By: Maks Ewendt
You’ve signed a Services Agreement (yay!), either on a Master or individual level, but just when you think the hard work is over, it’s time to fill out that darn Statement of Work (SOW) template that’s been lurking, blankly staring at you from the end of the Agreement. As discussed previously in What Would You Say A Master X Agreement Really Does Here, all of the important and extremely interesting legal terms have been compiled and dealt with in the (Master) Services Agreement, so now it’s time to get down to the business.
A lot of businesses struggle with how to capture the business terms in an effective way, and that’s because it’s not easy to do. Fourscore always tells clients that SOWs are more of an art than a science, and, unfortunately, all the legalese we have won’t help much. The only items that have to be in the SOW are the ones, if any, that the Services Agreement punted to the SOW. Services Agreements remove the business terms to an SOW for several reasons, most commonly to create the “Master” agreement that enables multiple projects spawning from the same agreement or to incorporate a client-friendly document that presents only the business details. That being the case, the most common terms that get pushed out to an SOW are the Services, the Timeline, and the Money.
I’m going to dive into some of the specifics below, but the theme throughout is “Art, not Science.” Somewhere between a handshake and 40 pages of details is a reasonable middle ground of business expectations. The customer wants, and has a right, to know what they’re paying for, and the service provider, understandably, doesn’t want to paint themselves into a corner that causes them to over-extend.
Timeline
The timeline for the project is probably the most straightforward, with the exception of the Marvel ability to have both a Services Agreement timeline and an SOW timeline. The Services Agreement will have its own term within which the terms (lawyers need more words in our vocabulary) and obligations apply. Usually that’s referred to as the defined term, Term (point in case). Within that Term, the SOW can have its own timeline or schedule for that specific project. The Services Agreement may be effective as of January 1, but the project work isn’t anticipated to start until February 1. The Master Services Agreement may be active for 3 years, but the first project should only last 6 months.
Art, not science. Like anything else in an agreement, the parties can mutually agree to amend the timeline if things change or the project goes sideways, but that requires mutual agreement. Additionally, by the time a project gets to the point the timeline needs to be amended, there’s likely some strain on the business relationship and that mutual agreement may not be as easy to obtain as it is in the beginning. That being the case, you should consider building in buffer periods (if the project should take 8 weeks, make it 10), establishing timelines based on milestone events taking place if a related action is out of the service providers hands (the Service Provider has 4 weeks after the delivery of goods to complete their work), and building in automatic “if-then” scenarios (if a third party is completed with their role by February 15th, then the timeline is extended to March 31). Also, leveraging Change Orders during an SOW is a great way to limit scope creep while accounting for any changes to the timeline as the project morphs along the way. The Service Provider may be willing to adjust the services at no additional cost, but those can add up, so let’s go ahead and document the $0 change request and think about if more time is needed for the overall project.
Money
Now we have your attention. Your Services Agreement likely just says “Client will pay the Fees as included in the SOW.” That blank slate is the double-edged sword of being able to include any kind of fee structure you want. Hourly, flat fee, time and materials, milestones, tiers; all options are on the table. We won’t advise clients on how much they should be paid, we just want to make sure they get paid. One of the most common payment issues is when a client gets their first bill, or the first charge of a certain fee, and it’s not what they expected.
Art, not Science. The simplest way to account for fees is to have just one fee, but that’s not always practicable. If the fee is an hourly rate, is it the same fee for everyone the client may work with? If the fee is a flat fee, what, if anything, may result in an additional charge? If it’s possible that travel may be required, is that already included in the fee or will it need to be figured out down the road? Fourscore strongly encourages Service Providers to capture and discuss all possible fees with clients when executing the Services Agreement and any new SOW. And for the clients out there… if the SOW seems that it may permit some hidden fees, go ahead and ask those questions about how travel and overages are paid for, and if there are any other fees that may show up on an invoice.
