Professional Services Agreement: Everything You Need to Know
A professional services agreement is required when a business wishes to contract the services of a highly skilled contractor. This arrangement is preferred over a subcontractor relationship when the relationship is of a limited duration or scope. 3 min read
2. What Is the Difference Between a Professional Services Agreement and Subcontract?
3. When to Use a PSA
A professional services agreement is required when a business wishes to contract the services of a highly skilled contractor. This arrangement is preferred over a subcontractor relationship when the relationship is of a limited duration or scope.
The Professional Services Agreement (PSA)
Professional services are any provided services that are unique in nature, highly technical, or infrequently needed. They are generally provided by a vendor or independent contractor with specific qualifications, which could include education, years of experience, and technical capability. Services of this nature are usually project-based, rather than continuous. Professional services are usually intellectual in nature, and they may or may not require the contractor to have a license in their specialty. Here are some examples of professional services:
- Project or program evaluation
- Translation services
- Laboratory analysis
- Statistical or data analysis
- Marketing analysis
- Software development services
- Web design or development services
- Writing or editing services
A professional services agreement can be used for a one-time service as well as ongoing services. It can also be used as a master level agreement.
A PSA can be used as a blanket agreement, allowing a business to use the services of a contractor for an agreed-upon amount of time.
A Written Authorization to Perform Services is created at the time when services are provided. This is often known as Exhibit A. It details what work is to be completed and the timeline on which it should be delivered. It also specifies the rate of payment for work within this scope. Environmental studies, land surveys, cost estimating services, and planning services are often contracted in this way. Attachment A is a specific document that applies when a contractor is hired to help a University representative with specific tasks.
What Is the Difference Between a Professional Services Agreement and Subcontract?
Sometimes, it is advisable to pay another institution to handle a scope of work rather than subcontract it out. When work is handled under a professional services agreement, the contractor is referred to as a "vendor." Payments to these workers are listed on a budget justification under Other Direct Costs rather than under Subcontracts.
An institution or organization is classified as a subcontractor when it:
- Has performance goals that are measured as part of the overall project's success or failure
- Is responsible for making key decisions within the program or project
- Can determine who receives financial assistance
- Is responsible for complying with rules specific to the program
- Receives funds for carrying out a program, rather than providing products or services to a program
On the other hand, an entity or contractor should be considered a vendor if it:
- Provides the organization with goods or services that are also available to many other businesses
- Has multiple competitors who could provide the same goods or services within their normal business scope
- Provides key goods or services to support the program
- Does not adhere to internal compliance measures within the program
Some projects' needs can be more succinctly met through vendor and independent contractor arrangements; this is when a professional services agreement would be preferred. Professional services agreements often represent a one-time engagement. Subcontractor arrangements represent a deeper business relationship, and they often are drawn up when there is ongoing work and the subcontractor is highly involved with the business it's working for.
Before signing any professional service agreement, understand the difference between these two relationships. Once the documents have been drawn up and signed, they become a legally binding contract that cannot be altered without the consent of both parties.
When to Use a PSA
Choose a professional services agreement when the project at hand is well-defined, specific, and of a limited nature. It should require a high level of expertise and technical ability. Services that should go under a PSA should generally be infrequent or unusual in nature. The work required may be an unusual task that goes beyond the technical abilities of the company's current staff, for example. Sometimes, these tasks are critical to the success of a project. Tasks that are contracted under a PSA should not require heavy maintenance. If there is maintenance involved, it should fall under current employees' capabilities.
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