What exactly is a Statement of Work?
A Statement of Work, or SOW, is essentially a description of the work to be done under a master agreement. An SOW is seldom a one-size-fits-all agreement and must be adapted to the parties’ interests as well as the work or services being provided.
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What Is the Importance of a Statement of Work?
An SOW is crucial because it outlines and explains all of the particular work or services that will be done under a master agreement. An SOW is often a negotiated agreement that contains specifics on performance, work standards, timelines, and deliverables and gives vital information to people conducting the job.
What Does a SOW Contain?
An SOW will contain any or all of the following (among other things):
Scope of Work: An outline of the work or services to be undertaken.
Thorough service description: A detailed explanation of the labour or services to be done.
Unique needs: A description of the specific needs and tasks. This might also mention individual persons and their roles in the effort. If the task is to be completed over a longer period of time, it is often typical to divide it into stages.
Term of the SOW: A provision that states how long the work or services will be done.
A description of the location where the work or services will be conducted.
Timelines: A full summary of the project’s chronology (s).
Deadlines: A clear and precise provision that specifies all project deadlines.
Deliverables: A clause that lists and defines all of the individual deliverables that must be fulfilled under the SOW.
Assumptions: It is typical to see an assumption section in a SOW that specifies the assumptions both parties agree to in order for the work to be completed.
Extra or Unique Requirements: Include any additional or special requirements relevant to the work being executed under the SOW.
Precedent Clause: If there are any clauses that may clash with the master agreement, make sure there is a precedence clause that specifies the order of priority for the agreement and the SOW.
Signature Block: Though not necessarily required, it is a good idea to include a signature block that documents that the parties’ authorised representatives consented to and signed the SOW.
What Should You Keep an Eye Out For?
Even though a SOW is often a negotiated document and most people see it as a less legal working plan, there are several phrases that should be carefully scrutinised. Even though a SOW should detail the particular job, additional legal provisions that end up clashing with the master agreement and possibly increasing a party’s risk may occasionally make their way into the SOW. Some of the things to keep an eye out for are:
Acceptance Language: Keep an eye out for new or changed acceptance words in a SOW. Acceptance criteria, including any acceptance period, must be understood, as well as how they may effect payment, revenue recognition, warranties, and responsibility.
Payment Terms: Be wary of any payment conditions that deviate from the terms specified in a master agreement.
Ownership of Intellectual Property (“IP”): IP ownership rights are often addressed under a master agreement. Be wary of any clause that specifies who owns deliverables, particularly if it differs from the master agreement.
Indemnity Clauses: Indemnity is often addressed in a master agreement as well. If an indemnification provision exists in a SOW, it should be carefully reviewed.
Limitation of Liability Clauses: Limitation of Liability clauses are also often seen in master agreements. Any provision in a SOW that restricts or increases responsibility, or provides additional exclusions to a limitation of liability clause, should be avoided.
An SOW is an essential component of every commercial engagement. The project will be in excellent condition if all details are properly prepared and the terms included in the SOW are suitable.