Difference Between a Professional Services Agreement and Subcontract

There may be times when it is more appropriate to pay another institution/organization via a professional services agreement, rather than a subcontract. If the former situation applies, the institution/organization is called a vendor. In your budget and budget justification, list this payment under Other Direct Costs rather than on the line for subcontracts.

What is the definition of a professional service?

Professional services can be defined as unique, technical, and/or infrequent functions performed by an independent contractor/vendor qualified by education, experience, and/or technical ability to provide services.

  • In most cases, these services are of a specific project nature, and are not a continuing, ongoing responsibility of the institution.
  • The services rendered are predominately intellectual in character, even though the contractor may not be required to be licensed. 
  • Examples of professional services typically utilized include laboratory analyses, project/program evaluation, marketing analysis, auditing, statistical analysis, translation services, website and software development/design, and editing services. 

Subcontractor vs. Vendor

An organization is considered to be a subrecipient of an award (or subcontractor) when it:

  • Determines who is eligible to receive financial assistance;
  • Has its performance measured against whether the objectives of the program are met;
  • Has responsibility for programmatic decision-making; 
  • Has responsibility for adherence to applicable program compliance requirements;
  • Uses the funds to carry out a program of the organization as compared to providing goods or services for a program of the pass-through entity.

In contrast, an organization is considered a vendor when it: 

  • Provides goods and services within normal business operations;
  • Provides similar goods and services to many different purchasers;
  • Operates in a competitive environment;
  • Provides goods or services that are ancillary to the operation of the program; 
  • Is not subject to compliance requirements of the program.