The ultimate guide to SOWs - everything you need to know (including a lawyer-drafted SOW template)

The statement of work (SOW for short) plays a pivotal role in shaping project outcomes, but what exactly is a SOW, and how does it fit into the larger legal framework of project work? In this guide, our legal experts break down the concept of a SOW, explore real-life SOW use scenarios, highlight its benefits, and divulge their top tips for using SOWs effectively in practice to streamline your contracting process.

What is a SOW?

A SOW is an agreement between two parties that outlines the commercial details of a specific project, setting out the scope of work, specifying how, when and where the project will be completed. It is an essential component of the legal framework for project or transaction, alongside a master services agreement (MSA), which governs the overall relationship between the parties involved.

While the MSA sets out the broader terms and conditions between the parties, a SOW serves as an addendum that provides project-specific information. It provides each party with a project roadmap, defining the project scope, parties’ objectives, any deliverables, the relevant timeline and any other important details required for the successful completion of the project. In other words, the SOW fleshes out the commercial details that the legal terms of the MSA do not explicitly cover. For a deeper dive into the contents of the legal terms that are typically included in the MSA, check out this guide.

Together, the MSA and SOW create a full legal framework that minimises ambiguity, clarifies responsibilities, and reduces the risk of disputes by providing a clear understanding of what is expected by all parties involved.

If you want to delve deeper into how SOWs and MSAs work together, and the key differences between both, check out this guide.

When would you use a SOW?

Where it is likely that two parties will be working together on multiple occasions, using a master agreement setting out the legal terms and SOWs to outline the commercial terms removes the need to renegotiate the legal terms for every new project. It can provide significant value for companies aiming to optimise their resources, while mitigating the risks of uncertainty with clearly defined expectations from the outset.

Typically, the terms of the master agreement will be agreed upon at the very beginning of a relationship where it is likely that there will be multiple projects or transactions between the parties. Once the legal framework has been agreed; this is where the SOW comes in.

Real-life examples where a SOW could be used

Here are some examples of where an MSA and SOW may be used together in practice:

IT service provider and client relationship

MSA: The MSA could outline the general legal terms of the ongoing relationship between the technology services provider and their client. It might cover important issues such as liability, warranties, confidentiality and intellectual property rights. For more information about protecting our intellectual property in an MSA, read our checklist.

SOW: Once the MSA is agreed, each project or transaction within the broader relationship should have its own SOW. This document would detail the specific scope of work, deliverables, timelines, a breakdown of costs, and any other project-specific terms. This way, the MSA provides the overarching legal framework, while the SOW focuses on the specifics of each project.

Marketing agency and client relationship

MSA: The MSA might establish the overall terms and conditions for a marketing agency's services to a corporate client. This could include payment terms, limitations of liability, confidentiality, and the general responsibilities of each party.

SOW: For each marketing campaign or initiative, a separate SOW could be used to outline the project's objectives, specific deliverables, budget, and timeline. This allows the parties to maintain a consistent working relationship while accommodating the unique requirements of individual projects.

Consulting company and client relationship

MSA: A company that provides consulting services might use an MSA if they intend to provide several services to their client. The MSA could outline the terms of their business relationship, such as the length of the agreement, payment terms, and non-compete clauses.

SOW: For each consulting engagement, a separate SOW will be agreed. This document would define the specific objectives of the consulting assignment, the services to be provided, resources required and applicable fees, the project timeline, and any success criteria. The MSA provides the legal framework, and the SOW adds project-specific details.

To find out more about master services agreements and the crucial elements to include for a comprehensive legal framework, check out this blog.

Benefits of using a SOW

Using a SOW together with an MSA offers several significant benefits for businesses that engage in multiple projects with another party, such as:

Speed

Using a SOW to formalise a project where you have an MSA in place is a game-changer for streamlining your contract process. The MSA serves as the framework for all future projects, which means only a SOW will be necessary to agree to the commercial terms to start each new project. You can jump straight into finalising the exciting project details without rehashing the legal terms again. Using a SOW is like having a shortcut to kick off each project quickly!

Clarity and alignment

While the MSA sets out the more generic terms of the business relationship, the SOW sets out the minute details of each project. The SOW gives you a chance to clarify exactly what you will be doing, when you will be doing it, and any important details that you want your clients to remember.

By clearly defining the project's scope, objectives, deliverables, and timeline, a SOW ensures alignment between all parties involved. This reduces misunderstandings and sets the stage for a shared understanding of expectations.

Mitigate risk

Having a well-crafted SOW in place can ensure that you know exactly what resources will be needed to complete a specific project efficiently and how long these resources will need to be assigned to it. This will help you budget accurately and reduce the risk of reallocating resources while the project is underway.

The SOW can also include "special terms" agreed with your client that will vary from the terms of the MSA in the event of a conflict. For example, if you need to source materials or services from a third party, which will be used as part of the services, and that third party has shorter payment terms than you have agreed with your client in the MSA, the SOW can modify the terms of the MSA to ensure that these payment terms are flowed down to your client. It's important that your MSA explicitly states which document's terms will take precedence in the event of a conflict.

Efficient project management

Outlining the details of a project in a SOW encourages effective communication and collaboration by providing a documented reference for all project-related discussions. It serves as a roadmap for the project, facilitating regular meetings and progress tracking to manage the project efficiently. It can also include tangible outcomes or agreed-upon metrics that make it easier for the parties to measure the supplier's performance of the services.

