Professional Services Agreement (TX)

Resource ID: w-015-5510

An agreement for the provision of professional services that can be

adapted for a speciﬁc project, for ongoing services, or for use as a

master professional services agreement under Texas law. This model

agreement is drafted in a manner that aims to be reasonable and

includes provisions that are common to many types of negotiated

services agreements. This Standard Document has integrated notes

with important explanations, alternative provisions and drafting and

negotiating tips.

CHARLES B. KOERTH, BROCK T. NIEZGODA, CATHERINE CHLEBOWSKI, AND GRACE GLOVER, GRAY

REED & MCGRAW LLP, WITH PRACTICAL LAW COMMERCIAL TRANSACTIONS

Professional Services Agreement (TX)

Search the Resource ID numbers in blue on Westlaw for more.

Agreements for the provision of services

vary widely in length and complexity

depending on a variety of factors,

such as:

 The nature of the services and industry.

 The state law or regulations applicable to

the services being rendered (for example,

the Professional Services Procurement

Act (Tex. Gov’t Code Ann.§§2254.001

to 2254.007) or the Texas Administrative

Code generally). State agencies, for

example, the Texas Health and Human

Services Commission, may also impose

certain requirements specific to the

type of service being rendered (for more

information, see Texas Health and Human

Services Policies and Rules).

 The size of the transaction.

 The duration of the engagement.

 The bargaining power of the parties.

This Standard Document contains provisions

commonly found in a long-form professional

services agreement governed by Texas

law. It is drafted in a manner that aims

to be reasonable to reduce the time and

expense it takes to get to the final version.

For examples of a short-form services

agreement, see Standard Documents,

Services Agreement (Pro-Customer) (TX)

(W-000-8923) and Services Agreement

(Pro-Service Provider) (TX) (W-001-4069).

ASSUMPTIONS

This Standard Document assumes that:

 The agreement solely covers the

provision of services and not the sale of

goods. Agreements for the provision of

services are typically governed by state

common law contract principles, while

transactions for the sale of goods are

generally governed by Article 2 of the

DRAFTING NOTE: READ THIS BEFORE USING DOCUMENT

Professional Services Agreement (TX)

Uniform Commercial Code (UCC) (Tex.

Bus. & Com. Code Ann.§§2.101 to 2.725).

In resolving contract disputes related to

services agreements:

z

some courts, including those in Texas,

have applied Article 2 principles

to mixed goods and services

transactions where the court found

the goods aspect of the contract to

be the “predominant focus” of the

transaction (see, for example, Tarrant

County Hosp. Dist.V.GE Automotive

Services, Inc., 156 S.W.3d 885, 893

(Tex. App.—Fort Worth 2005); Cont’l

Casing CorpV.Siderca Corp, 38 S.W.3d

782, 787-88 (Tex. App.—Houston [14th

Dist.] 2001, no pet.); and Westech Eng’g,

Inc.V.Clearwater Constructors, Inc.,

835 S.W.2d 190, 197 (Tex. App.—Austin

1992, no writ)); and

z

other courts, exercising their equitable

power, have looked to Article 2

principles for guidance.

 Although they are largely similar, aspects

of both common law contract principles

and Article 2 of the UCC may vary from

state to state. If Texas does not apply,

always refer to the specific law of the

jurisdiction chosen by the parties to

govern the agreement (for an example

of a governing law provision, see Section

17.12) if there are any questions about

the enforceability or effect of a particular

contract provision.

 There are only two parties to the

agreement. If there are additional

parties, adjustments must be made.

For example, multiple service providers

or customers need to determine

whether their obligations are joint,

several or joint and several and amend

the agreement accordingly. For more

information on joint and several liability,

see Standard Clauses, General Contract

Clauses: Joint and Several Liability (TX)

(W-000-0384).

 The parties to the agreement are US

entities and the transaction takes place

in the US. If any party is organized or

operates in, or any part of the transaction

takes place in a foreign jurisdiction, this

agreement may need to be modified

to comply with applicable laws in the

relevant foreign jurisdiction.

 The service provider and the customer

are corporate entities. This Standard

Document can be adapted for parties

that are individuals, limited liability

companies, partnerships or other types

of business entities. For an example of

an agreement between an individual

consultant or independent contractor

and a corporate client, see Standard

Document, Independent Contractor/

Consultant Agreement (Pro-Client) (TX)

(7-555-5406).

 This agreement is being used in a

business-to-business transaction. This

Standard Document should not be used

in a consumer contract or government

contract, which may involve legal and

regulatory requirements and practical

considerations that are beyond the scope

of this resource.

 The transaction does not involve the

sharing of any personally-identifiable

information (PII) between the parties.

Thetransfer, storage and use of

personally-identifiable information of

third parties (whether of employees,

customers or other third parties) may

be subject to specific privacy and data

security laws and regulations above and

beyond a party’s customary confidentiality

obligations. If the services provided

under the agreement may or will include

transfer, storage, or management of PII,

the parties should consider and agree on

what steps should be taken and contract

provisions included to protect the PII and

to comply with any applicable privacy and

data security rules and regulations. For an

overview of:

z

US data privacy and security laws,

seePractice Notes, US Privacy

and Data Security Law: Overview

(6-501-4555) and Breach Notification

(3-501-1474);

z

the EU General Data Protection

Regulation’s (GDPR) accountability

principle and the obligation to

demonstrate compliance with its

requirements, see Practice Note,

Demonstrating Compliance with the

GDPR (W-005-2644); and

z

data breach notification laws specific

to Texas, see State Q&A: Data Breach

Notification Laws: Texas (8-578-9457).

Professional Services Agreement (TX)

 For sample clauses for use in a services

agreement that involves the service

provider using, storing, or otherwise

processing personal information on

behalf of customers, drafted with terms

favorable to the provider, see Standard

Clause, Data Security Contract Clauses

for Service Provider Arrangements (Pro-

Provider) (W-011-7793), and with terms

favorable to the customer, see Standard

Clause, Data Security Contract Clauses

for Service Provider Arrangements (Pro-

Customer) (2-505-9027). Organizations

can incorporate these clauses into a

services agreement or attach them as a

schedule to the agreement.

 This agreement is not industry-specific.

This Standard Document does not

account for any industry-specific laws,

rules, or regulations that may apply to

certain transactions, products, or services.

It may need to be modified for a particular

transaction to be more or less extensive

because certain industries and particular

kinds of services may be subject to

specific legislation or regulatory controls.

For example, if the customer is a financial

institution, the professional services

agreement must be revised to account for

applicable federal and state regulations

and increased privacy and data security

concerns. A detailed consideration of the

issues that apply in preparing services

agreements subject to specific industry

regulations is outside the scope of this

document, and the practitioner should

seek specialist advice when dealing with

such agreements.

Other assumptions related to specific

sections of this Standard Document are

discussed in the drafting notes to the

relevant sections.

OTHER CONSIDERATIONS

Negotiating Dynamics

Significant differences in size and bargaining

power often separate the parties to various

types of services agreements. Large service

providers with considerable experience in

their field often require use of their standard

terms and conditions, which likely favor

them, and refuse to make any material

changes except for important customers

or to accommodate state law. Small,

specialized consultants, on the other hand,

must deal with large, powerful corporations

as customers who also insist on using their

own standard terms drafted strongly in the

favor of the customer.

It is not always in the long-term interest

of the more powerful party to insist on a

one-sided contract because:

 It can increase the time it takes to reach a

final contract.

 It may be detrimental to the parties’

working arrangement and may contribute

to disputes between the parties.

 Where contract terms are patently unfair,

courts may be more likely to use their

equitable powers and apply common law

principles in favor of the weaker party.

In services arrangements, the most heavily

negotiated issues tend to be:

 Ownership of deliverables. The

customer, who is paying for the services,

including the development of the

resulting deliverables by the service

provider, often wants to own outright all

rights in such deliverables. The service

provider, on the other hand, may want

to retain ownership of the rights in all or

some of the deliverables, as well as any

of its existing know-how or materials that

may be incorporated in such deliverables,

for re-use in performing services for other

customers.

 Representations and warranties. The

customer will want the service provider

to give extensive representations and

warranties among other things relating

to the quality of the services and

deliverables, while the service provider

will often offer only a limited warranty

with the sole remedy being repair or

re-performance of the defective services

(see Standard Clauses, General Contract

Clauses: Representations and Warranties

(2-519-9438)).

 Indemnities. Each party will seek to

allocate as much risk as possible to

the other party by requesting broad

indemnities from the other party (see

Practice Note, Indemnification Clauses in

Commercial Contracts (TX) (W-004-5777)).

 Limitations on liability. The service

provider will want to exclude most

consequential, incidental, and special

Professional Services Agreement (TX)

damages and otherwise contractually

limit its potential monetary liability to

the customer to a fixed amount (usually

the amount of fees it received from the

customer) while the customer would

prefer to have no contractual exclusions

or limitations on liability (see Standard

Clauses, General Contract Clauses:

Limitation of Liability (TX) (W-000-0751)).

 Assignment. Each party typically wants

the flexibility to be able to assign its rights

or delegate its obligations under the

agreement, particularly to its affiliates

and successors, while restricting the other

party’s right to do the same (see Practice

Note, Assignability of Commercial

Contracts (TX) (W-015-5513)).

These issues should be addressed as early

as possible in the negotiation process. They

are discussed in more detail in the relevant

drafting notes.

Drafting Considerations

It is simpler to prepare the agreement if all

the variables are put into either:

 A separate statement of work (SOW) (see

Standard Document, Statement of Work

(Goods or Services) (9-576-4705)).

 One or more schedules if the services are

not project-based.

This professional services agreement

assumes that the parties negotiate and

execute one or more statements of work

relating to individual projects. For more on

drafting a statement of work, see Practice

Note, Drafting and Negotiating an Effective

Statement of Work: Business Briefing

(9-572-7586). If the services are not project-

based, all references in this agreement to a

SOW should be deleted and replaced with a

reference to the appropriate schedule.

In addition to the contract terms and

conditions and any statements of work,

consider whether the following items should

be included as schedules or exhibits, if

applicable:

 If the customer is using a competitive

bid process, the customer’s request for a

proposal (RFP) and the service provider’s

response. The customer should consider

having these documents form part of the

agreement if possible as they may contain

representations that the customer relied on

in selecting the service provider. The service

provider, conversely, should try to exclude

the RFP to avoid liability for representations

and warranties that were not part of the

final negotiated contract. If the RFP is

attached, the parties should carefully

review such documents for any conflicts

with the negotiated agreement. The parties

must also ensure that any potential conflict

between the provisions of these documents

and the agreement is dealt with by

specifying an order of precedence between

them in Section 17.6. If such documents

are included, it is advisable to add them as

an exhibit and ensure that the agreement

incorporates them by reference.

 All relevant functional specifications or

documentation relating to the services

and any deliverables.

 A service level agreement setting out

specific service levels that must be met by

the service provider and providing remedies

to the customer for service provider’s failure

to meet such levels. For example:

z

credits or refunds of the fees for the

services (some customers might insist

on the right to withhold payment of

any amounts otherwise due to the

service provider in the event of any

damages caused to the customer as a

consequence of the service provider’s

failure to meet specific service levels);

z

the right to terminate the agreement or

the relevant SOW or, alternatively, the

right to suspend the service provider’s

right and obligation to complete its

performance of the services until such

time as the service provider is able

to demonstrate to the customer’s

reasonable satisfaction that it can meet

its obligations under this Agreement

(including possibly assigning one or

more of the customer’s representatives

to supervise and work with the service

provider to correct and mitigate the

effects of the service provider’s inability

to meet specific service levels); or

z

the right of the customer to provide

and/or engage a replacement service

provider to provide any or all of the

delayed or unsatisfactory services.

 For more information on service levels

in the outsourcing context, see Practice

Note, Service Levels and Service Credit

Schemes in Outsourcing (6-500-9422).

Professional Services Agreement (TX)

BRACKETED ITEMS

Bracketed items in ALL CAPS should be

completed with the facts of the transaction.

Bracketed items in sentence case are either

optional provisions or include alternative

language choices to be selected, added, or

deleted at the drafter’s discretion.

Professional Services Agreement

between

[PARTY NAME]

and

[PARTY NAME]

dated as of

[DATE]

Professional Services Agreement

This Professional Services Agreement (this “Agreement”), dated as of [DATE] (the “Effective

Date”), is by and between [SERVICE PROVIDER NAME], a [STATE OF ORGANIZATION OR

FORMATION] [ENTITY TYPE], with offices located at [ADDRESS] (the “Service Provider”) and

[CUSTOMER NAME], a [STATE OF ORGANIZATION OR FORMATION] [ENTITY TYPE], with offices

located at [ADDRESS] (the “Customer”).

WHEREAS, [Customer desires to retain Service Provider to provide certain [DESCRIPTION OF

SERVICES] services upon the terms and conditions hereinafter set forth, and Service Provider is

willing to perform such services].

Recitals are not legally required and

generally do not have any direct legal

consequences. They are used to provide

information about the basic background and

purpose of the agreement as well as the

parties’ intent. In Texas, recitals in a contract

generally do not control the operative clauses

unless a court finds the operative clauses

ambiguous, but courts may look at them to

determine the proper construction of the

contract and the parties’ intention (Furmanite

Worldwide, Inc.V.NextCorp, Ltd., 339 S.W.3d

326, 336 (Tex. App.—Dallas 2011, no pet.)

(citing GardnerV.Smith, 168 S.W.2d 278, 280

(Tex. Civ. App.—Beaumont 1942, no writ))).

The parties should draft recitals in a way

that avoids ambiguity. For example, the

recitals should not include language

that adds legally binding obligations or

contradicts the wording contained in an

operative provision of the contract. The

recitals in this Standard Document provide

a basic description, but they can be revised

to include more specific information (such as

the specific types of services contemplated

by the agreement). For more information on

drafting recitals, see Practice Note, Drafting

or Reviewing a Commercial Contract:

Recitals (2-531-1345).

DRAFTING NOTE: RECITALS

NOW THEREFORE, in consideration of the mutual covenants and agreements hereinafter set

forth, the parties agree as follows:

1.Definitions.

When used in this Agreement, the capitalized terms listed below shall have the following

meanings:

Professional Services Agreement (TX)

[“Action” has the meaning set forth in Section 11.1.]

“Affiliate” of a Person means any other Person that directly or indirectly, through one or more

intermediaries, controls, is controlled by, or is under common control with, such Person. The

term “control” (including the terms “controlled by” and “under common control with”) means the

possession, directly or indirectly, of the power to direct or cause the direction of the management

and policies of a Person, whether through the ownership of voting securities, by contract or

otherwise.

Section 1 provides specific meanings to

particular words used in the agreement to

avoid ambiguity. Texas courts find a contract

is ambiguous when it is subject to two or

more reasonable interpretations (Nat’l Union

Fire Ins. Co. of Pittsburgh, PAV.CBI Indus.,

Inc., 907 S.W.2d 517, 520 (Tex. 1995); see

also NassarV.Liberty Mut. Fire Ins. Co., 508

S.W.3d 254, 258 (Tex. 2017)). Some terms

are defined in the body of the document.

These words are included in Section 1 with

a cross-reference to the section where the

term is defined.

After each round of revisions, the parties

must review the definitions carefully to

see if any defined terms have been added

or deleted or if any cross-references have

changed. It is important to be consistent

throughout the document. Where a

capitalized term is used in the document,

do not:

 Use it elsewhere in the document without

capitalizing it.

 Introduce a different word or phrase to

mean the same thing.

DRAFTING NOTE: DEFINITIONS

Each party should review the various

contexts in which this defined term may be

used in the agreement. A broad definition

might be advantageous:

 To a party when used in the context of its

right to assign the agreement to its own

affiliates.

 In the context of the other party’s

confidentiality obligations, if those

obligations also extend to such party’s

affiliates.

However, a broad definition may be less

advantageous when used:

 In the context of the other party’s right to

assign the agreement to its affiliates.

 To define the additional persons who

are entitled to receive services under

the agreement in the case of the service

provider.

For a narrower definition for corporate

entities, consider limiting the term “control” to

the ownership of an agreed upon percentage

of an entity’s voting securities (“the ownership,

beneficially or of record, of more than [fifty

percent (50%)] of the voting securities of

an entity.”) The parties may consider using

different definitions for different purposes but

must be careful to avoid ambiguity.

The parties should also consider whether

any temporal modifiers are necessary.

For example, without temporal modifiers,

past or future indemnified parties could

be unintentionally excluded from the

indemnification protection (see WesternGeco,

L.L.C.V.Input/Output, Inc., 246 S.W.3d 776,

786 (Tex. App.—Houston [14th Dist.] 2008)

(“future affiliate” did not include company

that was not in existence at the time the

contract was entered into)).

DRAFTING NOTE: AFFILIATE

Professional Services Agreement (TX)

[“Authorized Service Recipients” means the [Affiliates of Customer as may be notified by

Customer to Service Provider from time to time/Persons identified as such in [the/a] Statement

of Work].]

The parties should negotiate whether the

definition of confidential information applies

only to:

 Written materials or includes oral

disclosures.

 Materials marked “confidential.”

This decision will depend on the nature of

the confidential information involved and

how much confidential information will

be exchanged. A party that anticipates

disclosing more (or more sensitive)

confidential information than it receives

should try to negotiate to include one or

both bracketed clauses, which broaden the

scope of confidential information.

If either party has particularly valuable

confidential information, it should consider

deleting the exception concerning

independent development because an

assertion of independent development may

be difficult to disprove.

For more details about defining

confidential information, see Practice

Note, Confidentiality and Nondisclosure

Agreements (TX): Definition of Confidential

Information (W-007-0568).

Some confidential information may rise

to the level of a trade secret and receive

automatic protection under state or federal

law (see Practice Note, Confidentiality and

Nondisclosure Agreements (TX): Trade

Secrets (W-007-0568) and State Q&A,

Trade Secret Laws: Texas: Definition of Trade

Secret (4-506-3556)). Texas has adopted

a version of the Uniform Trade Secrets

Act (TUTSA) ((Tex. Civ. Prac. & Rem. Code

Ann.§§134A.001 to 134A.008).

Include this optional definition with

appropriate modifications if the services

will be provided to persons other than the

customer (for example, the customer’s

affiliates) pursuant to Section 2.1.

DRAFTING NOTE: CONFIDENTIAL INFORMATION

DRAFTING NOTE: AUTHORIZED SERVICE RECIPIENTS

“Agreement” has the meaning set forth in the preamble.

“Change Order” has the meaning set forth in Section 5.2.

“Confidential Information” means any information that is treated as confidential by a party,

including but not limited to all non-public information about its business affairs, products or

services, Intellectual Property Rights, trade secrets, third-party confidential information, and

other sensitive or proprietary information[, whether disclosed orally or in written, electronic,

or other form or media][, and] [whether or not marked, designated, or otherwise identified as

“confidential”]. Confidential Information shall not include information that: (a) is already known

to the Receiving Party without restriction on use or disclosure prior to receipt of such information

from the Disclosing Party; (b) is or becomes generally known by the public other than by breach of

this Agreement by, or other wrongful act of, the Receiving Party; (c) is developed by the Receiving

Party independently of, and without reference to, any Confidential Information of the Disclosing

Party; or (d) is received by the Receiving Party from a third party who is not under any obligation

to the Disclosing Party to maintain the confidentiality of such information.

Professional Services Agreement (TX)

“Customer” has the meaning set forth in the preamble.

“Customer Contract Manager” has the meaning set forth in Section 4.1(a)

[“Customer Equipment” means any equipment, systems, cabling or facilities provided by

Customer and used directly or indirectly in the provision of the Services.]

While a trade secret has to meet the

statutory definition for a court to protect

it, confidential information is not defined

by statute. Confidential information may

generally mean whatever the parties to an

agreement define it to be, which may or may

not include trade secrets. Texas courts give

effect to confidentiality provisions regardless

of whether the information covered by the

provisions achieves trade secret status

(see Corp. Relocation, Inc.V.Martin, 2006

WL 4101944, at *15 n.17 (N.D. Tex. Sept.

12, 2006); Trilogy Software, Inc.V.Callidus

Software, Inc., 143 S.W.3d 452, 471 n.18 (Tex.

App. – Austin 2004, pet. denied) (citing

Simplified Telesys, Inc.V.Live Oak Telecom,

L.L.C., 68 S.W.3d 688, 692-93 (Tex. App. –

Austin 2000, pet. denied)). Best practice,

however, includes the incorporation of trade

secrets in the definition of confidential

information.

Congress also enacted the Defend

Trade Secrets Act of 2016 (DTSA) (18

U.S.C.§§1831 to 1839), which creates a

federal civil cause of action for trade secrets

misappropriation. The DTSA substantially

overlaps with various state versions of

the Uniform Trade Secrets Act, including

the TUTSA, in terms of elements and

definitions, but it preempts no state laws

(18 U.S.C.§1838). For a standard clause

incorporating DTSA language, see Standard

Clauses, General Contract Clauses:

Confidentiality Agreement Clauses After the

Defend Trade Secrets Act (W-002-9194).