Services
I saved the hardest for the last. What does the Service Provider expect to do for the amount of fees they’re charging? What does the client expect in return for the money they’re paying? Before we get into what to include in the SOW, let’s shine the light on what’s not in the SOW, and that’s everything that the parties discussed prior to signing the contract. Services Agreements (should) include an Entire Agreement clause that says only the terms and obligations in the Services Agreement matter now, and that any previous agreements, discussions, presentations, etc. are not a part of the Services Agreement. That means that any sales pitch or marketing materials that describe the details of services won’t be enforceable.
For example, a Client may engage a Service Provider to build a website for them. Prior to the agreement, the parties discuss the other websites that the Service Provider has built and details about them, and the client says that sounds like what they want. If the SOW only says “Services – Build a Website,” then as long as the Service Provider does, in fact, build a website, then they can argue they completed the services. Similarly, a client may engage a business development firm to do some prospecting and produce customer leads. During their own sales process, the Service Provider may show a pitch deck that says their reps reach out to 60 prospects a day and that results in 5 quality referrals a week. However, if the SOW only says “Services – Provide prospecting activities,” then as long as the Service Provider does, in fact, conduct prospecting activities, then they can argue they completed the services.
Art, not Science. Fourscore often gives our clients those examples and advises them that the SOW should include any details that the client wants to point to and say “You were supposed to do this.” Likewise, the Service Provider should include the service details that they want to point to and say “We were only supposed to do this.” For the website developer? Think about the number of pages the website should include, if and how much rich media should be included, what platform the website should be built on. For the biz dev firm? Think about the measurable data points or results that the parties are comfortable committing to. Clients ask a lot about what “material” means in a contract, and this is a good way to learn. Any detail about the project that would entice you to, or prevent you from, entering in the agreement is a “material” one, and those should go into the SOW. A client probably would sign the contract regardless of whether the total words on the website was 2,000 or 2,200, so there’s no need to worry about that. A client probably wouldn’t sign the contract if they knew their website would have less than 3 landing pages and was text only, so those details should make the SOW.
Additional Terms
One additional concept to consider in the SOW is if there are additional terms that apply just to that SOW, and therefore either aren’t in the MSA or need to supersede the terms in the MSA. The MSA may establish NET 30 payment terms, but for this one project, the client needs to pay NET 45 and the Service Provider is okay with that for this limited project. Your SOW should include a section for additional terms and, depending on the terms of the MSA, specifically call out that the NET 30 term doesn’t apply and it’s NET 45 instead. Examples of other additional terms can include passthrough third-party terms if they’re limited to just one project, specific insurance requirements for a particular project type, IP ownership terms that may be different for a certain kind of work product.
Art, not Science. These actually lean a bit more towards science since they’re back to being legal terms that only apply to this limited project. However, always ask yourself if the terms truly only does, or should, apply to the one SOW or if it should really live in the Services Agreement. If it will apply to all SOWs the same, then let’s knock it out in the Services Agreement so we can get it approved just the one time, and not risk having conflicting terms among agreements. Publicity is a term that I’ve seen on the SOW level, e.g. whether or under what terms the Service Provider can publicize that it works with the client. Unless that publicity may be different from project to project, it should live in Services Agreement so the Service Provider doesn’t end up with 3 SOWs, each with different publicity terms, and no idea how or if they can say they work with the client.
In short, an SOW should always state what the Services Agreement says it states, such as the Services, the Timeline, and the Fees, in addition to those additional terms that may apply to just the SOW. The level of detail for each of those is the art, not science, of making sure the agreement is as enforceable as you want it to be, while providing as much flexibility as the parties allow.
Picture on the top is by Andrea Piacquadio and is in the public domain.
Headquartered in the Research Triangle region of North Carolina, Fourscore Business Law serves entrepreneurs and businesses in the Triangle, throughout the Southeast and in Silicon Valley / San Francisco. We also represent venture capital funds and other investors who invest in companies throughout the U.S. The idea of delivering maximum impact in a simple and succinct manner is what we’re calling the Fourscore Principle. And that is what Fourscore Business Law is based on. Our clients operate in a broad range of industries including tech, IoT, consumer products, B2B services and more. Questions? Shoot us an email or give us a call at (919) 307-5356. Your first call is on us.
