Drafting a professional services agreement? Legal pros are offering services on an independent contractor basis more and more. At the same time, market conditions are forcing lawyers to get increasingly creative with things like alternative fee arrangements.
In light of all these factors, law firms must have strong professional services agreement templates in place that both comply with applicable laws and are clear enough for the parties to have a true understanding of their arrangement.
Regardless of the type of contract, clarity in drafting is paramount. Fortunately (as discussed later), there are plenty of good resources to draw from when you’re drafting a professional services agreement from scratch.
Before discussing those resources, however, we’ll provide a brief overview of 10 key considerations your firm should take into account when drafting or reviewing a proposed professional services agreement.
What is a professional services agreement?
A legal professional services agreement (PSA) is a contract or agreement between a legal professional, such as an attorney or law firm, and their client.
This agreement outlines the terms and conditions of the legal services to be provided, as well as the responsibilities and expectations of both parties.
Professional services agreements help define the attorney-client relationship, protect both parties’ rights, and establish clear expectations for the provision of legal services.
It’s absolutely crucial in my experience (for obvious reasons) for both the attorney and the client to carefully review and understand the terms of the agreement before entering into it, and legal advice should be sought during this process if necessary to ensure that the terms are fair and comply with applicable laws and regulations.
Without further ado, let’s dive into what you should have covered in your professional services agreement.
Scope of services
The first thing you’ll want to do, of course, is make sure your professional services agreement is crystal clear about the scope of services provided.
Indeed, every business litigator reading this right now has already fought multiple battles about “who was supposed to do what” under the terms of a contract.
At a minimum, the description of services should contain explicit information about required timelines and the contract’s ultimate deliverables.
If there are a million different variables that would make up an acceptable final product (and there often are), the scope of services should at least clarify that professional standards should be maintained by those providing the service.
Keep in mind too that it is always good practice to err on the side of over-explaining service expectations. Simply put, ambiguity is not your friend.
Indeed, according to California Civil Code Section 1654, ambiguities in a contract are generally interpreted against the party who drafted it.
Thus, when your firm is the party proposing the professional service agreement terms, you’ll want to be extra careful in this regard.
Fees and payment terms
If you’re putting together a client retainer agreement, remember to clearly outline fees and payment terms in your agreement.
If you’re offering a contingency fee arrangement, for example, those terms must comply with California Business and Professions Code Section 6147.
Similarly, contracts where total fees are expected to exceed $1,000 have to comply with Section 6148. And, let’s be honest, how many legal retainer agreements contemplate a client spending anything less than $1,000?
It’s one thing to put compliant payment terms in the contract, but it’s also a good idea to review them with the client and get their express (written) verification of understanding.
That way, when the matter has concluded and your firm seeks to enforce the payment provisions, there will be no room for cries of “They didn’t tell me” from the client.
Confidentiality and non-disclosure
Although attorneys have a clear ethical duty to maintain the confidentiality of client information, your firm is also likely to contract with other businesses and entities that fall outside of the attorney-client relationship.
To the extent those relationships call for the exchange of confidential documents, trade secrets, or other highly sensitive information, make sure the contract contains an air-tight non-disclosure provision.
The California Uniform Trade Secrets Act (Civil Code Sections 3426-for26.11) sets forth the parameters for sharing and protecting this type of information.
Your professional services contracts should thus include a confidentiality clause that is compliant with this Act.
Termination provisions
Every agreement should also specify the terms under which the contract may be terminated. When considering termination provisions, take the time to determine whether there are any industry-specific rules about how and why the contract can end.
Under California Civil Code Section 1695.6, for example, contracts with home equity buyers must include very specific cancellation provisions.
Although this code section is admittedly highly specific to real estate, it serves as a good reminder to check relevant California statutes for any contracting regulations specific to the industry at issue.
Compliance with professional standards
Many professions have specific standards and regulations that are governed by various California Boards and Bureaus.