This definition should be included if the

customer is supplying any equipment to the

service provider to use for the services. As

an alternative to the general definition, and

to achieve greater certainty, the applicable

SOW or schedule could include a specific list

of any customer equipment.

DRAFTING NOTE: CUSTOMER EQUIPMENT

The nature of the customer materials varies

widely depending on the type of services

being provided, so this definition may need

to be modified for a particular transaction.

As an alternative to the general definition,

and to achieve greater certainty, the

applicable SOW or schedule could include a

specific list of customer materials.

DRAFTING NOTE: CUSTOMER MATERIALS

“Customer Materials” any documents, data, know-how, methodologies, software and other

materials provided to Service Provider by Customer[, including computer programs, reports and

specifications].

“Deliverables” means all documents, work product and other materials that are delivered to

Customer hereunder or prepared by or on behalf of Service Provider in the course of performing

the Services[, including any items identified as such in [the/a] Statement of Work].

Professional Services Agreement (TX)

“Disclosing Party” means a party that discloses Confidential Information under this Agreement.

“Force Majeure Event” has the meaning set forth in Section 16.

[“Initial Term” has the meaning set forth in Section 6.1.]

“Intellectual Property Rights” means all (a) patents, patent disclosures and inventions (whether

patentable or not), (b) trademarks, service marks, trade dress, trade names, logos, corporate

names and domain names, and other similar designations of source or origin, together with all of

the goodwill associated therewith, (c) copyrights and copyrightable works (including computer

programs), [mask works,] and rights in data and databases, (d) trade secrets, know-how and

other confidential information, and (e) all other intellectual property rights, in each case whether

registered or unregistered and including all applications for, and renewals or extensions of, such

rights, and all similar or equivalent rights or forms of protection in any part of the world.

The nature of the deliverables will vary

widely depending on the type of services

being provided. Specific deliverables can be

described here or in the applicable SOW or

schedule.

Each party must review this definition

carefully because it is used in the provisions

allocating ownership of the deliverables

(including related intellectual property (IP)

rights) set out in Section 8.

DRAFTING NOTE: DELIVERABLES

The bracketed phrase “mask works” in

subclause (c) refers to the layout of an

integrated circuit and can be deleted if

not relevant to the type of services being

provided. For an overview of the various

types of IP rights arising under US law,

see Practice Note, Intellectual Property:

Overview (8-383-4565); see also Practice

Note, Intellectual Property Rights: The

Key Issues (2-500-4365). For information

specific to trademarks, see State Q&A:

Trademark Laws: Texas (8-534-9166).

DRAFTING NOTE: INTELLECTUAL PROPERTY RIGHTS

[“Key Personnel” means any Service Provider Personnel who is identified as being key in [the/a]

Statement of Work.]

“Law” means any statute, law, ordinance, regulation, rule, code, order, constitution, treaty,

common law, judgment, decree, other requirement or rule of law of any federal, state, local

or foreign government or political subdivision thereof, or any arbitrator, court or tribunal of

competent jurisdiction.

“Losses” mean all losses, damages, liabilities, deficiencies, actions, judgments, interest, awards,

penalties, fines, costs or expenses of whatever kind, including reasonable attorneys’ fees and the cost

of enforcing any right to indemnification hereunder and the cost of pursuing any insurance providers.

“Permitted Subcontractor” has the meaning set forth in Section 3.1(h).

“Person” means an individual, corporation, partnership, joint venture, limited liability company,

governmental authority, unincorporated organization, trust, association or other entity.

[“Pre-Existing Materials” means [the pre-existing materials specified in [the/a] Statement of

Work/all documents, data, know-how, methodologies, software and other materials[, including

computer programs, reports and specifications,] provided by or used by Service Provider in

connection with performing the Services, in each case developed or acquired by the Service

Provider prior to the commencement [or independently] of this Agreement].]

Professional Services Agreement (TX)

[“Project” means [the/a] project as described in [the/a] Statement of Work.]

This definition is used in optional Section

8.3 in the event the customer is to own the

IP rights in the deliverables by means of

the short-form assignment in Section 8.1,

and the service provider needs to retain

ownership of all rights in a portion of

those deliverables. For example, this most

commonly includes those materials that

the service provider owned or licensed prior

to the particular services arrangement or

generic materials not developed specifically

for the customer that the service provider

needs to use to provide its services to other

customers. In this case, review the definition

carefully to ensure that all items for which

the service provider intends to retain

ownership are clearly excluded.

If, on the other hand, the service provider

is to own all IP rights in any deliverables,

and is only granting the customer a license

to those IP rights as necessary to use the

deliverables, delete this definition and

modify Section 8 as appropriate (see

Drafting Note, Intellectual Property Rights;

Ownership).

CUSTOMER

For a more pro-customer agreement and for

clarity, use the first clause in brackets, which

requires the service provider to specifically

list in the applicable SOW or schedule any

materials that are deemed to be Pre-

Existing Materials of the service provider.

DRAFTING NOTE: PRE-EXISTING MATERIALS

If the services will involve an identifiable

project or projects, consider including this

definition. Where the services are instead

ongoing and remain the same throughout

the lifetime of the agreement:

 Delete all references in this agreement to

a project or project milestones.

 If variable terms are set forth on one or

more schedules instead of a SOW, replace

all references in this agreement to a

SOW with a reference to the appropriate

schedule.

DRAFTING NOTE: PROJECT

The SOW for a particular type of service

or project will typically identify any

milestones that indicate progress toward

completion of a project. The applicable

SOW or schedule should clearly set out

the process by which the parties assess

and agree when, and whether, the project

milestones have been reached (for

example, through an acceptance testing

procedure). Some agreements make some

or all payments contingent on completion

of milestones.

DRAFTING NOTE: PROJECT MILESTONE

“Project Milestone” means an event or task described in [the/a] Statement of Work which shall

be completed by the relevant date set forth in the Statement of Work.

Professional Services Agreement (TX)

“Receiving Party” means a party that receives or acquires Confidential Information directly or

indirectly under this Agreement.

[“Renewal Term” has the meaning set forth in Section 6.2.]

“Service Provider” has the meaning set forth in the preamble.

“Service Provider Contract Manager” has the meaning set forth in Section 3.1(a)(i).

[“Service Provider Equipment” means any equipment, systems, cabling, or facilities provided by

or on behalf of Service Provider and used directly or indirectly in the provision of the Services.]

This definition should be included if the

service provider is supplying any equipment

in connection with the services. As an

alternative to the general definition and to

achieve greater certainty, a SOW or schedule

could include a specific list of any service

provider equipment.

DRAFTING NOTE: SERVICE PROVIDER EQUIPMENT

The specific details of each service (such

as the description of the service, the term,

and often the fee for the service) are often

set out in a separate SOW or schedule.

If a particular agreement involves the

provision of only one service, consider

instead including the details of the

services and other terms and conditions

typically included in the SOW in one or

more schedules or within the body of the

agreement. The description of the services

should be clear and unambiguous.

DRAFTING NOTE: SERVICES

For more information on including a SOW,

see Drafting Note, Drafting Considerations

and Practice Note, Drafting and Negotiating

an Effective Statement of Work: Business

Briefing (9-572-7586). For a model

document, see Standard Document,

Statement of Work (Goods or Services)

(9-576-4705).

DRAFTING NOTE: STATEMENT OF WORK

“Service Provider Personnel” means all employees and Permitted Subcontractors, if any,

engaged by Service Provider to perform the Services.

[“Service Provider Proposal” means Customer’s Request for Proposal for the Services and

Service Provider’s response[, attached as Exhibit [A],] describing how Service Provider proposes

to carry out [the Services/a Project].]

Services” mean the professional [and other] services to be provided by Service Provider under

this agreement, as described in more detail in [the/a] Statement of Work, and Service Provider’s

obligations under this Agreement.

“Statement of Work” or “SOW” mean [the/each] Statement of Work entered into by the parties

and attached to this Agreement, substantially in the form of Exhibit [B/[OTHER LETTER]]].

Professional Services Agreement (TX)

“Term” has the meaning set forth in Section 6.

2. Services.

2.1Service Provider shall provide the Services to Customer [and the Authorized Service

Recipients] as described in more detail in [the/each] Statement of Work in accordance with the

terms and conditions of this Agreement.

2.2[The/Each] Statement of Work shall include the following information, if applicable:

(a)a detailed description of the Services to be performed pursuant to the Statement

ofWork;

(b)the date upon which the Services will commence and the term of such Statement of

Work;

(c)[the names of the Service Provider Contract Manager and any Key Personnel;]

(d)the fees to be paid to Service Provider under the Statement of Work;

(e)[the Project implementation plan, including a timetable;]

(f)[Project Milestones and payment schedules;]

(g)any criteria for completion of the [Services/Project];

(h)[procedures for the testing and acceptance of the Services and Deliverables by

Customer;] and

(i)any other terms and conditions agreed upon by the parties in connection with the

Services to be performed pursuant to such Statement of Work.

If any entities in addition to the customer

will be receiving services (for example, the

customer’s affiliates), include the definition

of Authorized Service Recipients in Section 1.

If including Authorized Service Recipients,

check that their rights and obligations are

specifically referred to where necessary

throughout the contract, including

identifying such parties as third-party

beneficiaries in Section 17.8. For a

discussion of third-party beneficiaries, see

Standard Clause, General Contract Clauses:

Third-Party Beneficiaries (6-519-7630).

Section 2.2 should list the items to be

specified in each SOW. The parties should

carefully draft each SOW to ensure that

all key elements of the services or a

particular project are set out in as much

detail as possible, including identification

of any project milestones, completion

requirements, and acceptance testing

procedures. For more information and a

sample SOW, see Standard Document,

Statement of Work (Goods or Services)

(9-576-4705).

DRAFTING NOTE: SERVICES

3.Service Provider’s Obligations.

Professional Services Agreement (TX)

3.1The Service Provider shall:

(a)[subject to the prior written approval of Customer, [which approval shall not be

unreasonably withheld or delayed]] appoint:

(i)a Service Provider employee to serve as a primary contact with respect to this

Agreement and who will have the authority to act on behalf of Service Provider in

connection with matters pertaining to this Agreement (the “Service Provider Contract

Manager”); and

(ii)[[Key Personnel/Service Provider Personnel], who shall be suitably skilled,

experienced and qualified to perform the Services;]

(b)maintain the same Service Provider Contract Manager [and other Key Personnel]

throughout the Term of this Agreement except for changes in such personnel due to:

(i)Customer’s request pursuant to Section 3.1(c); or

(ii)the resignation or termination of such personnel or other circumstances outside of

Service Provider’s reasonable control;

(c)upon the [reasonable] written request of Customer, promptly replace the Service

Provider Contract Manager and any other Service Provider Personnel;

Section 3 sets out the service provider’s

main obligations under the professional

services agreement. All obligations require

consideration of:

 The particular project.

 Type of services being provided.

 Any applicable state or federal law

(for example, the Texas Administrative

Code imposes more stringent standards

of conduct on service providers

when engaging in contracts with the

Comptroller (34 Tex. Admin. Code§6.4).

DRAFTING NOTE: SERVICE PROVIDER’S OBLIGATIONS

Section 3.1(a), Section 3.1(b), and Section

3.1(c) are project management terms

relating to the service provider’s contract

manager and personnel.

CUSTOMER

In a project where the service provider’s

personnel may be on the customer’s

premises and working with the customer’s

staff, the customer should have the right to:

 Approve the personnel who are to work

on the project.

 Replace particular personnel.

The service provider may strongly resist this

clause or request a similar veto over the

customer’s manager.

SERVICE PROVIDER

For a pro-service provider agreement,

delete Section 3.1(a), Section 3.1(b), and

Section 3.1(c) in order to maintain maximum

flexibility in assigning and replacing service

provider personnel.

DRAFTING NOTE: PROJECT MANAGEMENT

(d)before the date on which the Services are to start, obtain, and at all times during the

Term of this Agreement maintain, all necessary licenses and consents and comply with all

relevant Laws applicable to the provision of the Services;

Professional Services Agreement (TX)

CUSTOMER

This obligation could refer, for example,

to obtaining a consent from a software

licensor to allow new software to be used

in conjunction with its software or from a

landlord for alterations to the premises.

Where the customer is aware of the need for

any consents, include a specific reference

to them in this clause. Consider adding in

the date by which specific consents must

be obtained. Be prepared for a request for

a reciprocal obligation in relation to the

customer (for example, see Section 4.1(f)).

DRAFTING NOTE: LICENSES AND CONSENTS

(e)prior to any Service Provider Personnel performing any Services hereunder: (i) ensure

that such Service Provider Personnel have the legal right to work in the United States;

and (ii) at its sole cost and expense, conduct background checks on such Service Provider

Personnel, which background checks shall comprise, at a minimum, a review of credit

history, references and criminal record, in accordance with state, federal and local law;

(f)comply with, and ensure that all Service Provider Personnel comply with, all rules,

regulations and policies of Customer that are communicated to Service Provider in writing,

including security procedures concerning systems and data and remote access thereto,

building security procedures[, including the restriction of access by Customer to certain

areas of its premises or systems for security reasons,] and general health and safety

practices and procedures;

(g)maintain complete and accurate records [relating to the provision of the Services

under this Agreement, including records] of the time spent and materials used by Service

Provider in providing the Services in such form as Customer shall approve. During the

Term [and for a period of [two] years thereafter], upon Customer’s written request, Service

Provider shall allow Customer or Customer’s representative to inspect and make copies of

such records and interview Service Provider Personnel in connection with the provision of

the Services[; provided that any such inspection shall take place during regular business

hours no more than once per year and Customer provides Service Provider with at least

[[ten/OTHER NUMBER]] business days/reasonable] advance written notice];

CUSTOMER

It is particularly important to include this

recordkeeping and audit provision where

the service provider is providing services on

a time and materials basis (see Section 7.2).

If the customer is a publicly-held company

and the services arrangement is effectively

an outsourcing arrangement, the customer

may need sufficiently broad audit rights to

meet its obligations under the Sarbanes-

Oxley Act of 2002.

For more information on Sarbanes-Oxley,

see Practice Note, Corporate Governance

Standards: Audit Committee (3-381-8544).

SERVICE PROVIDER

If an audit right is acceptable in the context

of the transaction, the service provider

should insist that any such inspection

be subject to reasonable limitations, by

including, for example, the bracketed

limitations in Section 3.1(g).

For more information and a sample long-

form audit clause, see Standard Clauses,

General Contract Clauses: Audit Rights

(4-567-1110).

DRAFTING NOTE: RECORDS; AUDIT

Professional Services Agreement (TX)

(h)obtain Customer’s written approval[, which shall not be unreasonably withheld or

delayed/which may be given or withheld in Customer’s sole discretion,] prior to entering

into agreements with or otherwise engaging any Person, including all subcontractors

and Affiliates of Service Provider, other than Service Provider’s employees to provide

any Services and Deliverables to Customer (each such approved subcontractor or other

third party, a “Permitted Subcontractor”). Customer’s approval shall not relieve Service

Provider of its obligations under the Agreement, and Service Provider shall remain fully

responsible for the performance of each such Permitted Subcontractor and its employees

and for their compliance with all of the terms and conditions of this Agreement as if they

were Service Provider’s own employees. Nothing contained in this Agreement shall create

any contractual relationship between Customer and any Service Provider subcontractor or

supplier; and

(i)require each Permitted Subcontractor to be bound in writing by the confidentiality

and intellectual property assignment or license provisions of this Agreement[, and,

upon Customer’s written request, to enter into a non-disclosure or intellectual property

assignment or license agreement in a form that is reasonably satisfactory to Customer].

This provision is especially important if

the services involve highly sensitive or

confidential information from the customer.

While a subcontractor may be obligated

not to disclose the confidential information

of the service provider, it does not have

any confidentiality obligations directly to

the customer, so requiring subcontractors

to execute a separate agreement is an

important protection for the customer.

CUSTOMER

A “time of the essence” clause aims to

ensure that the service provider strictly

complies with the dates of performance

set out in the agreement. In the absence

of a time of the essence clause, some

courts might hold only that the service

provider must perform the services within

a reasonable time. For more information

about time of the essence clauses in Texas,

including the impact of leaving one out, see

Standard Clause, General Contract Clauses:

Time of the Essence (TX) (W-000-0720);

see also Practice Note, Time of the Essence

in Commercial Contracts (6-519-5141).

SERVICE PROVIDER

In a pro-service provider contract, the

service provider should delete Section 3.3

and replace with:

“Service Provider shall use reasonable

efforts to meet any performance dates

specified in [the/a] Statement of Work,

and any such dates shall be estimates

only.”

DRAFTING NOTE: SUBCONTRACTOR CONFIDENTIALITY OBLIGATIONS

DRAFTING NOTE: TIME OF THE ESSENCE

3.2Service Provider is responsible for all Service Provider Personnel and for the payment of

their compensation, including, if applicable, withholding of income taxes, and the payment

and withholding of social security and other payroll taxes, unemployment insurance, workers’

compensation insurance payments and disability benefits.

3.3Service Provider acknowledges that time is of the essence with respect to Service

Provider’s obligations hereunder and that prompt and timely performance of all such

obligations[, including all timetables, Project Milestones and other requirements in this

Agreement and [the/each] Statement of Work,] is strictly required.

Professional Services Agreement (TX)

This clause aims to ensure that the

service provider is not strictly held to the

specific performance dates set out in

the agreement and instead only needs

to use reasonable efforts to meet those

dates. In Texas, contract drafters often

use the term “commercially reasonable

efforts” and follow Delaware case law

to interpret the phrase. In Williams

Companies, Inc.V.Energy Transfer Equity,

L.P., the Delaware Supreme Court implies

that contract drafters might want to

define “commercially reasonable efforts”

to reduce the risk that clients be caught

unawares by a far-stronger commitment

than they intended (159 A.3d 264, 272

(Del.2017)).

For more information on efforts provisions

in commercial contracts, see Practice

Notes, Efforts Provisions in Commercial

Contracts: Best Efforts, Reasonable Efforts,

and Commercially Reasonable Efforts

(7-518-0907) and Drafting and Interpreting

Contractual Efforts Provisions (0-579-1826).

For more on efforts provisions in Texas, see

3 Tex. Prac. Guide Bus. Trans.§12:57 and

Commercially Reasonable Efforts: A Recent

Delaware Supreme Court Holding Might

Motivate Contract Drafters to Define the

Term for Themselves, 81 Tex. B.J. 338 (2018)).

3.4[The obligations of Service Provider under this Agreement shall be performed fully within

[the United States/Texas], unless approved in writing in advance by Customer.]

CUSTOMER

Include this obligation if the services must

be performed fully within the US or Texas. If

any part of the services is to be performed

outside of the Texas and/or US, consider

whether any changes must be made to

the agreement to take into account any

applicable laws or regulations relating to

such other jurisdictions.

For example, Texas courts generally uphold

restrictive covenants, but California courts

look on them with much less favor. If the

customer expects to have the benefit of a

non-compete, for example, it should ensure

that the services are rendered in Texas as

intended.

In the case of a Worker’s Compensation

claim, a Texas worker who is injured outside

of Texas is still protected by the Texas

Compensation Law if the worker had the

status of Texas employee before leaving the

state (Southern UnderwritersV.Gallagher,

136 S.W.2d 590, 592 (Tex. 1940)).

DRAFTING NOTE: SERVICES PERFORMED IN THE US OR TEXAS

CUSTOMER

Consider whether it is appropriate, in the

context of the negotiation and the specific

type of services being provided, to require

any additional obligations from the service

provider. Additional obligations may include,

for example, requiring the service provider to:

 Ensure that its personnel are suitably

qualified and that the services are

sufficiently staffed.

 Transition and train any replacement

service provider contract manager or

personnel at the service provider’s

expense.

DRAFTING NOTE: ADDITIONAL OBLIGATIONS

3.5[[ANY ADDITIONAL SERVICE PROVIDER OBLIGATIONS].]

Professional Services Agreement (TX)

4.Customer’s Obligations.

 Prioritize the services being performed for

the customer over the service provider’s

other business.

 Provide the services at any site the

customer may specify.

 Provide periodic status reports.

 Ensure that all service provider

equipment:

z

is in good working order and suitable

for the purposes for which it is used;

and

z

conforms to all relevant legal standards

or requirements specified by the

customer.

 Keep and maintain any customer

equipment in the service provider’s

possession in good condition and not

to dispose of or use it other than in

accordance with the customer’s written

instructions or authorization.

 Take out and maintain any relevant

insurance policies, for example, covering

the service provider equipment and any

customer equipment. This can also be

covered in a standalone insurance clause

(see, for example, Section 13). For more

information about insurance, see Practice

Note, Insurance Policies and Coverage:

Overview (9-505-0561) and Insurance

Policies and Coverage Toolkit (4-506-1171).

