What’s In a Name: A Primer on Types of Agreements
Clients often ask me, “What is the proper name for my services agreement?” or “Why does this agreement say subscription agreement rather than license agreement like mine? We sell the same software.” The short answer, in typical attorney fashion is “it depends.” Below is a brief primer regarding the typical names and usages of different types of product and service agreements, particularly in the technology space, so you have a better understanding of what types of agreements you might need for your startup’s services and products; and what to expect from someone else.
The Basic Structure
There is not a one-size-fits-all or uniform approach to how a product or services agreement is structured. However, looked at in the aggregate, some basic trends emerge.
Most businesses structure their agreements for a particular service or product using:
- The Main Agreement: This covers most of the legal terms of engagement between the business and customer, such as: term, termination, indemnification, limitations on liability, choice of law, and general terms. Companies use different names for this agreement, including License Agreement, Master Services Agreement, Subscription Agreement, Consulting Agreement, Professional Services Agreement, or Reseller Agreement; and
- The “Attachments”: One or more attachments, which may be called Exhibits, Order Forms, Addendums, Statements of Work, Scopes of Work, or even simply be attached as the last page or first page to the main agreement, that describe the Services/Products being ordered.
What’s In a Name
Main agreement formats vary. However, they can broadly be separated into a few different categories:
License Agreement or Licensing Agreement
A license agreement is typically used for the purchase of software. In earlier years this usually included software that was purchased on a floppy disk or CD rom at the store. Now that same software is typically downloaded over the internet onto a computer. Importantly, license agreements are generally (but not always) used for software where the software resides or is downloaded onto a computer or phone in some format (e.g. an iPhone app, Microsoft Office [but not Microsoft Office 365]). The term “license agreement” usually does not apply to 100% web-based products/services (although some companies use the term this way).
The term subscription agreement developed out of the explosion of purely web-based or internet-based products and services. Unlike traditional “software,” most subscription products/services do not include a download or other application that resides on a user’s computer. Rather, the user typically uses a username and password to access the product/service via the internet, website, or something similar. Most products/services in this category are described as “software as a service” or “SaaS,” where the product is centrally hosted and made available to users via the “cloud” or web. Often the SaaS product is bundled with support and update services.
Consulting Agreement or Professional Services Agreement
Consulting Agreements or Professional Services Agreements are most often used by businesses purely providing services (not goods/hardware/products), often on an hourly or fixed fee basis. You may see these types of agreement used by software developers, IT providers, CPAs, OSHA and compliance specialists, etc.…
Master Services Agreement or Simply Services Agreement
This is a common agreement name and format used by service providers who offer several types of services/products (not just one). This includes Managed Service Providers (MSPs). MSPs are companies that, typically for a fixed monthly fee, provide a set of IT support, maintenance, backup and similar services, usually for another business. For example, Vela Wood may hire a MSP to provide support, patches/updates, monitoring, and some other types of software licenses for its attorneys/staff, all for a fixed monthly fee.
Some software providers choose to separately cover support services in a separate agreement from the software. This is becoming less common.
A reseller is a business that for a separate fee helps a business offering software/subscription services to sell their product more widely to customers/clients. The reseller sells the software/subscription, may provide first-level support to end clients/customers, may handle billing and collection of fees from the end customer, and may or may not contract directly with the customer for the final services. The reseller receives a percentage or amount of the fees for the products/services sold to end customers/clients.
Similar to a reseller agreement, but typically where a business only refers clients to another business, but provides no training, support, or other ongoing services to the end customer as part of the offering.
Independent Contractor Agreement
A type of “catch all” agreement used by some companies and individuals providing services. Called an “independent contractor” agreement because the individual (or business) providing services is an independent contractor who receives a Form 1099, not an employee of the other business. You may also hear this agreement referred to as a “Contractor Agreement” or “Subcontractor Agreement,” particularly for larger projects or in the construction trade.
Companies use various names to refer to attachments to the Main Agreement. These include Exhibits, Addendums, Appendices, Statements of Work, Scopes of Work, Order Forms, Purchase Orders, or simply Attachments. The Attachments to the Main Agreement generally do one or more of three different things:
- Service Specific Terms: The Attachment may contain terms and conditions specific to a particular product, service, or project. For example, a Consulting Agreement may have a specific Scope of Work for a Sales Force implementation project. This type of attachment may include pricing specific to the service as well.
- Payment Terms and Pricing: Another type of attachment includes the pricing for the services being purchased, including quantities, users, and brief service descriptions. Payment timing and terms may also be included.
- Specialized Addendums and Terms: Sometimes the Attachments are used for terms specific to an industry or client, for example, a Business Associate Agreement (healthcare clients), PCI Compliance Addendum (where the services involve access to credit card data or processing), or Data Privacy Addendum (security sensitive clients and industries).
I hope the above has been helpful in identifying some of the types of agreements a startup may need or run into from other service providers in the course of its business. I also encourage you to review the VW Understanding Basic Contracts Series for helpful tips about understanding the key provisions in a service agreement.