What is a Professional Services Agreement (PSA)?
A PSA sets out the basis on which you are providing the professional services (i.e., the legal terms and conditions) to ensure your business operations run smoothly. A PSA often works alongside a Statement of Work (SoW). Multiple SoWs can be executed for different professional services projects under one PSA.
The SoW is a legal document which outlines the more commercial elements of each project such as the scope of services, specific responsibilities, timelines/milestones, deliverables, fees, and other important details as agreed by the parties.
5 reasons why technology businesses need a PSA
To set out clear expectations
A PSA provides a clear understanding of the scope of services and deliverables, which helps to minimize misunderstandings and disputes during the engagement.
To mitigate risk
A PSA helps to mitigate risks such as project delays, scope creep and disputes.
It also helps to protect the interests of the parties by defining the terms of liability, indemnification, confidentiality and termination.
To protect Intellectual Property Rights
A PSA will set out the ownership rights for intellectual property created during the provision of the services. Without such provisions, the parties can find themselves in lengthy and costly disputes to settle who owns what!
The PSA will provide clarity in respect of the intellectual property rights of the parties from the outset.
To ensure you have correct acceptance provisions in place
The PSA (and SoW) will set out clear procedures for acceptance testing and criteria to determine when the deliverables have been completed and accepted by the client.
A lack of clear acceptance provisions can lead to various issues for a supplier, including the ability to bill the client.
To ensure financial stability
A PSA helps to ensure that the engagement is financially stable by defining the payment terms, fees, and expenses.
It ensures the clients are under a contractual obligation to pay on time for the supplier’s services.
Do I need a PSA if I already have a Master Services Agreement (MSA) in place?
Most likely, no.
Your MSA is your framework agreement and should hopefully cover both professional services and managed services. If you are unsure whether your MSA covers professional services, it's always best to seek professional advice.