Examples include the Board of Accountancy, the Contractors State Licensing Board, and the Board of Pharmacy — each of which has its own rules, regulations, and professional standards.
Consequently, if you’re entering into a contract with a person or entity regulated by one of these boards (or drafting a contract on behalf of a client who is in one of these industries), be sure to check the industry-specific rules for any particular contract requirements.
Indemnification and liability
Lawyers are all too familiar with issues of indemnification and liability from a litigation perspective.
When drafting indemnification clauses, however, law firms need to exercise extreme caution.
Indemnification is not some amorphous concept. In fact, it is a concept that is clearly defined by California Civil Code Section 2772, and any indemnity clauses must be carefully constructed to match that definition.
Moreover, indemnity clauses are another area where certain professions will require specific contractual language. Construction contracts, for example, must comply with Civil Code Sections 2782-2782.95.
Jurisdiction, governing law, and venue
No one wants to think about litigation while drafting a contract, but we all know that we have to.
One of the most important clauses in your entire contract will set forth where any dispute arising from the contract will be litigated and which laws will govern the contract’s interpretation.
If you’re unsure about these provisions, the California Court system offers a brief refresher on issues of jurisdiction and venue.
If you’re reading this post, it’s probably safe to assume that your legal practice resides within the State of California.
Thus, you’ll likely want your professional services agreements to explicitly state that they are governed by California law and that any legal proceedings arising from the contract will be adjudicated in California courts.
A word of caution, however. California is very protective of certain groups (such as employees) and sometimes limits contractual jurisdiction, venue, or choice of law provisions that put those groups at a disadvantage.
Alternative dispute resolution (ADR) clauses
In some cases, a service provider will want to include an ADR clause in a contract simply because avoiding traditional litigation is an advantageous business decision.
In other cases, specific laws (like the Mandatory Fee Arbitration Act) will require contractual parties to attempt to resolve their disputes in ADR before proceeding to litigation.
Consequently, ADR provisions should be considered in all professional service agreements and included in contracts (like fee agreements) where they are required by law.
Independent contractor status
If you’ve done business in California over the last twenty years, you know that independent contractor status is a huge (and ever-evolving) issue within the State. In fact, entire articles could (and have) been written on this very topic.
While hiring entities used to be able to get away with classifying just about anyone as a contractor (thus avoiding the costs and burdens associated with hiring employees), the laws are much more rigid today.
If you’re entering into a professional services contract with any freelancer or other independent worker, the contractual classification of employment is critical.
Under Assembly Bill 5 (AB-5), for example, the “ABC test” must be used to determine if a worker is an independent contractor.
When drafting your professional services agreements, you should consult this legislation to clearly establish the nature of the employment relationship and to draft contract terms that are in compliance with the law.
Miscellaneous provisions
Hardly any professional services contract can be considered complete without the inclusion of what are referred to as the “miscellaneous provisions.”
These clauses can vary somewhat from contract to contract, but they tend to include standard clauses such as “Force Majeure,” (based on California Civil Code Section 1511), “Severability,” and “Entire Agreement” provisions to make the contract comprehensive.
These clauses might seem secondary, but they are the types of things that aren’t important until you actually need them.
If you’re working within an established law firm, take a look at several of the firm’s internal contract templates to get a good feel for those miscellaneous provisions your colleagues find most important.
Additional resources
The good news about drafting professional services contracts is that there are plenty of valuable resources to help you craft the perfect agreement.
For example, the State Bar of California offers a free template containing optional clauses for you to use.
Many of the State’s various government offices also provide sample professional service agreements for you to consider (these are particularly helpful when drafting industry-specific contracts).
You can also find rich repositories of various contract clauses online that serve as a good starting place for your drafting efforts.
Just remember that when it comes to drafting contracts, you don’t really have to flex your creative muscles. Most of what you need has either already been done before (and is available in template form) or is clearly laid out in California’s myriad of regulations.
Half the battle, in fact, is simply finding a relevant resource and using it to your own advantage.
Happy drafting!
