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A Guide to IT Contracting by Michael R. Overly, Matthew A. Karlyn

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37
4
Professional Services Agreements
CHECKLIST
Preliminary Considerations
Due diligence process
Form of professional services agreement
General Requirements
Term—open-ended or limited
Termination provisions
S Material breach of agreement
S Insolvency/cessation of business
S For cause
Acceptance testing
S Procedures
S Criteria
S Remedies at no cost
S Timeframe for failures to correct
S Payment of fees linked to milestones and testing completion
Personnel requirements
S Minimum skill requirements
S Interview process
S Naming of key personnel
S Replacement procedures; no charge for overlap and ramp-up
S Eorts to ensure consistency of personnel
S Turnover penalties
S Supplier has sole responsibility for personnel
38  •  A Guide to IT Contracting: Checklists, Tools, and Techniques
Use and identication of subcontractors
Warranties
S Material compliance of services
S Compliance with applicable laws
S Workmanlike manner
S Timeliness
S Disabling devices
S No IP owned by third parties
S Compliance with data security and privacy laws
Indemnication
S Intellectual property infringement
S Violation of applicable laws
S Personal injury and property damage
S Breach of condentiality
S Procedures to permit supplier control of claim
S No settlement without customer consent
S Exclusion from limitation of liability
Limitation of liability
S Mutual
S Exclude indemnity obligations
S Exclude gross negligence and willful misconduct
S Exclude condentiality and data security breaches
S Tie cap to all fees paid under agreement
Intellectual property ownership
S License to use pre-existing materials
S Who owns IP developed under the agreement
S If supplier owns, restrictions on use (competitors)
S Identication of third-party IP and fees associated with
third-party IP
Change order process
Condentiality and information security
S Simple provision (basic information)
S Detailed provision (sensitive information)
S Information security requirements depending on nature of data
Force majeure
S Ensure proper scope
S Avoid overbroad provisions to include stang problems,
unavailability of materials and failure of third parties
S Right to terminate
Professional Services Agreements • 39
S No payment for services not rendered
Nonsolicitation of supplier’s employees
Insurance tailored to customers requirements
Fees and costs
S All fees expressed in contract, statement of work (SOW) or
change order
S Payment schedule for all fees
S Fixed fee vs. time and materials
S Overall cap for time and materials projects
S Ensure estimates are accurate
S Specify percent over estimate to be paid by supplier
S Specify percent over estimate to be shared by both parties
S Rate card for future services
S Allocation of taxes (customer pays only for tax on services
received)
S Payment of fees tied to performance
S Holdback if payment based on passage of time
S Travel and expenses tied to customer’s policies
S Financial audit rights
Relationship to Other Agreements
All contract terms in a single agreement
If multiple agreements, ensure termination rights across
agreements
Acceptance testing of services linked to acceptance testing of
related soware and hardware
Limitation of liability caps account for fees paid across agreements
OVERVIEW
Professional services agreements are used for a wide range of service
engagements, including soware development, implementation work,
outsourcing services, website development, and many other activities for
which services are rendered for an agreed-upon fee. While these types of
agreements are frequently entered into on a stand-alone basis, they are also
commonly part of larger engagements. For example, a soware license
agreement may also include a professional service agreement or component
(i.e., professional services terms, or a professional services exhibit, included

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