires high-level technical expertise. Most projects that require a professional agreement will occur once annually. The project in question may be important for the ongoing success of a business, but completing the project requires skills that are not possessed by the businesses employees.

The scope of a professional service agreement will be very limited. Typically, the finished project will not require any ongoing maintenance, or the employees of the business will be capable of maintaining the project's deliverables.

Professional service agreements can be used for a variety of projects, including:

What's in a Professional Service Agreement?

Professional service agreements tend to be very long and complicated, using a large number of legal terms and containing as many as 10 sections. When writing a professional service agreement, it's common to start by describing the project.

For example, you will need to outline what you expect from the contract, describe a solution for handling delays, and define how your contract will be paid. You will also need to provide guidelines for terminating the contract. Depending on the nature of the project, you may need to describe your expectations for confidentiality. It's also common to add a section describing your rights to the project deliverables.

Last, you will need a section that describes considerations for liability and a section where you can add anything else that you consider vital to the project that wasn't covered in the other parts of the agreement.

Requirements for Documentation

You can follow some internal business controls guidelines to make sure you correctly write and file your professional service agreement. Often, it's required that you provide supporting documentation that shows why you need to use this type of agreement and prove that your payment terms are valid.

Besides the agreement itself, other supporting documents that you may need to provide include a purchase order copy or a requisition form. Once the project described in the agreement has been completed, the vendor or independent contractor may need to file an invoice before that will be paid.

Contract Management

Just like with any other type of contract, professional service agreements need reliable contract management. A few best practices related to contract management should be kept in mind if you want to make sure that your professional service agreement is completed successfully.

In addition to taking the time to make sure you hire the correct independent contractor, it's important that you make your expectations clear at the start of the project. You also need to be sure that your keep the lines of communication open and that you monitor your contractor's performance and provide them with useful feedback. It's also a good idea to review the project in its entirety after completion.

Professional Service Agreements Elements

Several important elements must be included in a professional service agreement. One element is compensation. You will need to decide if the person you have hired will be paid per service or will receive a monthly, weekly, or hourly rate. Contractors should make sure that any agreement they sign clearly describes their availability. For example, will the contractor have set hours, or will they be on-call 24/7?

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