 Meet agreed upon service levels with

service credits and/or termination rights

granted to the customer where the service

provider fails to meet such levels. This can

alternatively be the subject of a separate

agreement or schedule to be attached

to the professional services agreement.

For more information on service levels

in the outsourcing context, see Practice

Note, Service Levels and Service Credit

Schemes in Outsourcing (6-500-9422)

and Standard Document, Service Level

Agreement (W-013-0710)

The customer should also consider whether

any of the obligations under Section 3

should be extended for the benefit of any

Authorized Service Recipients.

This section sets out the customer’s

material obligations under the professional

services agreement. In a collaborative

arrangement, it is reasonable for the service

provider to request from the customer basic

commitments about cooperation, access,

and information.

DRAFTING NOTE: CUSTOMER’S OBLIGATIONS

SERVICE PROVIDER

This professional services agreement does

not give the service provider a right of veto

over the choice of the customer contract

manager. For a pro-service provider

agreement, include a right of veto, approval,

or removal over the identity of the customer

contract manager, but bear in mind that

requesting such a right may elicit a request

from the customer for a reciprocal right

(for example, see the rights granted to the

customer in Section 3.1(a)).

DRAFTING NOTE: CUSTOMER CONTRACT MANAGER

4.1Customer shall:

(a)cooperate with Service Provider in all matters relating to the Services and appoint [and,

in its reasonable discretion, replace] a Customer employee to serve as the primary contact

with respect to this Agreement and who will have the authority to act on behalf of Customer

with respect to matters pertaining to this Agreement (the “Customer Contract Manager”);

Professional Services Agreement (TX)

(b)provide, subject to Section 3.1(f), such access to Customer’s premises and such office

accommodation and other facilities as may reasonably be [requested/required] by Service

Provider [and agreed with Customer in writing in advance], for the purpose of performing

[the Services/each Project];

This clause requires the customer to

provide access to such customer facilities

as the service provider reasonably requests

or needs to perform the services, with

optional language in brackets requiring the

customer’s prior written consent. If there

are specific facilities which are unusual

but necessary (for example, a dedicated

telephone line or access for large vehicles

at any time of the day or night), it may be

advisable to refer to them specifically.

Consider whether the provision should

require the service provider to pay for the

provision of any facilities.

DRAFTING NOTE: ACCESS TO INFORMATION, PREMISES, AND FACILITIES

(c)respond promptly to any Service Provider request to provide direction, information,

approvals, authorizations or decisions that are reasonably necessary for Service Provider

to perform Services in accordance with the requirements of this Agreement;

(d)provide such [Customer Materials/information] as Service Provider may [reasonably]

request [and Customer considers reasonably necessary], in order to carry out the Services, in

a timely manner, and ensure that it is complete and accurate in all material respects; [and]

The customer is responsible for giving the

service provider customer materials and

other information that the service provider

reasonably requests to allow it to carry out

the services. The definition of customer

materials should be sufficiently detailed

to ensure that there will be no surprises

and that, if there is any doubt as to what

additional information the service provider

may need, this is covered as well.

SERVICE PROVIDER

If this obligation is included, the customer

may request a reciprocal provision

requiring the service provider to ensure

that its equipment is in good working

order. However, since the service provider’s

performance is typically dependent on its

equipment being functional, this obligation

is implicit in the service provider’s duty to

provide service.

Check what, if any, specific industry

standards are applicable to the services

and consider adding language requiring

the equipment to comply with those

DRAFTING NOTE: PROVISION OF CUSTOMER MATERIALS

DRAFTING NOTE: CUSTOMER EQUIPMENT

(e)[ensure that all Customer Equipment is in good working order and suitable for the

purposes for which it is used [in relation to the Services] and conforms to [all relevant

legal or industry standards or requirements/[SPECIFY STANDARDS WITH WHICH THE

CUSTOMER EQUIPMENT IS REQUIRED TO COMPLY]]; [and]]

Professional Services Agreement (TX)

(f)obtain and maintain all necessary licenses and consents and comply with all applicable

Law in relation to the Services[, the installation of the Service Provider Equipment, the

use of Customer Materials and the use of the Customer Equipment in relation to the

Service Provider Equipment] [to the extent that such licenses, consents, and Law relate to

Customer’s business, premises, staff and equipment], in all cases before the date on which

the Services are to start[.][; and]

standards. In the event of non-compliance,

also consider specifically reserving (without

prejudice to any other remedies available)

the right to disconnect or remove any non-

compliant equipment and replace it at the

expense of the customer.

SERVICE PROVIDER

This obligation could refer, for example,

to obtaining a consent from a software

licensor to allow new software to be used

in conjunction with its software or from

a landlord to alterations to the premises.

Where the service provider is aware of the

need for any of these consents, include a

specific reference to them in this clause.

Consider adding in the date by which

specific consents must be obtained. If the

customer fails to get necessary consents,

Section 4.3 can limit the service provider’s

liability for non-performance.

The service provider should be prepared for

a request from the customer for a reciprocal

obligation (for example, see Section 3.1(d)).

Note that, if the wording in brackets is

included, the service provider will still

need to obtain all licenses and consents

other than those relating to the customer’s

business, premises, staff and equipment.

DRAFTING NOTE: LICENSES AND CONSENTS

SERVICE PROVIDER

If there are specific requirements for the

care of any service provider equipment in

the customer’s possession, for example,

control of humidity levels or a 24-hour

power supply from an uninterrupted source,

specify them here or in a separate SOW or

schedule.

DRAFTING NOTE: CARE OF SERVICE PROVIDER EQUIPMENT

(g)[keep, maintain [and insure] the Service Provider Equipment [in good condition/in

accordance with Service Provider’s instructions as notified in writing from time to time],

and shall not dispose of or use Service Provider Equipment other than in accordance with

Service Provider’s written instructions or authorization.]

4.2[ANY ADDITIONAL CUSTOMER OBLIGATIONS.]

Professional Services Agreement (TX)

4.3If Service Provider’s performance of its obligations under this Agreement is prevented

or delayed by any act or omission of Customer[, any Authorized Service Recipient,] or [its/

their] agents, subcontractors, consultants or employees [outside of Service Provider’s

reasonable control], Service Provider shall not be deemed in breach of its obligations

under this Agreement or otherwise liable for any costs, charges or losses sustained or

incurred by Customer, in each case, to the extent arising directly or indirectly from such

prevention or delay.

SERVICE PROVIDER

The service provider should consider

whether it is appropriate, in the context of

the negotiation, to require any additional

obligations from the customer. For example,

consider including obligations requiring the

customer to:

 Take out and maintain in effect any

relevant insurance policies, for example,

covering the customer equipment. This

can also be covered in a standalone

insurance clause (see, for example,

Section 13).

 Cause any Authorized Service Recipients

to comply with the terms of this section.

DRAFTING NOTE: ADDITIONAL CUSTOMER OBLIGATIONS

CUSTOMER

The customer should not include this clause

in a pro-customer agreement.

SERVICE PROVIDER

The service provider should include this

provision to ensure that if the customer’s

action or inaction makes it more difficult

for the service provider to perform its

obligations or causes the customer to incur

additional costs, the service provider will

not be in breach of the agreement

or liable to the customer due to any

resultingprevention or delay of its

performance.

DRAFTING NOTE: ACTS OR OMISSIONS OF CUSTOMER

5.Change Orders.

5.1If [Customer/Service Provider/either party] wishes to change the scope or performance of

the Services, it shall submit details of the requested change to [Service Provider/Customer/

the other party] in writing [in accordance with the notice provisions in Section 17.4]. Service

Provider shall, within a reasonable time (not to exceed [NUMBER] days) after receiving a

Customer-initiated request, or at the same time that Service Provider initiates such a request,

provide a written estimate to Customer of:

(a)the likely time required to implement the change;

(b)any necessary variations to the fees and other charges for the Services arising from the

change;

(c)the likely effect of the change on the Services;

(d)any other impact the change might have on the performance of this Agreement; and

(e)any other information [reasonably] requested by Customer.

5.2Promptly after receipt of the written estimate, the parties shall negotiate and agree in

writing on the terms of such change (a “Change Order”). Neither party shall be bound by any

Change Order unless mutually agreed upon in writing in accordance with Section 17.10.

Professional Services Agreement (TX)

6.Term and Termination.

6.1Term. This Agreement shall commence as of the Effective Date and shall continue

thereafter [until the completion of the Services [under all Statements of Work]/for a period of

[TERM] [(the “Initial Term”)]], unless sooner terminated pursuant to this Section 6.

Section 5 sets out the process by which the

parties can request and make changes to

the scope or performance of the services.

SERVICE PROVIDER

Consider including a clause allowing the

service provider to make alterations that will

not materially affect the nature or quality of

the services. For example, the agreement

could allow alterations for:

 Changes in applicable laws or regulations.

 Other changed circumstances, such as a

change in its own suppliers.

In this kind of clause, the service provider

typically agrees to give prior notice of some

or all such changes. Sample language to

this effect is as follows:

“Notwithstanding Section 5.1 and

Section 5.2, Service Provider may,

from time to time change the

Services[: (i)] [upon written/without]

notice to Customer in order to

comply with any applicable safety or

statutory requirements[, or (ii) subject

to Customer’s prior written consent,

which shall not be unreasonably

withheld or delayed, in each case]

provided that such changes do not

materially affect the nature, scope

of, or fees or other charges for the

Services.”

The service provider should also consider

including a clause allowing it to charge for

its time spent dealing with change requests

and preparing an altered specification

(particularly where the agreement is not on

a pure time and materials basis). Sample

language to this effect is as follows:

“[If Customer requests a change and

then, after receiving Service Provider’s

written estimate, decides not to follow

through with the change,] Service

Provider may charge for the time it

spends assessing and documenting

a change request from Customer

on a time and materials basis in

accordance with Section 7.”

In this case, the service provider’s rates need

to be set out in the applicable SOW.

For a sample change order form, see

Standard Document, Services Agreement:

Change Order Form (0-522-5179). For more

sample change order clauses, see Standard

Clauses:

 Services Agreement: Change Order

Clause (Change Order Request

Procedure) (8-521-9532).

 Services Agreement: Change Order

Clause (Change Directives) (5-523-5048).

 Services Agreement: Change Order

Clause (Excusable Events) (2-523-5139).

DRAFTING NOTE: CHANGE ORDERS

This section should be adapted to reflect

the agreement between the parties as to

the term of the contract. The bracketed

language should be modified to provide for

either:

 Automatic expiration once a particular

project or the services have been

completed.

 A term that will expire after a set time

period.

The appropriate term will vary according to

whether the services are project based or of

a continuing nature.

If the term is determined by completion

of the project or the services, make sure

DRAFTING NOTE: TERM

Professional Services Agreement (TX)

6.2[Renewal. Upon expiration of the Initial Term, this Agreement shall automatically renew

for [an/[NUMBER]] additional [successive] [NUMBER] [month/year] term[s] unless [Customer/

Service Provider/either party] provides written notice of nonrenewal at least [NUMBER] days

prior to the end of the then-current term (each a “Renewal Term” and together with the

Initial Term, the “Term”). If the Term is renewed for one or more Renewal Term, the terms

and conditions of this Agreement during each Renewal Term shall be the same as the terms

and conditions in effect immediately prior to such renewal[, subject to any change in fees in

accordance with Section 7.5]. If [Customer/Service Provider/either Party] provides timely notice

of nonrenewal, then this Agreement shall terminate on the expiration of the then-current

Term, unless sooner terminated as provided in this Section 6.

[Customer/Service Provider/either Party] may renew this Agreement for [an/one or more/up to

[NUMBER]] additional [NUMBER] [month/year] term[s] by providing written notice of its intent to

renew at least [NUMBER] days prior to the end of the then-current term (each a “Renewal Term”

and together with the Initial Term, the “Term”). If the Term is renewed for one or more Renewal

Terms, the terms and conditions of this Agreement during each Renewal Term shall be the same

as the terms and conditions in effect immediately prior to such renewal[, subject to any change in

fees in accordance with Section 7.5]. If [[Customer/Service Provider] fails to provide/neither party

provides] timely notice of its intent to renew this Agreement, then this Agreement shall terminate

on the expiration of the then-current Term, unless sooner terminated as provided in this Section 6.]

the applicable SOW or schedule is clear

on when and how a particular project is

completed. This may include requiring

the service provider to issue a notice of

completion or the customer to issue an

acceptance certificate.

SERVICE PROVIDER

The service provider should consider

instead providing for a fixed initial term,

with automatic, consecutive renewal terms,

unless either party gives notice of non-

renewal in by a specified time prior to the

start of each renewal term. Language to this

effect can be drafted as follows:

“This Agreement shall commence

as of the Effective Date and, unless

sooner terminated pursuant to

Section 6, shall continue for a period

of [NUMBER] years, after which it will

automatically renew for additional

[NUMBER] year renewal terms unless

either party gives at least [NUMBER]

days written notice of non-renewal

prior to end of the then-current term.”

Unlike some states, Texas has not enacted

legislation placing conditions on the

enforceability of automatic renewal clauses

in business-to-business transactions. For an

example of a long form clause specifying the

term of an agreement, including provisions

regarding renewal and termination rights,

see Standard Clauses, General Contract

Clauses: Term and Termination (TX)

(W-001-4773).

Parties can use an optional renewal

provision to extend the agreement past its

initial expiration date. Renewal provisions

fall into two main categories:

 Automatic renewal unless a party gives

notice of non-renewal.

 Optional renewal in which one party can

renew the agreement by sending notice to

the other party.

In each case, the notice must typically be

sent within a specified time period prior to

expiration of the then-current term. The

DRAFTING NOTE: RENEWAL

Professional Services Agreement (TX)

6.3[Termination for Convenience. Either party, in its sole discretion, may terminate this

Agreement [or any Statement of Work], in whole or in part, at any time without cause, by

providing at least [NUMBER] days’ prior written notice to the other party.]

time period should be sufficient to allow the

parties adequate time to make prepare for

termination without renewal. For example,

a customer may need time to locate and

negotiate a new agreement with a substitute

service provider.

If the parties wish to include a renewal

provision, they must decide which version

is appropriate. The service provider often

prefers an automatic renewal because it

avoids having to renegotiate deal terms and

may include automatic price increases. The

customer may prefer optional renewal to

maintain as much flexibility as it can to find

alternative service providers and because

it eliminates the risk of missing the notice

deadline and being locked into another term

of the agreement.

The parties must decide if both of them

have the right to renew (or not to renew an

automatically renewing agreement) or if

only one party has that right. The decision

may depend on which party has greater

negotiating leverage, but each party should

consider the potential risks and benefits of

renewal.

If the agreement includes a price

adjustment provision, such as the one in

Section 7.5, the parties should include the

bracketed language about changes in fees.

This optional provision gives each party the

right to terminate the agreement without

cause, on notice (the length of which should

be consistent with any provision allowing

the customer to terminate the agreement

as a result of fee increases (see Drafting

Note, Increases in Service Provider Rates)). A

mutual right to terminate without cause may

not be appropriate for all transactions, and

in many cases:

 Neither party will have the right to

terminate for convenience (in which case,

this clause should not be included in the

agreement).

 Only the customer will have the right to

terminate without cause (in which case,

revise Section 6 accordingly).

If the parties allow either or both parties to

terminate for convenience, they must:

 Ensure that the provision does not conflict

with the right of either party to terminate

for cause.

 Consider the effect of any termination for

convenience on any payments already

made or services already provided.

 Consider whether the party terminating

for convenience must pay a fee to ensure

its enforceability.

For more information on termination for

convenience, see Standard Clause, General

Contract Clauses: Term and Termination

(TX): Drafting Note: Termination for

Convenience (W-001-4773).

DRAFTING NOTE: TERMINATION FOR CONVENIENCE

6.4Termination for Cause. Either party may terminate this Agreement [or any SOW], effective

upon written notice to the other party (the “Defaulting Party”), if the Defaulting Party:

(a)[materially] breaches this Agreement, and such breach is incapable of cure, or with

respect to a [material] breach capable of cure, the Defaulting Party does not cure such

breach within [NUMBER] days after receipt of written notice of such breach; or

(b)(i) becomes insolvent or admits its inability to pay its debts generally as they

become due; (ii) becomes subject, voluntarily or involuntarily, to any proceeding under

any domestic or foreign bankruptcy or insolvency law, which is not fully stayed within

Professional Services Agreement (TX)

[NUMBER] business days or is not dismissed or vacated within [NUMBER] days after filing;

(iii) is dissolved or liquidated or takes any corporate action for such purpose; (iv) makes a

general assignment for the benefit of creditors; or (v) has a receiver, trustee, custodian, or

similar agent appointed by order of any court of competent jurisdiction to take charge of or

sell any material portion of its property or business.

Section 6.4(a) gives a party the right to

terminate in the event of the other’s (material)

breach of the agreement that is either:

 Incurable.

 Not cured within a reasonable time (for

example, 30 days) after receipt of written

notice.

In Texas, whether a breach is material

depends on the likelihood or extent to which:

 The injured party will be deprived of the

benefit it reasonably expected.

 The injured party can be adequately

compensated for the deprived benefit.

 The non-performing party will suffer a

forfeiture.

 The non-performing party will cure the

failure.

 The non-performing party’s behavior

comports with standards of good faith

and fair dealing.

(Mustang Pipeline Co., Inc.V.Driver

Pipeline Co., Inc., 134 S.W.3d 195, 199 (Tex.

2004) (citing Restatement (Second) of

Contracts§241 (1981)).)

Other factors relevant to assessing the

materiality of the breach involve the extent

to which:

 It reasonably appears to the injured party

that delay may prevent or hinder that

party in making reasonable substitute

arrangements.

 The agreement provides for performance

without delay, but a material failure to

perform or to offer to perform on a stated

day does not of itself discharge the other

party’s remaining duties unless the

circumstances, including the language of the

agreement, indicate that performance or an

offer to perform by that day is important.

(Mustang Pipeline, 134 S.W.3d at 199 (citing

Restatement (Second) of Contracts§242

(1981).)

Section 6.4(b) includes a right for a party

to terminate due to the other party’s

bankruptcy, insolvency, or financial distress.

A clause allowing a party to terminate

an agreement due to the other party’s

bankruptcy or insolvency (also referred

to as an ipso facto clause) is generally

unenforceable against a debtor during

bankruptcy (11 U.S.C.§365(e)(1)). However,

this clause should still be included in

contracts because it can be triggered by

events outside of bankruptcy (such as the

inability to pay debts as they become due or

any of the other events listed in clauses (i),

(iii), (iv), or (v)).

Without this clause, a party would have

difficulty terminating the agreement if the

other party becomes financially unstable

and potentially unreliable. The clause is also

enforceable again once the bankruptcy case

is closed if the debtor commits a new act

described in the clause.

This agreement provides that the non-

breaching party can terminate the entire

agreement for a breach. The non-breaching

party may also have the option of

terminating the entire agreement or only a

particular service or SOW. Each party should

consider its likelihood of breaching the

agreement and whether it would expect to

benefit from granting each party a right to

terminate the entire agreement for a breach

relating to only one or more individual

services.

Always ensure that the provisions of

this clause are consistent with those

specifying the term of the agreement in

Section 6.1.

OTHER TERMINATION EVENTS

Consider whether any other event should

trigger a termination, including:

 A breach and subsequent termination of

any other contract between the parties.

DRAFTING NOTE: TERMINATION FOR CAUSE

Professional Services Agreement (TX)

6.5Effects of Termination or Expiration. Upon expiration or termination of this Agreement for

any reason:

(a)Service Provider shall (i) promptly deliver to Customer all Deliverables (whether

complete or incomplete) for which Customer has paid[, all Customer Equipment] and all

Customer Materials in its possession, (ii) promptly remove any Service Provider Equipment

located at Customer’s premises, (iii) provide reasonable cooperation and assistance to

Customer [upon Customer’s written request [and at Customer’s expense]] in transitioning

the Services to a different Service Provider, and (iv) on a pro rata basis, repay all fees and

expenses paid in advance for any Services not performed or Deliverables not provided.

(b)Each party shall (i) return to the other party all documents and tangible materials (and

any copies) containing, reflecting, incorporating, or based on the other party’s Confidential

Information, (ii) permanently delete all of the other party’s Confidential Information from

its computer systems, and (iii) certify in writing to the other party that it has complied with

the requirements of this clause[; provided, however, that Customer may retain copies of

any Confidential Information of Service Provider incorporated in the Deliverables or to the

extent necessary to allow it to make full use of the Services and any Deliverables].

(c)In no event shall Customer be liable for any Service Provider Personnel termination

costs arising from the expiration or termination of this Agreement.

 A change of control of a party (see Section

17.7 (restrictions on a party’s ability to

assign the agreement or delegate its

obligations in the event of a change of

control)).

Section 6.5 sets out the parties’ obligations

on expiration or earlier termination of the

professional services agreement.

