Why do You Need to Create a Statement of Work?
You’ve just landed a new client contract. You talked about their goals, you shook hands, you signed a master services agreement, and you’re both ready to go. Time to get to work, right?
Not so fast.
Parties to an agreement need a way to ensure that all parties are on the same page when it comes to specific action items and deliverables. Who is responsible for what? What’s the anticipated timeline for completion of the work? How will the parties know when the work is done, and when does the buyer have to pay?
This is where a statement of work (SOW) comes in handy.
An SOW is a document that outlines the terms and conditions of a particular project or service. Parties usually prepare an SOW as a supporting document alongside a master services agreement. The SOW documents exactly what the vendor must do, thereby reducing the chances of miscommunication between the parties before the work begins.
What to Include When Writing a Statement of Work?
The SOW keeps business deals running smoothly by explicitly defining what is and is not expected of the vendor. These details make it clear when the vendor has fulfilled its end of the bargain and earned the compensation agreed upon in the contract. Accordingly, the key terms to include in an SOW center on defining essential project parameters.
Deliverables
These are the specific products or services that the vendor must deliver to the buyer. If the contract is for a one-time engagement, the SOW should precisely quantify what the vendor must deliver. +Conversely, if the engagement is ongoing, then the parties might find it more practical to define what the deliverables are without forcing either party to produce or buy a particular volume in the future. Defining precise target outcomes in this way makes it easier for the parties to agree when the vendor has satisfied its contractual obligations and is entitled to payment.
Scope of Work
The SOW should describe the project’s purpose and measurable goals, the different tasks that the vendor will undertake in order to provide the agreed-upon products or services, any key or unusual requirements the buyer has, and any resources the vendor knows in advance that it will need in order to complete the work.
Defining the project’s scope enables both parties to agree up front about what the vendor is actually supposed to do. Together, the deliverables and the scope define both the nature of the work (what are we supposed to do?) and the extent of the work (how much of it are we supposed to do?).
Cost Parameters / Payment Terms
The SOW must detail the compensation the vendor will earn by completing the work. If there are multiple types of deliverables, or several parts to the project, then the document can clarify whether there are different costs for separate components.
It can also establish how much payment the vendor will have earned for partial work, helping to prevent disputes if either party terminates the contract before the vendor has completed some part of the project. In addition, if the parties to the contract intend to split the costs of any required resources, then the SOW should specify which party is expected to pay for each item, or the proportion of an item’s cost that each party must cover.
Timeline
Including a timeline (due dates) in the SOW ensures that all parties are on the same page with respect to the timing both of the vendor’s work, and of the buyer’s payments. The SOW should outline project milestones and target dates for the provision of deliverables and compensation, barring unforeseen circumstances.
If the deliverables cannot be divided into discrete components, then milestones might instead relate to the proportion of the total work that has been completed. Agreeing to a timeline up front helps to ensure that each party can prepare adequately to fulfill its side of the bargain, and can seek appropriate compensation and/or opt out of the agreement going forward if the other party fails to deliver in a reasonable amount of time.
Governance and Quality Standards
It’s important that the parties agree on what they consider acceptable quality standards. If the client is unhappy with some aspect of the vendor’s work, the parties could find themselves disputing whether the work has really been done.
Outlining precise expectations for quality can help to avert this type of conflict following completion of the project. In addition, it’s important to note who has the authority to approve things such as finished deliverables and changes in cost or schedule.
What Else Should You Keep in Mind?
Here are some helpful tips to ensure that your SOWs add value to the negotiation process:
Try to avoid being either too general or too precise. The SOW should provide as much detail as necessary for the parties to agree on the project’s scope and deliverables, get the job done, and remit payment for completed work. If you include more detail than necessary, you might commit the buyer, the vendor, or both to obligations that don’t serve them well by the time the project is done.
Conversely, if you fail to include sufficient detail before the work begins, then you leave the door open for more contentious disputes down the road if it turns out that different parties had divergent expectations.
Standardize your SOW format. By standardizing the format you adopt for SOWs, just as you would your contract clauses, you make it easier for both parties to find and understand all of the information they need. It’s a good idea to use a contract intelligence platform to create a consistent, but flexible, statement of work template.
What you need in an SOW will depend on the unique needs of your business and the deal at hand. As a result, there is no perfect, “one size fits all” template.
However, keeping in mind some best practices for creating SOWs can take a lot of the headache out of figuring what to include and how to structure the document. Click here to learn how Evisort can help you quickly create templates for your SOWs!