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Empowering SMBs: The Role of Professional Services Agreements

Empowering SMBs: The Role of Professional Services Agreements

(Note: This post was initially published on LinkedIn, and the following iteration is a syndicated version of the same.) 

We’ve previously provided you with an overview of consulting agreements, and the critical importance of putting those relationships in writing. That’s something we’ve found that small businesses often fail to do.

In a prior post, we described the dire consequences (including liability, damages, and loss of company) of the failure to put consulting agreements in writing. Today we want to go a little deeper and focus on hiring professionals.

What are Professional Services Agreements?

Professional Services Agreements (PSAs) are contracts used by businesses when engaging professionals. The term “professional” is generally considered to mean either the service requires a professional license, or the individual has special, unique qualifications.

A PSA creates a contractually binding arrangement between the business and the specialized individual. These agreements typically cover a single or periodic project with a defined scope and timeframe.

A PSA provides legal protection for both the business and the consultant.

The Importance of PSAs for Startups

PSAs are particularly important for startups.

For example, a new business typically needs a technical professional who can provide recommendations and implementations for software and hardware. Even a small company requires some basic IT consulting for laptops, apps, security, and networking.

A technical professional can support the needs of small businesses now and recommend services down the road to scale the company.

A PSA generally provides the details for the services the professional will perform, his or her compensation, and the timeframe for the engagement. Because many PSAs also detail procedures, terms, and requirements for the service, they can also be complex and lengthy.

A business owner may simply be overwhelmed by the complexity, requirements and number of PSAs he or she must deal with.

Here’s just one example of how difficult a PSA can be for a small business owner.

On one hand, PSA payment terms can be easy.

A simple fixed fee PSA provides payment terms for a specific scope of work. However, a small business owner may enter into a variety of other PSA payment terms including modified fixed-fee contracts, hourly not-to-exceed contracts, and cost-plus percentage contracts, among others.

Not so easy to understand, negotiate and track.

Besides payment terms, the information included in the PSA may be standardized or particularly customized. Again, it can be difficult for small business owners to manage all these obligations.

The Purposes of a Professional Services Agreement

The purpose of the PSA is typically a statement of the nature of the engagement.

The description of the engagement, sometimes known as the scope of work, summarizes or bullets the deliverables. The term specifies the start and end dates and may also include milestones with dates.

Compensation is the fee to be paid to the professional for the successfully performed engagement. There typically will also be confidentiality, conflicts, rights, indemnification, insurance, compliance, and termination language in the PSA.

The more customized the PSA, the more likely the negotiation between the parties will result in exhibits, also known as schedules, that may be attached and incorporated into the PSA.

Each of the above can be simple for a small business owner, or a major challenge to his or her intellect, time, and stress levels.

Support for Professional Services Agreements

PSA support is available to small and medium-sized businesses.

Business owners can eliminate the need to manually draft, negotiate, review, revise, sign, and track workflows to engage professionals.

PSA support is available to ensure PSAs contain the appropriate details, every step of the process is monitored and administered, and potential legal, financial, and other risks to the company are minimized or eliminated.

We can make hiring professionals easy for small and medium-sized businesses. Please feel free to reach out to us anytime!

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