Consider adding further post-termination

obligations covering, for example:

 Extending the agreement until specific

obligations are completed.

 If appropriate for the type of services

being provided, including an exit plan or

transition services to be implemented

after the expiration or termination of the

agreement.

 Requiring the customer to pay

outstanding invoices immediately and

allowing the service provider to submit

invoices for services supplied up to the

date of termination.

CUSTOMER

If the customer is receiving a license to

any Pre-Existing Materials or Deliverables

owned by the Service Provider under Section

8.3 that survives expiration or termination

of the agreement, include the bracketed

language in Section 6.5(b) allowing

the customer to retain any confidential

information of service provider necessary to

exercise such rights.

DRAFTING NOTE: EFFECT OF TERMINATION OR EXPIRATION

6.6The rights and obligations of the parties set forth in this Section 6.6 and Section 1,

Section8, Section 9, Section 10, Section 12, Section 6.5, [Section 13,] [Section 14,] and Section

17, and any right or obligation of the parties in this Agreement which, by its nature, should

survive termination or expiration of this Agreement, will survive any such termination or

expiration of this Agreement [, and with respect to Confidential Information that constitutes

a trade secret under applicable law, the rights and obligations set forth in Section 9 hereof

will survive such termination or expiration of this Agreement until, if ever, such Confidential

Information loses its trade secret protection other than due to an act or omission of Service

Professional Services Agreement (TX)

Provider or its [affiliates and its or their] employees, officers[, directors][, shareholders]

[, agents][, independent contractors][, service providers][, sublicensees][, subcontractors],

attorneys, accountants, and financial advisors].

Section 6.6 identifies the rights and

obligations that continue after the

termination of the agreement. The parties

should:

 Include the specific provisions applicable

to their circumstances.

 Ensure that this provision accounts for

and does not conflict with other provisions

of the agreement that discuss survival

of specific terms, such as the optional

survival language for confidentiality

obligations discussed in Drafting Note,

Confidential Information.

The optional bracketed language at the end

of Section 6.6 can be included if a disclosing

party is concerned about protecting any

trade secrets contained in the confidential

information throughout the time that the

information qualifies for protection under

applicable law. Trade secret status requires

that the trade secret owner has made and

continues to make reasonable efforts to

maintain the secrecy of the information (Tex.

Civ. Prac. & Rem. Code §134A.002(6)(B); see

also Baxter ElevatorsV.D&D Elevators, Inc.,

2017 WL 604043, at *8 (Tex. App. Feb. 15,

2017)).

The party disclosing trade secrets must be

careful if the other party wants to include

term limits in confidentiality provisions (see

Drafting Note, Confidential Information).

The concern is to avoid undermining that

information’s trade secret status. Courts

that have addressed the issue suggest that

the expiration of a confidentiality obligation

of a limited duration may be evidence that

the trade secret owner is not exercising

reasonable efforts to maintain the secrecy of

the information beyond the expiration date

(see, for example, Alta Devices, Inc.V.LG

Elecs., Inc., 343 F. Supp. 3d 868, 878

(N.D. Cal. 2018) (the fact that a contract

expired does not automatically render any

information incapable of receiving trade

secret protection, but it is a fact that may

be considered to determine whether trade

secrets were adequately protected)).

One Texas court has commented on this

point without reaching a conclusion (see

INEOS Group Ltd.V.Chevron Phillips Chem.

Co., LP, 312 S.W.3d 843, 854-55, n.8 (Tex.

App.—Houston [1st Dist.] 2009, no pet.)).

For more information about survival clauses,

see Standard Clause, General Contract

Clauses: Survival (TX) (W-004-0307) and

Practice Note, Representations, Warranties,

Covenants, Rights, and Conditions:

Survival of Representations and Warranties

(9-519-8869).

DRAFTING NOTE: SURVIVAL

7.Fees and Expenses; Payment Terms.

7.1In consideration of the provision of the Services by the Service Provider and the rights granted

to Customer under this Agreement, Customer shall pay the fees set forth in the [applicable]

Statement of Work. Payment to Service Provider of such fees and the reimbursement of

expenses pursuant to this Section 7 shall constitute payment in full for the performance of the

Services, and, Customer shall not be responsible for paying any other fees, costs or expenses.

The fee structure in a professional services

engagement can vary widely, but is typically

structured on:

 A time and materials basis.

 A fixed price basis.

 A hybrid of the two.

DRAFTING NOTE: FEES

Professional Services Agreement (TX)

7.2Where the Services are provided on a time and materials basis:

(a)the fees payable for the Services shall be calculated in accordance with Service

Provider’s [daily/hourly] fee rates for the Service Provider Personnel set forth in the

[applicable] Statement of Work; [and]

(b)[Customer shall reimburse Service Provider, at Service Provider’s actual cost [plus a

[NUMBER]% markup], for any materials, machinery, equipment, and third-party services

(collectively, “Materials”) reasonably necessary for the provision of the Services. Service

Provider shall obtain Customer’s written consent prior to the purchase of all Materials[,

which shall not be unreasonably withheld]]; and]

(c)Service Provider shall issue invoices to Customer monthly in arrears for its fees for time for

the immediately preceding month, calculated as provided in this Section 7.2, together with a

detailed breakdown of any expenses for such month incurred in accordance with Section 7.4.

For example, a hybrid arrangement can be

structured as:

 A time and materials up to a fixed cap

on fees or as staged pricing, with one or

more stages of the services being based

on time and materials and one or more

other stages on a fixed price. Section 7.2

sets out relevant provisions for a time

and materials basis, and Section 7.3, a

fixed-price basis.

 A “cost-plus” contract where a party is

reimbursed for the costs of materials and

labor and receives a stated percentage

of the costs as profit (GarzaV.Cantu,

431 S.W.3d 96, 100 (Tex. App.—Houston

[14th Dist.] 2013, pet. denied); see also

BurdittV.Sisk, 710 S.W.2d 114, 118 (Tex.

App.—Corpus Christi 1986, no writ)).

The time and materials basis or cost-plus

in some cases can increase the customer’s

risk because the customer may have less

ability to maintain control over the fees. In

fixed pricing, on the other hand, the service

provider will typically seek to build in a

premium to cover the risk. In some cases,

using a competitive RFP process with

potential service providers can help the

customer drive pricing down.

A statement of work should include all

information required to assure that both

parties agree on all components of the

billing formula, such as (where applicable):

 Billing rate of each provider representative

or overall rate to be charged.

 Permitted mark-up of billed expenses.

 Any agreed flat fees for any aspect of the

services or the overall project.

 Any ceiling on fees for any aspect of the

services or the overall project.

 Any minimum charges.

CUSTOMER

If the initial project under the contract is for the

service provider to write a detailed proposal,

that initial phase should be performed at a

fixed price, and the customer should protect

itself for the next phase by having a right

to terminate and (implicitly) use a different

service provider to perform the remaining

phases. This means that the IP rights,

including rights in confidential information,

need to vest in the customer on creation (and

not, for example, on payment) and must

cover future as well as existing rights. The

actual transfer of IP rights to the customer is

contained in the IP assignment in Section 8.1.

Section 7.2 sets out basic terms for

payment on a time and materials basis.

Section 7.2(a) refers to the service

provider’s standard daily or hourly fee rates

as stated in a SOW or schedule. The service

provider may have a rate card it can attach

as an exhibit to the agreement setting out

the hourly rates for different categories of

service provider personnel.

DRAFTING NOTE: TIME AND MATERIALS

Professional Services Agreement (TX)

7.3Where Services are provided for a fixed price, the total fees for the Services shall be the

amount set out in the [applicable] Statement of Work. The total price shall be paid to Service

Provider in installments, as set out in the Statement of Work[, with each installment being

conditional on Service Provider achieving the corresponding Project Milestone]. [On achieving

a Project Milestone/At the end of a period specified in the [applicable] Statement of Work in

respect of which an installment is due], Service Provider shall issue invoices to Customer for

the fees that are then payable, together with a detailed breakdown of any expenses incurred in

accordance with Section 7.4.

Optional Section 7.2(b) provides some detail

about how the customer will reimburse

the service provider for equipment and

materials the service provider must obtain

to perform the services. This provision

may be appropriate if the service provider

must acquire highly specialized or custom

equipment or components to provide the

services. If this provision is included, the

service provider may negotiate for:

 A markup (for example, 10%) on its

purchase costs.

 Reduced requirements for obtaining

the customer’s consent, especially for

materials that will be required routinely

and frequently.

 A reasonableness standard for the

customer’s consent to purchases.

Section 7.4 is a broader approach to

expense reimbursement and may suffice.

If the agreement contains both provisions,

the parties should ensure that they do not

conflict.

CUSTOMER

Where the customer is paying on a time and

materials basis, it is particularly important

to require the service provider to maintain

certain records and permit the customer

to audit such records so that the customer

can verify the accuracy of the charges (see

Section 3.1(g)).

Customer should also consider including

the following additional terms, whether

in Section 7.2 or in the applicable SOW or

schedule:

 “Service Provider’s standard [daily/

hourly] fee rates for all Service Provider

Personnel are calculated on the basis of

an eight-hour day, worked between [8:00

a.m./[OTHER TIME]] and [5:00 p.m./

[OTHER TIME]] on weekdays (excluding

public holidays).”

 “Service Provider shall not be entitled to

charge on a pro-rata basis for part-days

worked by any Service Provider Personnel

unless it has Customer’s prior written

consent to do so.”

 “Service Provider shall ensure that all

Service Provider Personnel complete

time sheets recording time spent on [the

Services/[the/each] Project], and[, subject

to the written approval of such completed

time sheets by Customer’s Contract

Manager,] Service Provider shall use

such time sheets to calculate the charges

covered by each monthly invoice referred

to in Section 7.2(c).”

With fixed pricing, the customer takes on

less risk than with time and materials pricing

because it knows the contract amount.

However, the service provider does not know

with certainty whether the fixed price will

be adequate for the resources it needs to

complete the services. To cover this risk,

the service provider typically seeks to build

a premium into the price. Many service

providers also seek to obtain payment up

front or as early as possible.

The fixed fees should be set out in the

applicable SOW or schedule. Where fees will

be paid on an installment basis, ensure that

the SOW or schedule clearly sets out when

these become payable. For example:

DRAFTING NOTE: FIXED PRICE

Professional Services Agreement (TX)

7.4 Customer agrees to reimburse Service Provider for all [actual, documented and]

reasonable travel and out-of-pocket expenses incurred by Service Provider in connection with

the performance of the Services [that have been approved in advance in writing by Customer]

[; provided, that such expenses conform to Customer’s standard travel and expense policy, a

copy of which is attached as Exhibit [EXHIBIT]].

 Monthly or at other regular intervals.

 When certain work has been completed

(project milestones) or accepted by the

customer.

In setting these dates or events, bear in

mind that reaching them triggers the service

provider’s right to issue an invoice, which is

payable within a certain period.

CUSTOMER

Consider including an acceptance testing

provision setting out the procedure for

the customer’s testing and acceptance or

rejection of any deliverables to determine

whether a project milestone has been

met. For a pro-customer agreement, the

customer should withhold all, or at least a

portion of, payment until its acceptance of

all deliverables (although this usually meets

with strong opposition from the service

provider).

SERVICE PROVIDER

The service provider should ensure that

the description of services to be covered by

a fixed price is clear and comprehensive.

To avoid scope creep, the service provider

should consider including a provision to

address fees for services that do not fall

within the scope of fixed-price services. Fees

for out-of-scope services may be:

 Negotiated through the change order

process in Section 5.

 Charged on a time and materials basis.

For more information and a sample pro-

customer expenses clause, see Standard

Clauses, General Contract Clauses: Pricing

Terms (Services, Pro-Customer): Section

1.4 (1-520-6509) and its accompanying

Drafting Note. For an example of an

expenses clause drafted in favor of the

service provider, see Standard Clauses,

General Contract Clauses: Pricing Terms

(Services, Pro-Service Provider): Section 1.4

(9-520-3875). For a sample clause providing

for the reimbursement of the service

provider’s costs and expenses relating to

third-party goods or services that the service

provider purchased to perform the services,

see Standard Clauses, General Contract

Clauses: Pricing Terms (Services, Pass-

Through Expenses) (0-570-6786).

Certain expenses of the service provider

in providing the services are usually

reimbursed. These should be clearly set

out in the statement of work (or in an

attached rate schedule), especially any items

that could lead to disputes (for example,

overhead expenses) along with any

information about:

 Mark-ups to which the service provider is

entitled.

 Whether pre-approval of expenses is

required.

 If pre-approval is required, whether a

threshold is set below which expenses can

be incurred without prior approval.

 Whether different levels of approval are

required for different levels of expenses

(for example, expenses over $5,000 may

require approval from both the customer

contract manager and that manager’s

supervisor).

Whether, in addition to pre-approval,

compliance with the customer’s normal

expense reimbursement policy is required.

DRAFTING NOTE: EXPENSES

Professional Services Agreement (TX)

7.5[The parties agree that [after the initial [NUMBER] months of the Term,] for Services

provided on a time and materials basis, Service Provider may increase its standard fee rates

specified in the [applicable] Statement of Work upon written notice to Customer; provided, that:

(a)Service Provider provides Customer written notice of such increase at least [90] days

prior to the effective date of such increase;

(b)such increases occur no more frequently than once per contract year of the Term; and

(c)the amount of such increase shall not exceed the lesser of:

(i)the percentage rate of increase for the immediately preceding [NUMBER]-month

period in the [INDEX] or, if such index is not available, such other index as the parties may

agree most closely resembles such index; or

(ii)[five/[NUMBER]] percent ([5/[NUMBER]]%).]

CUSTOMER

For services provided on a time and

materials basis (particularly under a

master services agreement that has a

term lasting several years), the service

provider will often include a provision

allowing it to increase its fees on written

notice to customer (in addition to

increases due to a change in the scope or

execution of the services in accordance

with Section 5). If this is acceptable in the

context of the transaction, ensure that

any such increase is subject to a cap and

that increases can only be made once in a

specified period.

In Section 7.5, the cap is calculated as the

amount that is the lesser of:

 The percentage increase in a selected

index in the preceding 12-month period.

 A fixed percentage.

If using one of the Consumer Price Index

(CPI) series published by the Bureau

of Labor Statistics of the United States

Department of Labor, the parties should

precisely identify the specific CPI index,

including identifying the population

coverage (for example, “All Urban

Consumers”), area coverage (for example,

“United States”), series title (for example,

“All Items”), and index base period (for

example, “1982-1984=100”), as well as the

period for measurement (for example, the

“immediately preceding 12-month period”).

References in an agreement to a generic

“Consumer Price Index” for calculating rate

increases have been found by some courts

to be ambiguous.

Consider instead including a right to

terminate the agreement for convenience

(for example, see the termination for

convenience clause in Section 6.3) or a

specific right to terminate if the customer

objects to the service provider’s notice

that it intends to increase its rates.

Sample language addressing a specific

right to terminate for a rate increase is as

follows:

“If such increase is not acceptable to

Customer, Customer may, within [PERIOD]

of such notice being received or deemed

to have been received in accordance with

Section 17.4, terminate the agreement [by

giving [NUMBER] months written notice

to Service Provider/immediately by giving

written notice to Service Provider].”

SERVICE PROVIDER

For time and materials arrangements, the

service provider should include a provision

allowing it to raise its rates to account

for increased costs. The customer, in

negotiating this clause, may require one or

more of the following:

 A percentage limitation or other cap to be

put on the amount of any increase.

 A limit on the number of increases in a

specified time period.

 The right to terminate the agreement if

the customer objects to a rate increase.

DRAFTING NOTE: INCREASES IN SERVICE PROVIDER RATES

Professional Services Agreement (TX)

7.6Service Provider shall issue invoices to Customer only in accordance with the terms of this

Section, and Customer shall pay all properly invoiced amounts due to Service Provider within

[NUMBER] days after Customer’s receipt of such invoice[, except for any amounts disputed by

Customer in good faith]. All payments hereunder shall be in US dollars and made by check or

wire transfer.

CUSTOMER

In a pro-customer agreement, the customer

should leave Section 7.6 as drafted above

with:

 No mention of late fees or interest

payments.

 The bracketed language permitting the

customer to withhold disputed amounts

included.

The customer should also consider including

a provision setting out the procedure for

disputing an invoice. Language to this effect

can be drafted as follows:

“In the event of a payment dispute,

Customer shall deliver a written

statement to Service Provider [no later

than [NUMBER] days] prior to the

date payment is due on the disputed

invoice listing all disputed items

and providing a reasonably detailed

description of each disputed item.

Amounts not so disputed shall be

deemed accepted and shall be paid,

notwithstanding disputes on other

items, within the period set forth in

Section 7.6. The parties shall seek to

resolve all such disputes expeditiously

and in good faith. Service Provider

shall continue performing the Services

in accordance with this Agreement

notwithstanding any such dispute.”

SERVICE PROVIDER

The service provider, on the other hand,

should include a provision allowing it to

charge interest and suspend performance

if fees are not paid within a certain period

after becoming due. Language to this effect

can be drafted as follows:

“In the event payments are not

received by Service Provider [within

[NUMBER] days] after becoming

due, Service Provider may (a) charge

interest on any such unpaid amounts

at a rate of [NUMBER]% per month

or, if lower, the maximum amount

permitted under Law, from the date

such payment was due until the date

paid, and (b) suspend performance for

all Services until payment has been

made in full[, except for any amount

disputed in good faith in accordance

with Section 7.6].”

For more information on payment terms

in general, see Standard Clauses, General

Contract Clauses: Payment Terms (TX)

(W-000-6241).

DRAFTING NOTE: PAYMENT TERMS

7.7Customer shall be responsible for all sales, use and excise taxes, and any other similar

taxes, duties and charges of any kind imposed by any federal, state or local governmental

entity on any amounts payable by Customer hereunder. Any such taxes, duties, and charges

currently assessed or which may be assessed in the future, that are applicable to the Services

are for the Customer’s account, and Customer hereby agrees to pay such taxes; provided, that,

in no event shall Customer pay or be responsible for any taxes imposed on, or with respect to,

Service Provider’s income, revenues, gross receipts, personnel or real or personal property or

other assets.

Professional Services Agreement (TX)

7.8[Without prejudice to any other right or remedy it may have, Customer reserves the right to

set off at any time any amount owing to it by Service Provider against any amount payable by

Customer to Service Provider [under this Agreement].]

CUSTOMER

Unless the customer is in a strong

bargaining position, the customer is typically

responsible for the payment of all sales

and use taxes imposed with respect to

its purchase and use of the services from

the service provider. The customer should

ensure that the agreement expressly

excludes responsibility for any taxes relating

to service provider’s income, revenues, gross

receipts, personnel, or assets, or amounts

paid by the service provider for its own

purchase of supplies or services.

For information on state sales and use taxes

in Texas, see State Q&A, Sales and Use

Taxes: Texas (8-519-1689).

DRAFTING NOTE: TAXES

CUSTOMER

While many professional services

agreements stay silent on the matter of

setoff rights, a pro-customer agreement

may include a right of setoff for the situation

where the customer claims the service

provider has been overcompensated or

otherwise owes the customer money.

Include the bracketed language if the setoff

right is limited only to amounts owed under

the professional services agreement.

For more information on setoff rights, see:

 Practice Notes, Setoff and Commercial

Contracts (8-534-2848) and Setoff,

Recoupment, and Counterclaim Under

Commercial Law (5-535-0905).

 Standard Clauses, General Contract

Clauses: Setoff (5-532-5548) and

General Contract Clauses: No Setoff (TX)

(W-000-0902).

SERVICE PROVIDER

The service provider should resist granting

customer a setoff right, which would give the

customer discretion to unilaterally withhold

payments from the service provider.

DRAFTING NOTE: RIGHTS OF SETOFF

8.Intellectual Property Rights; Ownership.

8.1[Except as set forth in Section 8.3,] Customer is, and shall be, the sole and exclusive owner

of all right, title, and interest in and to the Deliverables, including all Intellectual Property

Rights therein. Service Provider agrees, and will cause its Service Provider Personnel to agree,

that with respect to any Deliverables that may qualify as “work made for hire” as defined in 17

U.S.C.§101, such Deliverables are hereby deemed a “work made for hire” for Customer. To the

extent that any of the Deliverables do not constitute a “work made for hire”, Service Provider

hereby irrevocably assigns, and shall cause the Service Provider Personnel to irrevocably

assign to Customer, in each case without additional consideration, all right, title, and interest

throughout the world in and to the Deliverables, including all Intellectual Property Rights

therein. The Service Provider shall cause the Service Provider Personnel to irrevocably waive,

to the extent permitted by applicable Law, any and all claims such Service Provider Personnel

may now or hereafter have in any jurisdiction to so-called “moral rights” or rights of droit

moral with respect to the Deliverables.