Portrays professionalism

When you present a comprehensive SOW encompassing all of the agreed service details to your clients, you're not just outlining a plan; you're making a statement: "We operate with precision, and your project is our top priority." This looks professional, organised and leaves a lasting impression, instilling confidence in your client that they are in capable hands. By showcasing your commitment to organisation and diligence, the SOW becomes a powerful tool to bolster your professional image and reputation with your clients.

In summary, the implementation of a robust SOW not only streamlines project resource planning and budgeting but also serves as a vital tool for risk mitigation. This is especially crucial when engaging in multiple projects with a client, ensuring that potential conflicts and uncertainties are effectively addressed at the outset.

Important terms to include in a SOW

A robust SOW should include the following terms:

Scope of work/services

Defining the scope of work is fundamental to any SOW. This section should clearly describe what services or products will be provided and how they are going to be provided. The level of detail included in the SOW will set expectations and give assurances to the client about what exactly will be delivered on completion.

Deliverables

What are the tangible outcomes or deliverables of the project? These should be set out in the SOW to ensure that the client knows exactly what they will be receiving.

For example, if the service provider is a graphic designer who has been engaged by a client to create a new brand identity for their company. In this case, the deliverables could be the specific branding and design assets, such as the logo, brand guidelines, website graphics and copy created specifically for the client.

Setting out clear deliverables and any specific milestones that must be achieved ensures that everyone is on the same page regarding what constitutes a successful project completion.

Assumptions/dependencies

When planning a project, the service provider makes certain assumptions that it believes to be true to ensure the successful completion of services. For instance, if the provider is delivering software to a client, an assumption might be that the client possesses the necessary infrastructure that is compatible with the software.

Your SOW should highlight any assumptions made during project planning and identify dependencies that are crucial to project success. Recognising these factors upfront helps in risk mitigation and ensures a smoother project flow.

Location of work

Do you plan on performing the services at a specific location? If so, clearly outline where the work will be performed. Whether it's on-site, off-site, or a combination, defining the work location is crucial for logistical coordination between the parties.

Payment terms and schedule

While the MSA sets out general payment terms, the SOW sets out the specific financial aspects of the project. it's crucial to be crystal clear about money matters. It’s important to set out the applicable fees and a breakdown of each cost (if applicable). Alternatively, if the cost of the services will be priced on a time and materials basis, include a list of the applicable hourly/daily rates charged by the service provider and materials fees.

If the client will pay according to a specific payment schedule or upon completion of a deliverable or project milestone, then the relevant date or outcome should be listed, along with the fee required upon achieving this.

Acceptance criteria

It’s important to set clear acceptance criteria for specific deliverables. Project acceptance criteria are performance requirements and essential conditions that must be fulfilled before project deliverables are considered to be “accepted” by the client. These criteria define the particular circumstances under which the client will give approval to the final project output. This section ensures that both parties are aligned on the quality standards expected for project completion, reducing the likelihood of disputes over the final outcome of the services.

If you're keen to find out more about acceptance criteria, our legal experts have answered the most frequently asked questions here.

Relevant contact details

Effective communication is fundamental when it comes to project work. For this reason, the statement of work should identify key project managers from both parties and establish the frequency and format of project meetings. Clear communication channels and regular updates contribute to project transparency and success.

Termination clause

No one starts a project with bad intentions, but it's essential to insert a clearly defined exit strategy in case things don’t go to plan. Define the conditions under which either party can terminate the SoW and the process for doing so. This section provides a safeguard in case unforeseen circumstances arise.

Tips for best practice when using a SOW

To make the most of your SOWs, consider these best practices the next time you're about to finalise the details of an exciting new project:

Clarity is key

Clearly define the project's scope, objectives, timeline, deliverables, resources, and any other relevant details comprehensively. Make it explicit what is included and what is not.

​​Incorporate the terms of the MSA

Each SOW should reference the MSA, ensuring that the terms and conditions of the broader agreement are incorporated. This is key, as it ensures that your legal framework created by the MSA and supplementary SOW is effective! It's also crucial to ensure that your MSA clarifies which document will take precedence in the event of a conflict.

Ensure both parties sign

Ensure that both parties review and sign the SOW to indicate their agreement and understanding of its terms. This step is essential for demonstrating acceptance of the terms and ensuring that each party is aligned on expectations from the outset.

In addition to these 3 very important points to consider when using your SOW, our legal experts have created a more in-depth guide with their most valuable tips for creating the perfect SOW.

Why choose Docue to create your own SOW?

Simplicity: Docue offers an intuitive and user-friendly interface, making it easy for you to a create high-quality SOW that looks professional and safeguards your interests. Say goodbye to complex, fragmented contract processes and hello to an efficient contract creation and management system.

Secure: Once you've customised the SOW template to fit your business and project needs, you can safely send it to your clients via the platform for e-signature. With Docue's robust security measures, you can rest assured that your contracts are protected throughout the signing process. Additionally, the platform provides a storage vault, ensuring quick and easy access to your documents whenever you need them.

Organisation: With Docue, you'll never miss a contract renewal deadline again. The platform offers convenient reminders that keep you informed of upcoming deadlines, ensuring that you stay on top of your contractual obligations. Docue alleviates the stress of tracking and managing contract renewals manually, so you can focus on more exciting parts of your business operations!

Sign up now to use Docue's SOW template.