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December 26, 2011

RSA (Retained Services Agreement)

Over the years I've blogged extensively about Master Service Agreements (known as MSA documents) and I even sell them via this blog. MSAs are a useful tool for consultants wanting to contract individual chunks of work as separate statements of work (via SOW addendums to the MSA). Those SOWs can specify either hourly or deliverable-based pricing.

MSAs are by no means the end-all, be-all of consulting contracts. In fact, if you have the reputation and marketing saavy to get away with using it, I think you should consider instead relying on a Retained Services Agreement or RSA.

The RSA is different from its cousin the MSA in several ways:

  • You only need to execute it once, there are no SOW addendums.
  • It specifies a monthly retainer that is paid upfront, every month
  • It can easily specify an irrevocable minimum contract length
  • It can easily mandate a minimum written notice of termination

Since you're always paid up-front with an RSA, it's significantly easier to pause work on late payment, which is one of the best, if not the absolute most effective way of making sure that you always get paid for your hard work.

Charging an upfront monthly retainer is an interesting adventure if you're accustomed to billing on an hourly basis. It's also a potential sticking point in client negotiations. In essence, an RSA establishes a minimum spend per month, which is always billed no matter how much work is performed. You can optionally establish that the monthly fee is calculated as a block of hours at an hourly rate, which would allow you to bill for overtime, but many people only specify a monthly rate that is not subject to pro-rating. That takes serious courage.

Use of an RSA is not for the faint of heart. You must be confident that you will be able to deliver results that the client wants on a consistent basis. You must be very communicative about the work that you're doing. Most importantly, you must know that you will be able to allot the minimum number of hours committed to that client to them on a monthly basis without stretching yourself too thin. Otherwise, you may be faced with a client that is demanding to see time logs and explanations of where their money went.

Personally, I use an RSA for my consulting contracts nowadays instead of a MSA. As an entrepreneur and independent consultant that's really short on time, I can't afford to constantly renegotiate terms or be chasing after late payments.

Have you signed an RSA before? As a service provider or a client? What is your opinion of RSAs versus MSAs, engagement letters or one-off contracts? Please let me know in the comments.

Buy my proven RSA template bundle here for only $99

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