Professional Services Agreement (TX)

8.2Upon the [reasonable] request of Customer, Service Provider shall, and shall cause the

Service Provider Personnel to, promptly take such further actions, including execution and

delivery of all appropriate instruments of conveyance, as may be necessary to assist Customer

to prosecute, register, perfect or record its rights in or to any Deliverables.

8.3[Service Provider and its licensors are, and shall remain, the sole and exclusive owners

of all right, title and interest in and to the Pre-Existing Materials, including all Intellectual

Property Rights therein. Service Provider hereby grants Customer [and the Authorized Service

Recipients] a [limited, irrevocable, perpetual, fully paid-up, royalty-free, non-transferable

(except in accordance with Section 17.7), non-sublicenseable, worldwide] license to [use,

perform, display, execute, reproduce, distribute, transmit, modify (including to create derivative

works), import, make, have made, sell, offer to sell, and otherwise exploit] any Pre-Existing

Materials to the extent incorporated in, combined with or otherwise necessary for the use

of the Deliverables [for any and all purposes/solely to the extent reasonably required in

connection with Customer’s receipt or use of the Services and Deliverables]. All other rights in

and to the Pre-Existing Materials are expressly reserved by Service Provider.]

8.4Customer and its licensors are, and shall remain, the sole and exclusive owner of all right,

title, and interest in and to the Customer Materials, including all Intellectual Property Rights

therein. Service Provider shall have no right or license to use any Customer Materials except

solely during the Term of the Agreement to the extent necessary to provide the Services

to Customer. All other rights in and to the Customer Materials are expressly reserved by

Customer.

The ownership of IP rights is often

extensively negotiated by the parties. The

customer typically wants outright ownership

of all IP rights in or to the deliverables (by

means of the short-form assignment set out

in Section 8.1) for several reasons, including:

 Because it has paid the service provider to

create the deliverables.

 Because the deliverables contain or are

derived from the customer’s pre-existing IP.

 To ensure it has the unfettered right to use

the deliverables.

 To prevent its competitors that may be or

become customers of the same service

provider from having access to the same

or similar deliverables.

The service provider typically wants to

retain ownership of IP rights in materials

and deliverables it creates and to grant the

customer only a limited license to use them.

Even if the service provider agrees to give

the customer ownership of newly created

or custom deliverables or deliverables

that are derived from the customer’s

pre-existing IP, it may have incorporated its

own proprietary pre-existing materials into

such deliverables. If so, the service provider

at least needs to retain ownership of the IP

rights in such materials to be able to re-use

them in providing similar services to other

customers.

If a third party creates deliverables as part

of the services, the service provider should

have a written agreement with the third

party that includes provisions addressing

ownership of the intellectual property

rights arising out of their creation. Those

provisions should allow the service provider

to allocate the IP rights in third-party

deliverables as needed for its agreement

with the customer.

If the customer is to own any IP rights

arising out of the provision of the services or

creation of any deliverables, the customer

should ensure that the contract includes

an express assignment provision to the

customer as shown in Section 8.1, as

well as copyright “work made for hire”

language to ensure that ownership of

any materials subject to the “work made

for hire” provisions of the US Copyright

Act automatically vests in the customer

(17 U.S.C.§101). For more information on

DRAFTING NOTE: INTELLECTUAL PROPERTY RIGHTS; OWNERSHIP

Professional Services Agreement (TX)

Provisions allocating ownership of IP

rights in or to the deliverables vary widely

based on the circumstances of the specific

transaction, including the nature of the

services and deliverables being provided.

Before drafting and negotiating IP

ownership rights, consider:

 The nature of the deliverables (for

example, deliverables can be, among

other things, strategies, software,

algorithms, formulas, designs, reports,

manuals, audiovisual materials, video,

photographs, and marketing materials).

 The type of IP rights that might arise from

the creation of, or may be necessary to

use and exploit, such items (for example,

patent, copyright, trade secret or

trademark rights). For a discussion of the

types of IP rights arising under US law,

see Practice Note, Intellectual Property:

Overview (8-383-4565).

 The facts surrounding the services. If, for

example, the services are unique services

specifically developed for the customer,

it is more likely that the customer will

want outright ownership of all IP rights

in or to any deliverables (which may

result in higher fees charged by the

service provider). If the services and

resulting deliverables tend to be largely

the same from customer to customer,

it may make more sense for the service

provider to retain ownership of any IP

rights in any deliverables (other than any

confidential information of the customer

or customer materials incorporated in

such deliverables).

 Each party’s anticipated future use of the

deliverables. The customer will generally

require that it owns all IP rights in

deliverables that are core to its business,

for example, deliverables that:

z

are essential to the customer’s critical

business functions;

z

may give it a competitive advantage; or

z

are incorporated into the customer’s

own products or services that are then

further distributed to its customers or

end users.

 This professional services agreement

is drafted on the assumption that

the customer will own any IP rights

specifically arising out of the provision of

the services or creation of any deliverables

pursuant to the short-form assignment

in Section 8.1. The optional language in

brackets in Section 8.1 and Section 8.3,

however, carves out any pre-existing

materials of the service provider from the

grant of ownership to customer. These

pre-existing materials are instead licensed

to the customer on a non-exclusive basis

to the extent necessary to use and exploit

the deliverables.

OWNERSHIP OF DELIVERABLES BY

CUSTOMER

Both parties should closely review the

definitions in Section 1 of:

 Deliverables.

 Pre-Existing Materials.

These two definitions must be reviewed in

conjunction with each other by each party

to ensure that they cover or exclude the

appropriate items.

The service provider is usually unwilling to

transfer to customer ownership of its pre-

existing materials and any IP incorporated in

them. If the customer needs access to those

materials (including if they are incorporated

into deliverables), the parties can include

license terms in this agreement, such as

optional Section 8.3. The parties should

also review the terms and conditions of

any license grant to the customer to use

any pre-existing materials of the service

provider that may be incorporated into

the deliverables. The license grant should

expressly identify:

 All licensees. Consider whether entities

or individuals in addition to the customer

should be identified as licensees

(including if applicable, any Authorized

Service Recipients, the customer’s

affiliates and their consultants, and other

third parties that may need the right

to use such materials). Alternatively,

the license could expressly allow the

customer the right to sublicense these

rights to any of these entities.

 The term of the license. The provision

should specify whether the license is

perpetual or for a specific period, as

well as whether the license is to survive

the expiration or earlier termination

of the agreement. If the license is to

survive the expiration or termination of

Professional Services Agreement (TX)

the agreement, ensure that the clause

containing the license grant is listed in

Section 6.6 as a provision that will survive

expiration or earlier termination of the

agreement.

 Whether the license is non-exclusive

(which means that the service provider

can freely use and license such rights to

other third parties) or exclusive (which

means that the service provider cannot

itself use or license such rights to

otherparties).

 Whether any additional license fees or

royalties apply or whether the license is

considered fully paid-up and royalty-free.

 Whether the licensed rights can be

freely transferred or sublicensed by the

customer to third parties, including,

for example, to any Authorized Service

Recipients, the customer’s affiliates and

their consultants (in each case if those

entities and individuals are not identified

expressly as licensees), as well as other

third parties that may need the right to

use the materials, such as the customer’s

end users or customers, distributors, or

other service providers.

 Whether the license can be transferred by

the customer to a third party or whether

it is non-transferable. The customer

should ensure that any restriction on

transferability expressly excludes any

rights the customer may have to transfer

or assign the agreement pursuant to

Section 17.7.

 The geographic scope of the license. IP

rights are territorial in nature and must be

licensed on a country-by-country basis.

The customer, for example, may want to

request a worldwide license so that it does

not have to go back to the service provider

each time it wants to use or otherwise

exploit the deliverables in a new territory.

The service provider, on the other hand,

should ensure that, if it does grant a license

for non-US jurisdictions, any indemnity for

intellectual property infringement agreed

to by the service provider in Section 11.2(c)

is limited to claims arising out of activity

only in those countries for which the service

provider is comfortable assuming the risk

of infringement.

 Any limitations on the scope of use or

other restrictions. The customer will

normally request a broad license to use

and exploit any pre-existing materials

incorporated into the deliverables. The

service provider, on the other hand,

should ensure that the scope of use is

appropriately restricted.

OWNERSHIP OF DELIVERABLES BY

SERVICE PROVIDER

Where the service provider retains all

ownership rights in the deliverables

and instead grants the customer only a

limited, non-exclusive license to use the

deliverables, such as when the services

do not include creating customized

deliverables, delete Section 8.1, Section8.2

and Section 8.3 and replace with the

following alternate clause:

“As between Customer and Service

Provider, all Intellectual Property

Rights and all other rights in and

to the Deliverables (except for any

Confidential Information of Customer

or Customer Materials) and the Pre-

existing Materials shall be owned by

Service Provider. Service Provider

hereby grants Customer [and the

Authorized Service Recipients] a

license to use all such rights [free of

additional charge and on a non-

exclusive, worldwide, royalty-free

and perpetual] basis] to the extent

necessary to enable the Customer

[and the Authorized Service

Recipients] to make reasonable

use of the Deliverables and the

Services.”

CUSTOMER

Where any or all of the IP rights in the

deliverables instead are to be owned by the

service provider and only licensed to the

customer, closely review the terms of the

license grant, as set forth in detail above,

and revise as necessary to ensure that the

customer has the rights it needs in order to

use and exploit the deliverables.

The customer should also ensure that any

grant of ownership rights to the service

provider expressly excludes all confidential

information of the customer and customer

materials that may be incorporated into the

deliverables.

Professional Services Agreement (TX)

9.Confidential Information.

9.1The Receiving Party agrees:

(a)not to disclose or otherwise make available Confidential Information of the Disclosing

Party to any third party without the prior written consent of the Disclosing Party; provided,

however, that the Receiving Party may disclose the Confidential Information of the

Disclosing Party to its [and its Affiliates, and their] officers, employees, consultants, and

legal advisors who have a “need to know”, who have been apprised of this restriction, and

who are themselves bound by nondisclosure obligations at least as restrictive as those set

forth in this Section 9;

(b)to safeguard the Confidential Information from unauthorized use, access, or disclosure

using at least the degree of care it uses to protect its most sensitive information and no

less than a reasonable degree of care;

(c)to use the Confidential Information of the Disclosing Party only for the purposes of

performing its obligations under the Agreement or, in the case of Customer, to make use

of the Services and Deliverables; and

(d)to [immediately/promptly] notify the Disclosing Party in the event it becomes aware of

any loss or disclosure of any of the Confidential Information of Disclosing Party.

9.2If the Receiving Party becomes legally compelled to disclose any Confidential Information,

the Receiving Party shall provide:

(a)prompt written notice of such requirement so that the Disclosing Party may seek, at its

sole cost and expense, a protective order or other remedy; and

(b)reasonable assistance, at the Disclosing Party’s sole cost and expense, in opposing

such disclosure or seeking a protective order or other limitations on disclosure.

If, after providing such notice and assistance as required herein, the Receiving Party

remains required by Law to disclose any Confidential Information, the Receiving Party

shall disclose no more than that portion of the Confidential Information which, on the

advice of the Receiving Party’s legal counsel, the Receiving Party is legally required to

disclose [and, upon the Disclosing Party’s request, shall use commercially reasonable

efforts to obtain assurances from the applicable court or agency that such Confidential

Information will be afforded confidential treatment].

9.3[Nothing in this Agreement shall prevent either party from using any general

methodologies or know-how contained in the unaided memory of such party’s personnel [or

those of its Affiliates] developed or disclosed under this Agreement, provided that in doing so

it is not in breach of its obligations of confidentiality under this Section or using any Intellectual

Property Rights of the other party [or any of its Affiliates].]

The term “Confidential Information” is

defined in Section 1. This section sets out

the minimum confidentiality obligations of

the parties. It places a general obligation

on each party to respect the confidentiality

of information supplied to it by the other

party. It also requires each party to create

and enforce equivalent confidentiality

provisions against the party’s affiliates, and

their employees, contractors, and other

representatives. This section also requires

each party to protect the confidential

information from unauthorized disclosure

using the same degree of care it uses to

protect its own most sensitive information

(and using no less than a reasonable degree

of care).

The confidentiality obligations in this

Section 9 are included in the general list

of obligations that survive expiration or

termination of the agreement in Section

6.6. However, if the parties intend for the

DRAFTING NOTE: CONFIDENTIAL INFORMATION

Professional Services Agreement (TX)

10.Representations and Warranties.

Representations are statements of fact

and warranties are statements of future

assurances made by the parties that often

are extensively negotiated. These are

statements that allocate risk between the

parties where the representation turns out

to be false or the warranty is breached,

including by:

 Permitting a party to sue for damages for

breach of contract.

 Potentially serving as the foundation for

an indemnification claim (for example, see

Section 11.1(b)).

 Affecting a party’s right to terminate the

agreement (for example, see Section 6.4).

The representations and warranties included

in a professional services agreement depend

on the nature of the services as well as

the respective bargaining power and risk

tolerance of each party. Because changes to

the scope of representations and warranties

may affect the scope of indemnification

and limitations on liability provisions (see

Sections 11 and 12), these provisions should

always be reviewed in conjunction with one

another to ensure that they do not conflict

and that a negotiated change to one section

does not create an unintentional, potentially

adverse consequence in another.

For more information on representations

and warranties generally, see Practice Note,

Representations, Warranties, Covenants,

Rights, and Conditions (9-519-8869)

and Standard Clauses, General Contract

Clause: Representations and Warranties

(6-611-7326).

SERVICE PROVIDER

The service provider’s representations and

warranties are typically more extensive than

the those given by the customer because:

 The service provider has more specific

obligations under the agreement.

 The customer’s principal obligation

typically is to pay fees.

confidential obligations to only survive

for a specified period after expiration or

termination of the agreement, add the

following language as a separate clause in

this section:

Each party’s obligations under this

Section 9 will survive termination

or expiration of this Agreement for

a period of [NUMBER] years, except

for Confidential Information that

constitutes a trade secret under any

applicable Law, in which case, such

obligations shall survive for as long as

such Confidential Information remains

a trade secret under such Law.

If the parties add this clause, they should

also adjust the survival language in Section

6.6. However, the parties must consider

whether any confidential information rises

to the level of a trade secret, in which case

it may need to survive indefinitely to receive

protection under applicable law (see Section

6.6: Drafting Note, Survival).

For more information on confidentiality,

see Confidentiality and Nondisclosure

Agreements Toolkit (3-502-1883). For more

information on drafting and negotiating

confidentiality provisions in Texas, see:

 Practice Note, Confidentiality and

Nondisclosure Agreements (TX)

(W-007-0568).

 Standard Documents, Confidentiality

Agreement: General (Short Form,

Mutual) (TX) (W-001-7617) and

Confidentiality Agreement: General (Short

Form, Unilateral, Pro-Discloser) (TX)

(W-012-7735).

 Standard Clauses, General Contract

Clauses: Confidentiality (Long Form) (TX)

(W-000-0595) and (Short Form) (TX)

(W-000-0596).

DRAFTING NOTE: REPRESENTATIONS AND WARRANTIES

Professional Services Agreement (TX)

10.1Each party represents and warrants to the other party that:

(a)it is duly organized, validly existing and in good standing as a corporation or

other entity as represented herein under the laws and regulations of its jurisdiction of

incorporation, organization, or chartering;

(b)it has the full right, power and authority to enter into this Agreement, to grant the

rights and licenses granted hereunder, and to perform its obligations hereunder;

(c)the execution of this Agreement by its representative whose signature is set forth at

the end hereof has been duly authorized by all necessary corporate action of the party;

and

(d)when executed and delivered by such party, this Agreement will constitute the legal,

valid and binding obligation of such party, enforceable against such party in accordance

with its terms.

The service provider should minimize the

number and scope of any representations

and warranties it agrees to give as well as

to limit the available remedies in the case of

breach.

In the event the service provider cannot

exclude certain representations and

warranties altogether, consider trying to

negotiate a more reasonable allocation of

risk by modifying the representations and

warranties by including:

 Materiality qualifiers.

 Knowledge qualifiers.

 Limitations as to scope.

 Limitations as to time.

The mutual representations and warranties

in Section 10.1 relate to each party’s

corporate and legal authority as well as

other corporate formalities and are not

typically controversial. For more information,

see Standard Clauses, General Contract

Clauses: Representations and Warranties

(6-611-7326).

The Texas Supreme Court has defined

“workmanlike” as that quality of work both

performed:

 By one who has the knowledge, training,

or experience necessary for the successful

practice of a trade or occupation.

 In a manner generally considered proficient

by those capable of judging such work.

(Melody Home Mfg. Co.V.Barnes, 741 S.W.2d

349, 354 (Tex. 1987); see also, 2017 WL

2507841, at *4 (Tex. App.—Waco June 7, 2017,

no pet.).)

DRAFTING NOTE: MUTUAL REPRESENTATIONS AND WARRANTIES

DRAFTING NOTE: PROFESSIONAL AND WORKMANLIKE MANNER

10.2Service Provider represents and warrants to Customer that:

(a)it shall perform the Services using personnel of required skill, experience, and

qualifications and in a professional and workmanlike manner [in accordance with [best/

generally recognized/commercially reasonable] industry standards for similar services]

and shall devote adequate resources to meet its obligations under this Agreement;

Professional Services Agreement (TX)

(b)it is in compliance with, and shall perform the Services in compliance with, all

applicable Laws;

CUSTOMER

This is a customary warranty that customer

should insist on including in the agreement.

While not the case in Texas, courts in some

states have found this warranty implied

in services agreements where it was not

expressly included. However, because this

may not be the case in all jurisdictions,

the customer should always require that

this warranty be expressly included in the

agreement.

SERVICE PROVIDER

Section 10.2(a) is a reasonable and

customary warranty for the service provider

to give. The service provider should,

however, resist agreeing to perform

the services in accordance with “best”

industry standards and instead agree to

perform in accordance with “generally

recognized” or “commercially reasonable”

industry standards. For more information,

see Practice Note, Efforts Provisions

in Commercial Contracts: Best Efforts,

Reasonable Efforts, and Commercially

Reasonable Efforts (7-518-0907).

CUSTOMER

The customer should insist on including

a representation and warranty that the

service provider is in compliance with, and

will perform all services in accordance with,

applicable law.

SERVICE PROVIDER

It is not unreasonable for the customer to

ask for a warranty that the service provider

comply with applicable laws. Theservice

provider should, however, require a

reciprocal representation and warranty from

the customer, particularly if:

 The customer has any significant

obligations under the agreement.

 The service provider will be performing

any services on the customer’s premises.

For more on compliance with laws, see

Standard Clause, General Contract Clauses:

Compliance with Laws (2-524-6307).

DRAFTING NOTE: COMPLIANCE WITH LAWS

CUSTOMER

The customer should include this warranty

if it is receiving an assignment of title in any

deliverables.

SERVICE PROVIDER

The service provider should, if possible,

avoid giving this warranty. If the service

provider is not giving an express warranty

of title, ensure that any implied warranty

of title is also specifically disclaimed in

Section 10.3.

DRAFTING NOTE: GOOD AND VALID TITLE

(c)[Customer will receive good and valid title to all Deliverables, free and clear of all

encumbrances and liens of any kind;]

Professional Services Agreement (TX)

(d)(i) [to Service Provider’s knowledge] none of the Services, Deliverables and Customer’s

use thereof infringe or will infringe any [Intellectual Property Right/registered or issued

patent, copyright or trademark] of any third party [arising under the Law of the United

States/[IDENTIFY SPECIFIC JURISDICTIONS]], and, (ii) as of the date hereof, there are

no pending or, to Service Provider’s knowledge, threatened claims, litigation or other

proceedings pending against Service Provider by any third party based on an alleged

violation of such Intellectual Property Rights, in each case, excluding any infringement

or claim, litigation, or other proceedings to the extent arising out of (x) any Customer

Materials or any instruction, information, designs, specifications, or other materials

provided by Customer to Service Provider, (y) use of the Deliverables in combination

with any materials or equipment not supplied or specified by Service Provider, if the

infringement would have been avoided by the use of the Deliverables not so combined,

and (z) any modifications or changes made to the Deliverables by or on behalf of any

Person other than Service Provider. [Service Provider’s sole liability and Customer’s sole

and exclusive remedy for Service Provider’s breach of this Section 10.2(d) are Service

Provider’s obligations under Section 11.2];

CUSTOMER

The customer should insist on a warranty

from the service provider that neither the

receipt nor use of the services or deliverables

will infringe the intellectual property rights

of a third party. A service provider in a

strong position will often refuse to give a

non-infringement warranty altogether or

otherwise require that the customer’s sole

and exclusive remedy for a breach of any

non-infringement warranty is limited to the

service provider’s indemnification obligations

for infringement claims.

The customer should be aware that, if it

does agree to omit a non-infringement

warranty or limits its remedies for breach of

a non-infringement warranty to the service

provider’s indemnification obligations and

the customer or service provider is subject

to a claim of infringement or the customer

becomes aware of an infringement (even if

no claim by a third party has been made),

the customer will not be able to:

 Declare breach of contract based on the

breach of a non-infringement warranty

and sue the service provider for direct

damages caused by such breach.

 Terminate the agreement for breach of

the non-infringement warranty pursuant

to Section 6.4 if the service provider fails

to cure such infringement.

SERVICE PROVIDER

In a pro-service provider agreement, a

service provider with enough negotiating

leverage may be able to delete this

warranty. If removing the non-infringement

warranty is not possible, consider limiting

its scope by including one or more of the

bracketed phrases shown in Section 10.2(d)

for example, by:

 Adding a knowledge qualifier, at least

with respect to patent infringement,

which, unlike copyright infringement

claims or trade secret misappropriation

claims, does not require knowledge or

willful misconduct as an element of a

claim. Patent infringement claims also

can be extremely expensive to defend and

may result in significant damages. With a

knowledge qualifier, the warranty would

only be breached if the service provider

had actual or constructive knowledge of

an actual or alleged infringement and did

not inform the customer.

 Limiting the territory of the warranty to

the United States or such other specific

jurisdictions as the parties may agree

so that the service provider can better

manage its risk.

 Providing a warranty only with respect to

registered intellectual property.

 Providing only a limited warranty for

which the sole and exclusive remedy

for breach is the service provider’s

indemnification obligation for

infringement claims (for example, see

Section 11.2).

The service provider should consider

requesting a reciprocal non-infringement

DRAFTING NOTE: NO INFRINGEMENT

Professional Services Agreement (TX)

(e)[the Services and Deliverables will be in conformity in all [material] respects with all

requirements or specifications stated in this Agreement and the [applicable] Statement

of Work [for a period of [30/[OTHER NUMBER]] days after [delivery to/acceptance by]

Customer]. [In the event of Service Provider’s breach of the foregoing warranty, Service

Provider’s sole and exclusive obligation and liability and Customer’s sole and exclusive

remedy shall be as follows:

(i)The Service Provider shall use reasonable efforts to cure such breach; provided,

that if Service Provider cannot cure such breach within a reasonable time (but no more

than [30/[OTHER NUMBER]] days) after Customer’s written notice of such breach;

Customer may, at its option, terminate the Agreement by serving written notice of

termination in accordance with Section 17.4.

(ii)In the event the Agreement is terminated in accordance with this Section 10.2(e),

Service Provider shall within [30/[OTHER NUMBER]] days after the effective date

of termination, refund to Customer any fees paid by the Customer as of the date

of termination for such Service or Deliverable [less a deduction equal to the fees

for receipt or use of such Deliverables or Service up to and including the date of

termination on a pro-rated basis].

(iii)The foregoing remedy shall not be available unless Customer provides written

notice of such breach within [30] days after [delivery/acceptance] of such Service or

Deliverable [to/by] Customer or with respect to changes made by any Person other

than Service Provider or at Service Provider’s direction.]

representation and warranty from the

customer if the service provider will be

using materials provided by the customer

in connection with the performance of the

services, especially if any of the customer’s

pre-existing materials are to be incorporated

into the deliverables.

CUSTOMER

The customer should include this warranty

in the event the services or deliverables

must meet technical specifications or other

requirements. In a pro-customer agreement,

the customer leaves Section 10.2(e))

as drafted above without including the

language in brackets.

SERVICE PROVIDER

The service provider should include the

language shown in brackets in Section

10.2(e) so that:

 The warranty is limited in duration

and to material non-conformities only.

The bracketed language contemplates

a time-limited warranty that can be

modified to start either on the date

of delivery of the relevant services or

deliverables to the customer or the

customer’s acceptance of the relevant

services or deliverables. The service

provider should ensure that the

applicable SOW clearly defines what

“delivery” or “acceptance” means for

purposes of the warranty and other

relevant provisions of the service

agreement (see also Section 2.2).

 The customer’s sole and exclusive remedy

for breach of the warranty is repair or

re-performance of the faulty service

or deliverable, with the right for the

customer to terminate the agreement and

receive a refund for any fees paid for the

service or deliverable at issue.

DRAFTING NOTE: CONFORMANCE WITH SPECIFICATIONS

(f)[[ADDITIONAL REPRESENTATIONS AND WARRANTIES].]

Professional Services Agreement (TX)

10.3EXCEPT FOR THE EXPRESS WARRANTIES IN THIS [AGREEMENT/Section 10], (A) EACH

PARTY HEREBY DISCLAIMS ALL WARRANTIES, EITHER EXPRESS, IMPLIED, STATUTORY,

OR OTHERWISE UNDER THIS AGREEMENT, AND (B) SERVICE PROVIDER SPECIFICALLY

DISCLAIMS ALL IMPLIED WARRANTIES OF MERCHANTABILITY, [AND] FITNESS FOR A

PARTICULAR PURPOSE, [TITLE AND NON-INFRINGEMENT].

CUSTOMER

The customer should consider whether any

additional representations and warranties

are required by any applicable laws or

regulations or are otherwise necessary or

desirable based on the type of services

being provided or the customer’s industry.

For example, if the services include

providing software, whether assigned or

licensed to customer, consider including

warranties specifying that such software

will not include any viruses or other harmful

code or disabling mechanisms or any open-

source software. For example:

“The Deliverables [and the Pre-

Existing Materials] shall not contain:

(i) any virus, Trojan horse, worm,

backdoor, or other software or

hardware devices the effect of which

is to permit unauthorized access or

to disable, erase, or otherwise harm

any computer, systems, or software,

or (ii) any time bomb, drop dead

device or other software or hardware

device designed to disable a computer

program automatically with the

passage of time or under the positive

control of a Person other than an

authorized licensee or owner of a copy

of the program or the right and title in

and to the program.”

“The Deliverables [and the Pre-

Existing Materials] shall not contain

any shareware or open source code[,

or other software which could require

disclosure or licensing to any third

party of any source code with which

such software is used or compiled]

unless previously approved in writing

by the customer.”

DRAFTING NOTE: ADDITIONAL REPRESENTATIONS AND WARRANTIES

An express disclaimer of implied warranties

is included in almost all contracts for the

provision of services, which serves to:

 Generally disclaim any warranties not

expressly made in the agreement.

 Specifically disclaim the four warranties

(that is, merchantability, fitness for

a particular purpose, title, and non-

infringement) that could be implied

under Article 2 of the UCC (Tex. Bus.

& Com. Code Ann.§§2.312 to 2.315).

Although Article 2 of the UCC generally

applies only to the sale of goods, Texas

courts have applied Article 2 principles to

mixed goods and services contract where

the sale of goods is either a dominant

factor or the essence of the transaction

(Texas Development Co.V.Exxon Mobil

Corp., 119 S.W.3d 875, 881 (Tex. App.—

Eastland 2003, no pet.)). Under certain

circumstances, some courts may look

to Article 2 principles for guidance on

services contracts along.

For a discussion of implied warranties under

Article 2 of the UCC in Texas, see Practice

Note, UCC Article 2 Implied Warranties (TX)

(W-000-8871).

CUSTOMER

The service provider often includes an

express disclaimer of implied warranties

(and particularly the implied warranties of

merchantability and fitness for a particular

purpose) unless the customer is in a

particularly strong negotiating position.

For more on the warranties, see Practice

DRAFTING NOTE: DISCLAIMER OF WARRANTIES

Professional Services Agreement (TX)

11.Indemnification.

Note, UCC Article 2 Implied Warranties (TX):

Implied Warranty of Merchantability and

Implied Warranty of Fitness for a Particular

Purpose (W-000-8871).

If this disclaimer is acceptable in the

context of the transaction, the customer

should carefully review it to ensure that the

disclaimer:

 Does not limit the service provider’s

express warranties to those specified in

Section 10.1 and Section 10.2 because

other sections of the agreement may

include warranties made by the service

provider.

 Is mutual where appropriate.

SERVICE PROVIDER

Because any statement of assurance made

by the service provider (whether in the

agreement, in its response to the customer’s

request for proposal, or in discussions with

the customer) might be construed by a

court to be a warranty, the service provider

should draft the disclaimer broadly enough

to disclaim any express warranties other

than those stated in Section 10.1 and Section

10.2. For a discussion on disclaiming express

warranties under Article 2 of the UCC in

Texas, see Practice Note, UCC Article 2

Express Warranties (TX) (W-001-4747).

The service provider should ensure that the

disclaimer complies with Article 2 of the

UCC and common law contract principal

requirements, including:

 Specifically disclaiming the implied

warranties of merchantability, fitness

for a particular purpose, title, and

non-infringement.

 Making the disclaimer conspicuous

by drafting in all capital letters or in

bold to set it off from surrounding text

(CateV.Dover Corp., 790 S.W.2d 559,

560 (Tex. 1990, no pet.) and Womco,

Inc.V.Navistar Intern. Corp., 84 S.W.3d

272, 279 (Tex.App.—Tyler 2002, no pet.)).

The indemnification provisions are typically

heavily negotiated. Particular words, for

example, “indemnify” and “hold harmless,”

may have different meanings depending

on the jurisdiction (see Practice Note,

Indemnification Clauses in Commercial

Contracts (TX): Indemnification Versus

Hold Harmless Provisions (W-004-5777)).

Indemnification provisions allocate the risk

of losses between the parties, whether

they are losses arising out of a breach of

a representation, warranty, or covenant

or a specific liability. The indemnification

provisions should be read in conjunction

with the representations, warranties, and

covenants as well as the limitations on liability

to determine the full scope of what is covered.

For more information on indemnification

generally in Texas, see:

 Practice Note, Indemnification

Clauses in Commercial Contracts (TX)

(W-004-5777).

 Drafting and Negotiating an

Indemnification Clause Checklist

(2-618-5303).

 Standard Clauses, General Contract

Clauses: Indemnification (TX)

(W-000-0637).

For more information on the interplay

between indemnification and other

contractual remedies, see Interaction

Between Indemnification and Other

Contractual Remedy Provisions Checklist

(9-619-5346).

In Texas, an indemnity agreement

that releases a party in advance for

its own negligence must meet the fair

notice requirements (see Practice Note,

Indemnification Clauses in Commercial

Contracts: Special Requirements to

Indemnify a Party from its own Negligence

(W-004-5777)).

DRAFTING NOTE: INDEMNIFICATION

Professional Services Agreement (TX)

11.1Service Provider shall defend, indemnify, and hold harmless Customer [and Customer’s

Affiliates/Authorized Service Recipients] and [its/their] officers, directors, employees, agents,

successors, and permitted assigns (each, a “Customer Indemnitee”) from and against all Losses

[awarded against a Customer Indemnitee in a final judgment] [arising out of or resulting from any

third-party claim, suit, action or proceeding (each, an “Action”)] arising out of or resulting from:

(a)bodily injury, death of any person, or damage to real or tangible, personal property

resulting from the willful, fraudulent, or [grossly] negligent acts or omissions of Service

Provider or Service Provider Personnel; and

(b)Service Provider’s [material] breach of any representation, warranty or obligation

of Service Provider set forth in [this Agreement/in Section 10.1 or Section 10.2 of this

Agreement].

CUSTOMER

The customer should, in addition to the

indemnification of intellectual property

infringement claims in Section 11.2, require

the service provider to indemnify and defend

the customer against any third-party claims

arising out of:

 Bodily injury, death, or personal property

damages caused by the service provider’s

negligent or willful acts or omissions. This

indemnification is particularly important if

the service provider will be performing the

services on the customer’s premises.

 The service provider’s breach of its

representations, warranties, and

obligations under the agreement.

A service provider will typically agree to

indemnify the customer for bodily injury

and damage to tangible property but will

likely resist agreeing to broadly indemnify

the customer for claims arising out of any

breach of representations, warranties,

and obligations under the agreement or

even just the specific representations and

warranties in Section 10. This is especially

true if the indemnification obligations are

not subject to contractual limitations on the

service provider’s liability (for example, see

Section 12).

The customer should ensure that the service

provider’s obligation to indemnify is not

limited to paying only those losses relating

to a final, non-appealable judgment, which

would exclude any losses at the trial court

level.

Also consider whether the indemnity

should be extended for the benefit of any

Authorized Service Recipients. If any third

parties other than the customer are included

in the indemnity, be sure to expressly

identify them as third-party beneficiaries

under Section 17.8 for the purpose of the

indemnification in Section 11.

SERVICE PROVIDER

The service provider should resist agreeing

to indemnify the customer for third-party

claims arising out of any breach by

the service provider of the agreement,

particularly if the parties’ indemnification

obligations are listed as an exception to the

contractual exclusions and caps on liability

in Section 12.

DRAFTING NOTE: GENERAL INDEMNIFICATION BY SERVICE PROVIDER

11.2Service Provider shall defend, indemnify and hold harmless the Customer Indemnitees

from and against all Losses [awarded against a Customer Indemnitee in a final judgment]

based on a claim that any of the Services or Deliverables or Customer’s receipt or use thereof

infringes any Intellectual Property Right of a third party [arising under the Laws of the United

States][; provided, however, that Service Provider shall have no obligations under this Section

11.2 with respect to claims to the extent arising out of:

(a)any Customer Materials or any instruction, information, designs, specifications, or

other materials provided by Customer in writing to Service Provider;

Professional Services Agreement (TX)

(b)use of the Deliverables in combination with any materials or equipment not supplied

to Customer or specified by Service Provider in writing, if the infringement would have

been avoided by the use of the Deliverables not so combined; or

(c)any modifications or changes made to the Deliverables by or on behalf of any Person

other than Service Provider or Service Provider Personnel].

Section 11.2 requires the service provider

to indemnify the customer for intellectual

property infringement claims brought by

third parties arising out of the receipt or use

of the services or deliverables.

CUSTOMER

For a pro-customer agreement, Customer

should not include the bracketed language

in Section 11.2.

The customer should ensure that the service

provider’s indemnification obligation for

infringement claims:

 Is not limited to costs and damages

relating to only the final judgment (which

would exclude damages awarded against

the customer at the trial level).

 Covers all territories in which the

customer plans to receive the services or

use any deliverables.

 Covers claims for infringement of all IP

rights (for example, patents, copyrights,

trade secrets, and trademark rights)

relevant to the type of deliverables

created under the agreement.

SERVICE PROVIDER

Section 11.2(a) through Section 11.2(c)

includes bracketed language with

exceptions to the indemnity for potential

liabilities that are not reasonably within

the service provider’s control (for example,

if the infringement arises out of materials

provided by the customer).

The service provider should try to limit the

scope of its indemnification obligations to:

 Claims arising under US law, or other

specific jurisdictions for which the service

provider is willing to indemnify the

customer.

 Awards of damages resulting from final

(non-appealable) judgments only.

If the customer is providing materials or

equipment for use by the service provider in

performing the services, the service provider

should consider asking customer for a

reciprocal infringement indemnity.

DRAFTING NOTE: INFRINGEMENT INDEMNIFICATION BY SERVICE PROVIDER

11.3Customer shall defend, indemnify, and hold harmless Service Provider [and Service

Provider’s Affiliates] and [its/their] officers, directors, employees, agents, successors, and

permitted assigns from and against all Losses [awarded against Service Provider in a final

judgment] [arising out of or resulting from any third-party Action] arising out of or resulting from:

(a)bodily injury, death of any person, or damage to real or tangible, personal property

resulting from the [grossly] negligent or willful acts or omissions of Customer; and

(b)Customer’s [material] breach of any [representation, warranty, or obligation of Customer

in this Agreement/representation or warranty set forth in Section 10.1 of this Agreement].

CUSTOMER

In a pro-customer agreement, the

customer should not include Section 11.3.

If the customer is requesting extensive

indemnification obligations from the service

provider, it is not unreasonable for the service

provider to ask the customer to agree to

certain reciprocal indemnification obligations.

DRAFTING NOTE: CUSTOMER INDEMNIFICATION OF SERVICE PROVIDER

Professional Services Agreement (TX)

11.4The party seeking indemnification hereunder shall promptly notify the indemnifying party

in writing of any Action and cooperate with the indemnifying party at the indemnifying party’s

sole cost and expense. The indemnifying party shall immediately take control of the defense

and investigation of such Action and shall employ counsel of its choice to handle and defend

the same, at the indemnifying party’s sole cost and expense. [The indemnifying party shall not

settle any Action in a manner that adversely affects the rights of the indemnified party without

the indemnified party’s prior written consent[, which shall not be unreasonably withheld or

delayed].] The indemnified party’s failure to perform any obligations under this Section 11.4

shall not relieve the indemnifying party of its obligations under this Section 11.4 except to the

extent that the indemnifying party can demonstrate that it has been materially prejudiced as a

result of such failure. The indemnified party may participate in and observe the proceedings at

its own cost and expense.

The indemnifying party should include a

provision which gives it control over the

defense of third party claims for which

it is to indemnify the other party and

that ensures that the indemnified party

gives the indemnifying party prompt

written notice of any claim and provides

reasonable cooperation at the indemnifying

party’s cost.

Indemnity coverage commonly excludes

circumstances where the indemnified

party’s own actions cause or contribute

to, in whole or in part, the harm triggering

indemnification. For example, an

indemnification provision may exclude the

indemnified party’s:

 Negligent or grossly negligent acts or

omissions.

 Bad faith failure to comply with the

agreement.

 A party with significant negotiating

leverage may request indemnification for

its own plain negligence, including only

gross negligence (shown in brackets) as

an exception to indemnification.

This provision includes two common

exceptions to the indemnifying party’s

obligation to indemnify, to address common

circumstances where the indemnified

party’s own actions cause or contribute to, in

whole or in part, the alleged harm triggering

indemnification.

If the agreement does not include the

bracketed language “to the extent,” then if

the indemnified party is at fault, regardless

of how minimally, the indemnifying

party may be entirely excused from any

obligation to indemnify. Therefore, the

indemnified party should try to include

the bracketed language to reduce

the indemnification obligation only in

DRAFTING NOTE: INDEMNIFICATION PROCEDURES

DRAFTING NOTE: EXCEPTIONS TO INDEMNIFICATION

11.5Notwithstanding anything to the contrary in this Agreement, the indemnifying party is

not obligated to indemnify[, hold harmless,] or defend the indemnified party against any claim

(whether direct or indirect) [if/to the extent] such claim or corresponding losses arise out of or

result from[, in whole or in part,] the indemnified party’s:

(a) [gross] negligence or more culpable act or omission (including recklessness or willful

misconduct); [or]

(b)bad faith failure to [materially] comply with any of its [material] obligations set forth in

this Agreement.

Professional Services Agreement (TX)

12.[LIMITATION OF LIABILITY.

The limitation of liability provision is another

important risk allocation provision that is

often extensively negotiated by the parties.

Service providers will almost always

include a limitation of liability provision

in some form in the contract, seeking to

limit their liability for damages (including

direct damages as well as consequential,

incidental, and other special or indirect

damages) in connection with any claims

the customer might have arising out of

or relating to the contract or services,

including breach of contract or tort claims.

For more information, see Practice Note,

Risk Allocation in Commercial Contracts

(4-519-5496) and Standard Clauses,

General Contract Clauses: Limitation of

Liability (TX) (W-000-0751).

CUSTOMER

The customer will normally prefer not to

include a limitation of liability provision

in the contract so that the full range of

damages permitted under law are available

for claims it may have against the service

provider arising from the agreement. Except

for certain transactions where the customer

is in a particularly strong bargaining

position, however, most sophisticated

service providers insist on some contractual

limitation of liability. If the customer

is responsible for the first draft of the

agreement, it may want to consider whether

to leave out a limitation of liability provision

entirely or to include a reasonable clause

rather than wait until the service provider

insists on including its own version.

The customer should ensure that:

 Any limitation of liability provisions are

made mutual so that the customer’s

liability is limited as well (if the service

provider is offering up the first draft of

the contract, the limitations are often one-

sided in favor of the service provider).

 Any limitation of liability provisions are

subject to appropriate exceptions that

are expressly stated (for example, see the

exceptions listed in Section 12.3).

 Any monetary caps on damages are

set high enough to provide the service

provider with a sufficient incentive to

avoid liability.

SERVICE PROVIDER

The service provider should always insist on

a contractual limitation of liability. Without

contractual limitations it could subject itself

to unlimited liability, a “bet the business”

proposition that may be greatly out of

proportion to the fees it is receiving from the

customer for the services.

However, in drafting the provision, the

service provider should keep in mind that

limitations of liability are typically construed

against the person seeking to rely on them

(in this case, the service provider), and a

court may impose a test of reasonableness

on such limitations (see Mansfield Heliflight,

Inc.V.Bell/Agusta Aerospace Co., LLC, 507 F.

Supp. 2d 638, 645-46 (N.D. Tex. 2007)).

If the exclusions are overly broad (for

example, excluding all liability) or the

proportion to the indemnified party’s fault.

The indemnified party may also seek to

include the optional materiality and other

qualifiers to limit the scope of certain

exceptions.

These exceptions are examples only and

should be tailored to reflect the nature

of the transaction. For more information

about exceptions to indemnification, see

Practice Note, Indemnification Clauses in

Commercial Contracts (TX): Exceptions to

Indemnification (W-004-5777).

DRAFTING NOTE: LIMITATION OF LIABILITY

Professional Services Agreement (TX)

12.1EXCEPT AS OTHERWISE PROVIDED IN SECTION 12.3, IN NO EVENT WILL EITHER

PARTY BE LIABLE TO THE OTHER OR TO ANY THIRD PARTY FOR ANY LOSS OF USE,

REVENUE OR PROFIT [OR LOSS OF DATA] OR FOR ANY CONSEQUENTIAL, INCIDENTAL,

INDIRECT, EXEMPLARY, SPECIAL OR PUNITIVE DAMAGES WHETHER ARISING OUT OF

BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE), OR OTHERWISE, REGARDLESS

OF WHETHER SUCH DAMAGE WAS FORESEEABLE AND WHETHER OR NOT SUCH PARTY

HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

liability cap is too low (for example,

significantly below the contract price), a

court may find the provision unconscionable

(and therefore unenforceable), leaving the

service provider potentially fully liable for all

damages.

Section 12.1 expressly excludes all

consequential, incidental or special

damages as well as any other types of

indirect damages, subject to certain

exceptions specified in Section 12.3. If

an exclusion of consequential and other

indirect damages is included, the parties

must closely review and agree on the list

of damages or losses being excluded and

modify as appropriate. This is especially

true in the case of lost profits, which can

be considered direct damages under some

circumstances. If a party wants to exclude

lost profits from potential damages, it may

not be able to rely on an exclusion of indirect

damages.

For more on consequential and other

indirect damages, see Practice Note,

Damages for Breach of Commercial

Contracts (TX): Consequential or Special

Damages (W-015-3517).

DRAFTING NOTE: EXCLUSION OF CONSEQUENTIAL AND OTHER INDIRECT

DAMAGES

 12.2EXCEPT AS OTHERWISE PROVIDED IN SECTION 12.3, IN NO EVENT WILL EITHER

PARTY’S LIABILITY ARISING OUT OF OR RELATED TO THIS AGREEMENT, WHETHER ARISING

OUT OF OR RELATED TO BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE), OR

OTHERWISE, EXCEED [[NUMBER] TIMES] THE AGGREGATE AMOUNTS PAID OR PAYABLE

TO SERVICE PROVIDER [PURSUANT TO THIS AGREEMENT/PURSUANT TO THE APPLICABLE

STATEMENT OF WORK/IN THE [NUMBER] [YEARS/MONTHS] PERIOD PRECEDING THE

EVENT GIVING RISE TO THE CLAIM].

Section 12.2 limits each party’s total

monetary liability for claims arising out of or

relating to the contract to a fixed amount,

often the contract price or a multiple

thereof, subject to any exceptions set out in

Section 12.3.

DRAFTING NOTE: CAP ON MONETARY LIABILITY

12.3[The exclusions and limitations in Section 12.1 and Section 12.2 shall not apply to:

(a)damages or other liabilities arising out of or relating to a party’s failure to comply with

its obligations under Section 8 (Intellectual Property Rights; Ownership);

Professional Services Agreement (TX)

(b)damages or other liabilities arising out of or relating to a party’s failure to comply with

its obligations under Section 9 (Confidentiality);

(c)a party’s indemnification obligations under Section 11 (Indemnification);

(d)damages or other liabilities arising out of or relating to a party’s gross negligence,

willful misconduct, or intentional acts;

(e)death or bodily injury or damage to real or tangible personal property resulting from a

party’s negligent acts or omissions;

(f)damages or liabilities to the extent covered by a party’s insurance; and

(g)a party’s obligation to pay attorneys’ fees and court costs in accordance with Section17.16.]

Exceptions to the contractual limitations

of liability are often heavily negotiated and

will depend on the type of transaction and

bargaining power of the respective parties.

Section 12.3 sets out certain types of claims

that are sometimes carved out from the

exclusion of consequential and other indirect

damages in Section 12.1 and the overall cap

on monetary damages in Section 12.2, which

include:

 Infringement by one party of the other

party’s IP rights.

 Breaches of a party’s confidentiality

obligations.

 A party’s indemnification obligations.

 Damages arising out of a party’s willful

misconduct or gross negligence. In

some jurisdictions, including limitations

on liabilities that arise out of a party’s

willful misconduct or gross negligence

are not enforceable as against public

policy. The Texas Supreme Court has not

decided on the issue and decisions on

this topic are generally mixed (no bright

line) (see, for example, Atlantic Richfield

CompanyV.Petroleum Personnel, Inc.,

768 S.W.2d 724 (Tex. 1989)). Given the

potential unenforceability, this carve-out

is not typically controversial.

 Death or personal injury or damage to

real or tangible personal property arising

from a party’s negligence.

 Damages or liabilities to the extent

covered by a party’s insurance policies.

 A party’s obligations to pay attorneys’

fees if such provision is included in the

agreement (for example, see Section17.16).

Each party should consider the effects of

carving out these categories of claims.

Some alternatives to consider when drafting

and negotiating limitations of liability

provisions are:

 Carving out certain exceptions from the

exclusion of consequential damages in

Section 12.1, so that some recovery of

damages is permissible, but not carving

such claims out of the overall cap on

monetary liability in Section 12.2.

 Agreeing to a higher overall monetary cap

for certain types of claims (for example,

a higher cap for claims involving an

indemnification for intellectual property

infringement).

DRAFTING NOTE: EXCEPTIONS TO LIMITATIONS OF LIABILITY

13.[Insurance.

13.1 At all times during the Term of this Agreement[ and for a period of [three] years

thereafter], Service Provider shall procure and maintain, at its sole cost and expense, at least

the following types and amounts of insurance coverage:

(a)Commercial General Liability with limits no less than $[NUMBER] per occurrence and

$[ NUMBER] in the aggregate[, including bodily injury and property damage and products

and completed operations and advertising liability], which policy will include contractual

liability coverage insuring the activities of Service Provider under this Agreement;

(b)Worker’s Compensation with limits no less than the greater of (i) $[NUMBER], or (ii) the

minimum amount required by applicable law;

Professional Services Agreement (TX)

(c)Commercial Automobile Liability with limits no less than $[NUMBER], combined single

limit; and

(d)Errors and Omissions/Professional Liability with limits no less than $[NUMBER] per

occurrence and $[NUMBER] in the aggregate.

13.2All insurance policies required pursuant to this Section 13 shall:

(a) be issued by insurance companies [[reasonably acceptable to Customer] [with a Best’s

Rating of no less than [A-VII/OTHER RATING]];

(b)provide that such insurance carriers give Customer at least 30 days’ prior written

notice of cancellation or non-renewal of policy coverage; provided that, prior to such

cancellation, the Service Provider shall have new insurance policies in place that meet the

requirements of this Section 13;

(c)waive any right of subrogation of the insurers against the Customer [or any of its

Affiliates];

(d)provide that such insurance be primary insurance and any similar insurance in the

name of and/or for the benefit of Customer shall be excess and non-contributory; and

(e)name Customer and Customer’s Affiliates, including, in each case, all successors and

permitted assigns, as additional insureds.

13.3Upon the written request of Customer, Service Provider shall provide Customer with copies

of the certificates of insurance and policy endorsements for all insurance coverage required by

this Section 13, and shall not do anything to invalidate such insurance. This Section 13 shall not

be construed in any manner as waiving, restricting or limiting the liability of either party for any

obligations imposed under this Agreement (including but not limited to, any provisions requiring

a party hereto to indemnify, defend and hold the other harmless under this Agreement).]

The determination of the appropriate types

of insurance coverage and policy limits for a

transaction should be made by each party

in consultation with their respective risk

management departments and insurance

specialists. For more information on insurance

generally, see Practice Note, Insurance Policies

and Coverage: Overview (9-505-0561).

CUSTOMER

The customer should ensure that the

service provider maintains adequate

insurance to cover its potential liabilities and

indemnification obligations to the customer

(as well as its other customers), including, as

appropriate:

 Commercial general liability.

 Workers’ compensation. For more on

workers’ compensation in Texas, see State

Q&A: Workers’ Compensation Laws: Texas

(5-575-0772).

 Commercial automobile liability.

 Professional Liability or Errors and

Omissions.

SERVICE PROVIDER

This professional services agreement

does not include a provision requiring the

customer to maintain any insurance coverage.

Depending on the nature of the transaction,

the service provider should consider including

a corresponding provision requiring the

customer to maintain appropriate insurance

coverage, for example, if:

 The customer will be maintaining service

provider equipment on the customer’s

premises.

 The service provider personnel will be

performing services on the customer’s

premises.

 The service provider otherwise has

concerns about the financial solvency of

the customer.

DRAFTING NOTE: INSURANCE

Professional Services Agreement (TX)

14.[Non-Solicitation.

14.1During the Term of [this Agreement/any Statement of Work] and for a period of [NUMBER]

months thereafter, neither party shall, directly or indirectly, in any manner solicit or induce for

employment any person who performed any work under [this Agreement/such Statement

of Work] who is then in the employ of the other party. A general advertisement or notice of a

job listing or opening or other similar general publication of a job search or availability to fill

employment positions, including on the internet, shall not be construed as a solicitation or

inducement for the purposes of this Section 14.1, and the hiring of any employee or independent

contractor who freely responds thereto shall not be a breach of this Section 14.1.

14.2If either party breaches Section 14.1, the breaching party shall, on demand, pay to the

non-breaching party a sum equal to one year’s basic salary or the annual fee that was payable

by the claiming party to that employee, worker or independent contractor plus the recruitment

costs incurred by the non-breaching party in replacing such person.]

The optional non-solicitation covenant in

Section 14.1 is typically initially requested by

the service provider because it is possible

that a customer may want to hire a key

service provider employee who has been

responsible for providing the services to

the customer. However, the customer may

also benefit from this non-solicitation

clause. If this provision is included in the

professional services agreement, it should

be made mutual, and the period and scope

of restraint should be reasonable, otherwise

it may not be enforceable (see State Q&A:

Non-Compete Laws: Texas: Non-Solicitation

Agreements (6-504-2412)).

Section 14.2 provides for liquidated

damages in the event of a party’s breach of

the non-solicitation obligation.

For more information and a sample

non-solicitation clause in the context of a

confidentiality agreement, see Standard

Clauses, Confidentiality Agreement: Non-

Solicitation Clause (TX) (W-001-6418).

DRAFTING NOTE: NON-SOLICITATION

CUSTOMER

Even where a services arrangement is non-

exclusive, the customer may want to include

a non-compete provision that prevents the

service provider from supplying the same

or similar services to the customer’s direct

competitors and therefore risk disclosure of

confidential information to a competitor or

loss of a competitive advantage. However,

non-competes that are unreasonable

in scope, duration, or geography may

not be enforceable (see State Q&A:

Non-Compete Laws: Texas (6-504-2412)).

For more information about non-compete

provisions, see Practice Note, Non-Compete

Agreements with Employees: Limitations on

Enforceability (7-501-3409).

SERVICE PROVIDER

Unless the parties have agreed to an

exclusive arrangement, the service provider

should include this optional provision to

ensure that it has flexibility to perform the

same or similar services for third parties.

DRAFTING NOTE: NON-EXCLUSIVITY; NON-COMPETE

15.[Non-Exclusivity; Non-Compete.

The Service Provider retains the right to perform the same or similar type of services for third

parties during the Term of this Agreement[, except that, during the Term, Service Provider shall not

provide services to the following direct competitors of Customer: [LIST DIRECT COMPETITORS].]]

Professional Services Agreement (TX)

16.Force Majeure.

16.1No party shall be liable or responsible to the other party, nor be deemed to have defaulted

under or breached this Agreement, for any failure or delay in fulfilling or performing any term

of this Agreement [(except for any obligations to make payments to [or indemnify] the other

party hereunder)], when and to the extent such failure or delay is caused by or results from

the following force majeure events (“Force Majeure Events”): (a) acts of God; (b) flood, fire,

earthquake, or explosion; (c) war, invasion, hostilities (whether war is declared or not), terrorist

threats or acts, riot, or other civil unrest; (d) government order or law; (e) actions, embargoes,

or blockades in effect on or after the date of this Agreement; (f) action by any governmental

authority; [or] (g) national or regional emergency[;] [(h) strikes, labor stoppages or slowdowns,

or other industrial disturbances;] [or] [(i) shortage of adequate power or transportation

facilities;] [or] [(j) other [similar] events beyond the [reasonable] control of the party affected

by the Force Majeure Event]. The affected party shall give notice [within [NUMBER] days of the

Force Majeure Event] to the other party, stating the period of time the occurrence is expected

to continue.

16.2[During the Force Majeure Event, the non-affected party may similarly suspend its

performance obligations until such time as the affected party resumes performance.]

16.3The affected party shall use diligent efforts to end the failure or delay and ensure the

effects of such Force Majeure Event are minimized and shall resume performance of its

obligations as soon as reasonably practicable after the removal of the cause. [If the affected

party’s failure or delay remains uncured for a period of [NUMBER] days following written

notice given by it under this Section 16, [either party/the other party] may thereafter terminate

[this Agreement/an applicable Statement of Work] upon [NUMBER] days’ written notice.]

While force majeure provisions are generally

drafted from the point of view of the service

provider, Section 16 is specifically drafted so

that it may also be invoked by the customer

on the occurrence of an event of force

majeure which affects the customer’s ability

to carry on its business.

A force majeure clause excludes liability for

breach of contract where delay or failure to

perform is because of an event outside the

reasonable control of the party who would

otherwise be in default. Those events which

are to be considered as being “beyond

reasonable control” must be chosen and

drafted so that they are beyond dispute. This

may often involve drafting a list of various

examples (such as acts of God, strikes, defaults

of suppliers) preceded by a catchall clause

that is not limited by the specific examples. It

also states that the benefit of a force majeure

clause is only available where the affected

party had taken all reasonable steps to avoid

the event and the impact of its consequences.

In drafting and negotiating the force majeure

provision, consider, for example, whether:

 The force majeure provision should apply

to each party to the agreement or only

certain parties (for example, an initial

draft provided by the service provider

often limits the force majeure provision to

the service provider’s performance).

 The definition of a force majeure event

should expressly include any other types

of specific events.

 It is appropriate under the circumstances

to limit the scope of the force majeure

provision by including an obligation on

the party affected by the force majeure

event to:

z

take reasonable steps to avoid or

prevent the force majeure event before

it occurs, if it is anticipated; and

z

mitigate the effects of the force majeure

event once it has occurred.

 It is appropriate for the party affected by

the force majeure event to determine that

such an event has occurred. For example,

consider requiring an independent

determination of whether a force majeure

event occurred.

DRAFTING NOTE: FORCE MAJEURE

Professional Services Agreement (TX)

17.Miscellaneous.

17.1Each party shall, upon the [reasonable] request[, and at the sole cost and expense,] of the

other party, [promptly] execute such documents and perform such acts as may be necessary

to give full effect to the terms of this Agreement.

17.2The relationship between the parties is that of independent contractors. Nothing

contained in this Agreement shall be construed as creating any agency, partnership, joint

venture or other form of joint enterprise, employment or fiduciary relationship between the

parties, and neither party shall have authority to contract for or bind the other party in any

manner whatsoever.

 Determination of a force majeure event is

linked to a dispute resolution requirement

if the parties disagree on the nature of

theevent.

 The parties have contingency plans

to allow business continuity despite

unexpected problems.

Section 16.2 is optional and suspends the

obligations of the other party to the same

extent as those of the party affected by the

force majeure event.

Optional Section 16.3 optionally creates a

termination right for the parties if the force

majeure event continues for a specified

period of time. The termination right can be

given to the non-affected party only or made

mutual.

CUSTOMER

It is usually in the service provider’s interest

to draft the force majeure provision as

broadly as possible. Review each force

majeure event proposed by the service

provider to ensure that it does not include

items that may reasonably be within the

service provider’s control.

If the services being provided by the service

provider include disaster recovery services,

it may be appropriate to carve that risk

out of the force majeure protection, for

example:

“Notwithstanding any other

provision of this Section 16, a Force

Majeure Event shall not relieve

Service Provider of its obligation to

provide disaster recovery services

in accordance with the [applicable]

Statement of Work.”

SERVICE PROVIDER

The service provider should consider adding

a provision to clarify that even if the force

majeure event affects the customer, the

customer is still required to pay for services

rendered if the force majeure event has not

affected its ability to do so.

For more information on force majeure, see

Practice Note, Force Majeure Clauses: Key

Issues (5-524-2181) and Standard Clauses,

General Contract Clauses: Force Majeure

(TX) (W-000-0683).

This clause, also known as an “independent

contractor” or “no agency or partnership”

clause, minimizes the risk of creating

an unwanted joint venture, partnership,

employer-employee, or agency relationship

between the parties under Texas law (see

State Q&A: Independent Contractors:

Texas (1-506-2756)). The creation of

such a relationship may have adverse tax

consequences and may result in one party

being bound by another in relation to third

parties in ways not contemplated by the

agreement or in becoming liable for the

other’s acts and omissions.

A further reason for wanting to exclude a

partnership relationship is that partners

DRAFTING NOTE: RELATIONSHIP OF THE PARTIES

Professional Services Agreement (TX)

17.3Neither party shall issue or release any announcement, statement, press release or other

publicity or marketing materials relating to this Agreement, or otherwise use the other party’s

trademarks, service marks, trade names, logos, symbols or brand names, in each case, without

the prior written consent of the other party[, which shall not be unreasonably withheld or delayed].

17.4All notices, requests, consents, claims, demands, waivers and other communications

hereunder shall be in writing and shall be deemed to have been given (a) when delivered by

hand (with written confirmation of receipt); (b) when received by the addressee if sent by a

nationally recognized overnight courier (receipt requested); (c) on the date sent by [facsimile

(with confirmation of transmission/email)] if sent during normal business hours of the

recipient, and on the next business day if sent after normal business hours of the recipient

or (d) on the [third/OTHER NUMBER]] day after the date mailed, by certified or registered

mail, return receipt requested, postage prepaid. Such communications must be sent to the

respective parties at the addresses indicated below (or at such other address for a party as

shall be specified in a notice given in accordance with this Section 17.4.

If to Service Provider: [SERVICE PROVIDER ADDRESS]

[Facsimile:[FAX NUMBER]]

[Email: [EMAIL ADDRESS]]

Attention:[TITLE OF OFFICER TO RECEIVE NOTICES]

If to Customer: [CUSTOMER ADDRESS]

[Facsimile:[FAX NUMBER]]

[Email: [EMAIL ADDRESS]]

Attention:[TITLE OF OFFICER TO RECEIVE NOTICES]

in a partnership owe fiduciary duties to

each other, and the contracting parties

will usually wish to exclude implied

duties of this kind. For more information,

see Standard Clause, General Contract

Clauses: Relationship of the Parties

(6-561-3685).

This provision governs how any notice

under the professional services agreement

must be given, and the time at which the

notice is deemed to be received. Notices

sent under this provision relate to key legal

communications about the management of

the contract, not day-to-day communications.

This agreement makes both fax and email

optional but permitted means of notice. The

parties should select the method that is

most appropriate or may specify both.

Businesses are relying on email more than

fax, and the parties must determine which

means of notice are appropriate for their

specific agreement and include or exclude

the applicable bracketed entry. Some

companies prohibit email notice because it

is not always possible to track with certainty

when an email has been received, and there

may be a greater risk of an e-mail being

intercepted by a third party, arriving late

or not at all, or being inadvertently deleted

or overlooked by the intended recipient.

For more information, see Standard

Clause, General Contract Clauses: Notice

(6-533-1025).

DRAFTING NOTE: NOTICES

Professional Services Agreement (TX)

17.5For purposes of this Agreement, (a) the words “include,” “includes,” and “including”

shall be deemed to be followed by the words “without limitation”; (b) the word “or” is not

exclusive; and (c) the words “herein,” “hereof,” “hereby,” “hereto,” and “hereunder” refer

to this Agreement as a whole. Unless the context otherwise requires, references herein:

(x) to Sections, Schedules, Exhibits and Statements of Work refer to the Sections of, and

Schedules, Exhibits and Statements of Work attached to this Agreement; (y) to an agreement,

instrument or other document means such agreement, instrument or other document as

amended, supplemented and modified from time to time to the extent permitted by the

provisions thereof and (z) to a statute means such statute as amended from time to time

and includes any successor legislation thereto and any regulations promulgated thereunder.

This Agreement shall be construed without regard to any presumption or rule requiring

construction or interpretation against the party drafting an instrument or causing any

instrument to be drafted. The Schedules, Exhibits, and Statements of Work referred to herein

shall be construed with, and as an integral part of, this Agreement to the same extent as if

they were set forth verbatim herein.

Section 17.5 deals with the general

interpretation of the professional services

agreement and certain terms and

expressions used in it. Its main purpose

is to reduce repetition within the body

of the document, making it shorter and

easier to read. For more information, see

Standard Clause, General Contract Clauses:

Interpretation (5-602-4525).

ENTIRE AGREEMENT

This standard entire agreement provision,

also known as a merger or integration

clause, prevents the parties from being

liable for any understandings or agreements

other than those expressly set out in the

professional services agreement with

respect to the services. If there are other

existing agreements that should remain

in force, those agreements should be

referenced here as an exception to this

provision.

The customer should consider if it is

desirable to include an entire agreement

clause in the context of the transaction. It

may not be if the service provider has made

statements that the customer is relying on

but which are not, for some reason, repeated

in the agreement.

ORDER OF PRECEDENCE

This clause identifies the order of

precedence to be used to determine which

document controls in the event of a conflict

DRAFTING NOTE: INTERPRETATION

DRAFTING NOTE: ENTIRE AGREEMENT; ORDER OF PRECEDENCE

17.6This Agreement, together with all Schedules, Exhibits and Statements of Work and any

other documents incorporated herein by reference, constitutes the sole and entire agreement

of the parties to this Agreement with respect to the subject matter contained herein, and

supersedes all prior and contemporaneous understandings and agreements, both written and

oral, with respect to such subject matter. In the event of any conflict between the terms and

provisions of this Agreement and those of any Schedule, Exhibit or Statement of Work, the

following order of precedence shall govern: (a) first, this Agreement, exclusive of its Exhibits

and Schedules; (b) second, the [applicable] Statement of Work; [and] (c) third, any Exhibits and

Schedules to this Agreement[; and (d) fourth, the Service Provider Proposal].

Professional Services Agreement (TX)

17.7Neither party may assign, transfer, or delegate any or all of its rights or obligations under

this Agreement, [including by operation of law, change of control, or merger, ]without the

prior written consent of the other party[, which consent shall not be unreasonably withheld

or delayed] [; provided, that, upon prior written notice to the other party, either party may

assign the Agreement to an Affiliate of such party or to a successor of all or substantially all

of the assets of such party through merger, reorganization, consolidation, or acquisition]. No

assignment shall relieve the assigning party of any of its obligations hereunder. Any attempted

assignment, transfer, or other conveyance in violation of the foregoing shall be null and void.

This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and

their respective successors and permitted assigns.

between the terms of the agreement itself

and any schedules, exhibits, statements

of work, or other attachments. While this

agreement provides that the terms of the

agreement will take precedence over the

SOW and other documents, in the event

of a conflict, some parties may prefer to

have the applicable SOW govern. Ideally,

there should not be any conflict between

any of the transaction documents and

counsel should examine them closely for any

inconsistencies.

For more information, see Standard Clause,

General Contract Clauses: Entire Agreement

(TX) (W-008-0773).

This professional services agreement

provides that neither party is permitted to

assign any of its rights or delegate any of

its obligations under the contract without

the other party’s consent. The optional

language in the second set of brackets

prohibits a party from unreasonably

withholding its consent. The additional

bracketed language would allow each

party to assign its rights and delegate

its obligations under the agreement to

an affiliate or, in the context of a sale or

reorganization, to a successor of all or

substantially all of its business.

Parties should keep in mind that an

assignment transfers only the rights or

benefits under a contract. Obligations under

a contract cannot be assigned but may, under

certain circumstances, be delegated to a

third party. Additionally, an anti-assignment

provision will not be effective to prevent

the change of a control of a party or an

assignment or transfer by merger or operation

of law unless the contract specifically

prohibits such actions, such as by including

the language in the first set of brackets.

The extent to which an assignment of the

contract by a party is restricted or excluded

depends on the respective bargaining

leverage of the parties and the nature of the

rights or obligations. Parties should consider

whether:

 The rights or restrictions on assignment

should be mutual or one way only.

 Assignment of rights or delegation of

obligations to a third party should be

permitted with consent, and whether

the other party can only refuse if it is

reasonable to do so, or has complete

discretion to refuse consent.

 Assignments to a party’s affiliates should

be permitted, and, if so, whether the

assignee should be required to reassign

the benefit of the contract to the assignor

if the assignee’s affiliate status changes

so that it no longer meets the definition of

an affiliate.

 Assignments to a successor in the context

of a sale of all or substantially all the

business should be permitted.

For more information, see Practice Note,

Assignability of Commercial Contracts

(TX) (W-015-5513) and Standard Clause,

General Contract Clauses: Assignment and

Delegation (TX) (W-000-0869).

DRAFTING NOTE: ASSIGNMENT

Professional Services Agreement (TX)

17.8This Agreement is for the sole benefit of the parties hereto and their respective successors

and permitted assigns and nothing herein, express or implied, is intended to or shall confer

upon any other Person any legal or equitable right, benefit or remedy of any nature whatsoever,

under or by reason of this Agreement.

If a third party should be entitled to receive

any benefits under the professional services

agreement, revise this provision to expressly

identify such party. For example, if the

customer’s affiliates are entitled to receive

services under the contract but are not

parties, it may be appropriate to identify

such affiliates as third-party beneficiaries

here so that they may enforce the warranties,

indemnities, and other obligations

undertaken by the service provider. For more

information, see Standard Clauses, General

Contract Clauses: Third-Party Beneficiaries

(8-614-3485).

This is a commonly included provision. For

more information, see Standard Clauses,

General Contract Clauses: Headings (TX)

(W-000-2383).

AMENDMENT AND MODIFICATION

This clause provides that the contract

cannot be amended or modified except in a

written Document that both parties execute

For more information, see Standard Clause,

General Contract Clauses: Amendments

(TX) (W-000-0510).

WAIVER

Either party may fail to enforce its rights

under a contract, whether as a result of

oversight or because of the commercial

realities of the situation. This clause provides

that if a party waives a breach of the terms

on one occasion, that party’s rights will not

be waived if there is a further similar breach

or if the other party subsequently requires

compliance with the relevant terms. For

more information, see Standard Clause,

General Contract Clauses: Waivers (TX)

(W-000-0509).

DRAFTING NOTE: NO THIRD-PARTY BENEFICIARIES

DRAFTING NOTE: HEADINGS

DRAFTING NOTE: AMENDMENT AND MODIFICATION; WAIVER

17.9The headings in this Agreement are for reference only and shall not affect the

interpretation of this Agreement.

17.10This Agreement may be amended, modified, or supplemented only by an agreement

in writing signed by each party hereto. No waiver by any party of any of the provisions hereof

shall be effective unless explicitly set forth in writing and signed by the party so waiving.

Except as otherwise set forth in this Agreement, no failure to exercise, or delay in exercising,

any rights, remedy, power or privilege arising from this Agreement shall operate or be

construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy,

power or privilege hereunder preclude any other or further exercise thereof or the exercise of

any other right, remedy, power or privilege.

Professional Services Agreement (TX)

17.11If any term or provision of this Agreement is invalid, illegal or unenforceable in any

jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or

provision of this Agreement or invalidate or render unenforceable such term or provision in any

other jurisdiction. Upon such determination that any term or other provision is invalid, illegal

or unenforceable, the parties hereto shall negotiate in good faith to modify this Agreement

so as to effect the original intent of the parties as closely as possible in a mutually acceptable

manner in order that the transactions contemplated hereby be consummated as originally

contemplated to the greatest extent possible.

17.12This Agreement and all related documents [including all exhibits attached hereto][, and

all matters arising out of or relating to this Agreement, whether sounding in contract, tort,

or statute] are governed by, and construed in accordance with, the laws of the State of Texas,

United States of America [(including [its statutes of limitations] [and] [Tex. Bus. & Com. Code

Ann.§271.001 et seq.])][, without giving effect to the conflict of laws provisions thereof to

the extent such principles or rules would require or permit the application of the laws of any

jurisdiction other than those of the State of Texas].

The severability clause provides that if

one or more terms or provisions are held

to be invalid, illegal, or unenforceable, the

parties intend the professional services

agreement to survive by severing the

invalid, illegal, or unenforceable terms

from the agreement without affecting

the remainder of the agreement. This

provision calls for the parties to negotiate

an amendment to resolve the invalidity,

but they may want to consider adding a

provision that allows the courts to amend

the agreement to reflect the parties’

intent. While enforceable in Texas, this

type of provision is not enforceable in some

jurisdictions and the parties should consider

the possibility that the court’s decision

may not be more favorable than what the

parties can negotiate between themselves

(see Guitar Holding Co., L.P.V.Hudspeth Cty.

Underground Water Conservation Dist. No.

1, 209 S.W.3d 146, 166 (Tex. App.—El Paso

2006) rev’d, 263 S.W.3d 910 (Tex. 2008)).

For more information, see Standard Clause,

General Contract Clauses: Severability (TX)

(W-000-0650).

Section 17.12 designates the substantive law

of Texas to apply to the contract.

Parties may choose the substantive law of

Texas to apply to the contract for both:

 Transactions that bear a reasonable

relation to the state (Tex. Bus. & Com.

Code Ann.§1.301(a)).

 Qualified transactions under Chapter

271 of the Business and Commerce Code

(Tex. Bus. & Com. Code Ann.§§271.001

to 271.011).

For a discussion of choice of law rules in

Texas, including qualified transactions,

see Standard Clauses, General Contract

Clauses: Choice of Law (TX): Drafting

Note: Texas Choice of Law Statutes

(W-000-0223).

For more information on the optional

language in brackets, see Standard Clause,

General Contract Clauses: Choice of Law

(TX) (W-000-0223): Drafting Notes:

 Extra-Contractual Matters (W-000-0223).

 Statutes of Limitations (W-000-0223).

 Choice of Law Rules (7-509-6876).

For more information on drafting and

negotiating choice of law clauses, see

Practice Note, Choice of Law and Choice of

Forum: Key Issues (7-509-6876).

DRAFTING NOTE: SEVERABILITY

DRAFTING NOTE: CHOICE OF LAW

Professional Services Agreement (TX)

17.13Each Party irrevocably and unconditionally agrees that it will not commence any action,

litigation, or proceeding of any kind whatsoever against the other Party in any way arising

from or relating to this Agreement, including all exhibits, schedules, attachments, and

appendices attached to this Agreement, and all contemplated transactions[, including, but

not limited to, contract, equity, tort, fraud, and statutory claims], in any forum other than the

US District Court for the [Northern/Southern/Eastern/Western] District of Texas or[, if such

court does not have subject matter jurisdiction,] the courts of the State of Texas sitting in

[POLITICAL SUBDIVISION], and any appellate court from any thereof. Each Party irrevocably

and unconditionally submits to the exclusive jurisdiction of such courts and agrees to bring any

such action, litigation, or proceeding only in the US District Court for the [Northern/Southern/

Eastern/Western] District of Texas or[, if such court does not have subject matter jurisdiction,]

the courts of the State of Texas sitting in [POLITICAL SUBDIVISION]. Each Party agrees that a

final judgment in any such action, litigation, or proceeding is conclusive and may be enforced

in other jurisdictions by suit on the judgment or in any other manner provided by law.

In this section, the parties confer personal

jurisdiction on the courts of Texas and agree

that the selected forum is the exclusive

forum for bringing any claims under (and

sometimes, more broadly relating to) the

agreement.

Parties should be aware that in contrast

to forum selection, venue selection, which

refers to the geographic location within the

form (often, the county, but sometimes, a

particular court) with the authority to hear

the case, is not enforceable in a private

contract in Texas unless otherwise provided

by statute (LiuV.CiCi Enters., LP, 2007 WL

43816, at *2 (Tex. App.—Houston Jan. 9,

2007, no pet.) (mem. op.)). For example,

parties may contractually agree to have the

case heard in a specific Texas county if the

suit arises from a “major transaction” (Tex.

Civ. Prac. & Rem. Code Ann.§15.020(b), (c)).

With certain exceptions, a major transaction

is a written agreement under which a

person pays or receives consideration

with an aggregate stated value of at least

$1 million (Tex. Civ. Prac. & Rem. Code

Ann.§15.020(a)). Best practice, however, is

to include the geographic location.

For more information on drafting and

negotiating choice of forum clauses,

including venue concerns unique to

Texas, see Standard Clauses, General

Contract Clauses: Choice of Forum (TX)

(W-000-0220) and Practice Notes, Choice

of Law and Choice of Forum: Key Issues

(7-509-6876) and Commencing a Lawsuit:

Initial Considerations (TX): Forum and

Venue Selection Clauses (W-005-5157).

To settle or avoid protracted forum selection

negotiations, the parties sometimes elect

to include a floating forum selection

clause that forces a party initiating

litigation to do so in the home jurisdiction

of the counterparty being sued. For a

sample floating forum selection clause,

see Standard Clauses, General Contract

Clauses: Choice of Forum (Floating:

Reciprocal) (TX) (W-000-0222).

If the parties prefer to resolve disputes by

arbitrating rather than litigating them, then

they must replace this provision with an

arbitration clause. For more information

on arbitration and other alternative dispute

resolution agreements, including sample

clauses, see:

 Practice Note, Drafting Arbitration

Agreements calling for Arbitration in the

US (2-500-4624).

 Practice Note, Standard recommended

arbitration clauses (1-381-8470).

 Standard Clauses, American Arbitration

Association (AAA)/International Centre

for Dispute Resolution (ICDR): Standard

Arbitration Clauses (3-520-8381).

 Drafting Contractual Dispute Provisions

Toolkit (TX) (W-007-8921).

This Standard Document does not contain

a dispute resolution escalation provision,

which is more commonly used in long-term

master service agreements. Escalation

provisions first require the parties to

resolve their disputes by alternative dispute

resolution (ADR), including a period of

negotiation and then mediation before

DRAFTING NOTE: CHOICE OF FORUM

Professional Services Agreement (TX)

17.14[Each party irrevocably and unconditionally waives any right it may have to a trial by jury

in respect of any legal action arising out of or relating to this Agreement or the transactions

contemplated hereby.]

submitting the dispute to litigation or ad

hoc arbitration. For more information on

drafting and negotiating escalation clauses,

see Standard Clauses, General Contract

Clauses, Alternative Dispute Resolution

(Multi-Tiered) (TX) (W-004-9900).

This provision is optional. It is included here

because many sophisticated parties prefer

that a judge hear and decide any dispute

arising out of the agreement, rather than

a jury of people who may not appreciate

and understand the potentially complex

issues involved in the litigation. For more

information, see Standard Clause, General

Contract Clauses: Waiver of Jury Trial (TX)

(W-000-0601).

In certain agreements, it may be important

to one party that the other party actually

perform its obligations or be enjoined from

taking certain actions, rather than simply

being liable for damages on default.

Money damages may not be an adequate

remedy or may be too difficult to calculate

for some types of breach. For example,

one party to the agreement may prefer

to prevent or mitigate a disclosure of

confidential information by the other party

in breach of such party’s confidentiality

obligations by means of an injunction,

rather than relying on damages for breach

of the agreement.

Absent a specific statutory right to the

contrary, the granting of equitable relief

is solely in the court’s discretion. Because

of this judicial discretion, an equitable

remedies clause cannot compel a court’s

decision, but should carry evidentiary weight

as an expression of the parties’ intentions.

It aims to persuade a court to exercise its

discretion in favor of the non-defaulting

party by granting an injunction or ordering

specific performance. Counsel should

ensure that this provision does not conflict

with any other section of the professional

services agreement (for example, certain

provisions may set out an exclusive remedy

for a specific type of breach).

DRAFTING NOTE: WAIVER OF JURY TRIAL

DRAFTING NOTE: EQUITABLE RELIEF

17.15Each party acknowledges that a breach by a party of Section 8 (Intellectual Property

Rights; Ownership), Section 9 (Confidentiality), Section 14 (Non-Solicitation), or the

non-compete portions of Section 15 (Non-Exclusivity; Non-Compete) may cause the non-

breaching party irreparable damages, for which an award of damages would not be adequate

compensation and agrees that, in the event of such breach or threatened breach, the non-

breaching party will be entitled to seek equitable relief, including a restraining order, injunctive

relief, specific performance, and any other relief that may be available from any court, in

addition to any other remedy to which the non-breaching party may be entitled at law or in

equity. Such remedies shall not be deemed to be exclusive but shall be in addition to all other

remedies available at law or in equity, subject to any express exclusions or limitations in this

Agreement to the contrary.

Professional Services Agreement (TX)

17.16[In the event that any action, suit, or other legal or administrative proceeding is instituted

or commenced by either party hereto against the other party arising out of [or related to] this

Agreement, the prevailing party shall be entitled to recover its [reasonable/actual] attorneys’

fees and court costs from the non-prevailing party.]

Section 17.16 is an optional provision

providing for the recovery of reasonable

attorneys’ fees and court costs from the

losing party in the event of a contract

dispute. In Texas, a person may recover

attorneys’ fees from an individual or entity

for breach of oral or written contracts (Tex.

Civ. Prac. & Rem. Code§§38.001 and

38.002). However, Chapter 38 of the Texas

Civil Practice and Remedies Code only

applies to individuals and corporations.

Chapter 38 does not apply to the recovery

of attorneys’ fees against a limited liability

company or other entity. Therefore, it is

important to expressly contract for the

recovery of legal fees, as this contractually

obligates the parties to cover attorneys’ fees

apart from Chapter 38.

While the US federal courts and courts in

most states routinely award the prevailing

party reimbursement of its costs:

 What constitutes costs varies by state and

generally does not include attorneys’ fees,

except under limited circumstances or as

detailed above.

 Attorneys’ fees are not recoverable unless:

z

an applicable statute provides for this

type of award (see example above); or

z

the parties contractually agree

otherwise.

Therefore, the parties should state the

prevailing party’s entitlement to an award of

attorneys’ fees and specify all reimbursable

costs in the contract. The parties may draft

the clause to specify the degree to which

the party seeking to recover litigation costs

and expenses must prevail. For example,

whether the party seeking to recover must

either:

 Prevail on all of its claims or just some

claims.

 Win the trial on the merits, rather than

settle its claims, even if the settlement

award is substantial.

If a clause or agreement does not define

the term “prevailing party,” Texas courts

generally must resort to the common

law in the absence of a statute providing

a definition. For more information, see

discussion about the degree to which a

party must prevail in Standard Clause,

General Contract Clauses: Litigation Costs

and Expenses (TX): Drafting Note: Drafting

the Litigation Costs and Expenses Provision

(W-000-0636).

Each party should consider the potential

advantages and disadvantages to it of

including this provision in the contract. If

the provision is included in the contract,

consider whether the recovery of attorneys’

fees and court costs by the prevailing party

should be carved out from the limitations

on a party’s liability in Section 12. Also

consider whether the prevailing party should

be entitled to the “actual” fees and costs

or only those fees and costs that the court

determines are “reasonable”.

For more information on attorneys’ fees and

court costs in Texas, see Standard Clause,

General Contract Clauses: Litigation Costs

and Expenses (TX) (W-000-0636).

For more information, see Practice Note,

Contracts: Equitable Remedies (0-519-3197)

and Standard Clauses:

 General Contract Clauses: Equitable

Remedies (TX) (W-001-4904).

 General Contract Clauses: No Equitable

Relief (5-519-3454).

DRAFTING NOTE: ATTORNEYS’ FEES

Professional Services Agreement (TX)

17.17This Agreement may be executed in counterparts, each of which shall be deemed an

original, but all of which together shall be deemed to be one and the same agreement. A

signed copy of this Agreement delivered by facsimile[, email or other means of electronic

transmission] shall be deemed to have the same legal effect as delivery of an original signed

copy of this Agreement.

For more information on counterparts,

see Standard Clauses, General Contract

Clauses: Counterparts (5-564-9425).

DRAFTING NOTE: COUNTERPARTS

IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be effective as of the

date first above written.

 [SERVICE PROVIDER NAME]

 By

Name:

Title:

 [CUSTOMER NAME]

 By

Name:

Title:

EXHIBITS

Professional Services Agreement (TX)

ABOUT PRACTICAL LAW

Practical Law provides legal know-how that gives lawyers a better starting

point. Our expert team of attorney editors creates and maintains thousands of

up-to-date, practical resources across all major practice areas. We go beyond

primary law and traditional legal research to give you the resources needed to

practice more efﬁciently, improve client service and add more value.

If you are not currently a subscriber, we invite you to take a trial of our online

services at legalsolutions.com/practical-law. For more information or to

schedule training, call 1-800-733-2889 or e-mail referenceattorneys@tr.com.

and Privacy Policy (https://a.next.westlaw.com/Privacy).

07-19

EXHIBIT A

[SERVICE PROVIDER PROPOSAL]

EXHIBIT B

[FORM OF STATEMENT OF WORK]

EXHIBIT C

[CUSTOMER’S TRAVEL AND EXPENSE POLICY]

Placeholders are included for the exhibits

referred to in this professional services

agreement.

DRAFTING NOTE: EXHIBITS