By: Maks Ewendt
Despite your best efforts to draft a perfect Master Services Agreement (“MSA”) and Statement of Work (“SOW”), business happens and the scope of your SOW may need to be modified to account for those changes. An “amendment” seems to have become the colloquial one-size fits all nomenclature for adjusting a contract. While an amendment may be the appropriate vehicle to modify the MSA itself, we encourage you to lean on a Change Order to modify most aspects of an executed SOW.
Amendments work great to change the legal terms of an agreement to reflect how the agreement should read if it’s referred to down the road. The Notice clause of an agreement is an easy example of when an amendment is the best tool to use. If a party to the agreement moves their office to a new location where notices should be sent moving forward, the parties can agree to amend the agreement in writing to reflect that change, and moving forward, the new Notice clause will be the binding term between the parties. We consider that a “static” clause since its use can be pinpointed to the time it’s referred.
However, since SOWs are primarily used to capture the business terms of a Services Agreement, their terms are often dynamic throughout the life of the SOW. The status of the services, timeline, and fees of the engagement will be different at various stages of the SOW. Those variations make it difficult to capture updated service requirements, timelines, and fees in an amendment. That being the case, a simple Change Order that focuses only on the business terms of the SOW is a more efficient and effective vehicle to accomplish these goals.
The rubber really meets the road when amending an SOW requires changing the tasks in a scope of work and/or a payment schedule that has already begun. When parties amend an SOW during its performance and drop in an updated scope of work or payment schedule, it muddies the water as to what happened or didn’t happen prior to the execution of the amendment. If one year into a two-year SOW the parties amend the scope to include additional tasks with a higher monthly fee, and at the end of the SOW the parties want to audit the services performed and the amounts paid, it will be difficult to use the terms of the amended SOW to do so.
A Change Order, on the other hand, allows the parties to retain the pertinent details of the existing SOW up until the time of the execution of the Change Order, and captures only the changes to account for moving forward. It will show that after the effective date, the applicable services, timeline, and fees have changed, but, more importantly, it will memorialize that everything prior to the effective date was done as it should have been. A well written Change Order will clearly state what is changing moving forward and how it will impact the details of the entire project.
For example, if an SOW for a software development project initially includes (i) 3 modules (ii) to be completed in 6 months (iii) for a total of $100,00, and the parties to agree to add another module to the project that will increase the timeline and fees, the Change Order would include that (i) one additional module is being added (ii) which needs another 2 months to complete and (iii) $30,000 in additional fees. You can then recap the impact that those changes have on the total project (4 modules, 8 months, $130,000). The key difference is that it specifies when the adjustments were made rather than simply amending the initial details with the latest proposal. This concept becomes even more imperative if there are subsequent changes to the project and the parties want to go back and confirm what and when tasks were completed and payments were made.
While most of the changes to a SOW are business related, there are a few key legal implications as well. Keep in mind that new services may include different deliverables that should be treated differently when it comes to intellectual property rights. Additionally, some terms of the MSA may refer to and incorporate the duration and value of the applicable SOW. These can include confidentiality obligations, insurance requirements, and liability caps. It’s important to think through these possible implications and determine if any other actions would be prudent, or if it’s better to accomplish your goals with an additional SOW rather than a Change Order.
Similar to a Services Agreement requiring less scrutiny for approval than a Master Services Agreement, a Change Order may be easier to get approved and signed than an Amendment since it should be limited to business terms. Asking for an Amendment to be signed may trigger approval requirements, including by those pesky attorneys, when it’s not necessary.
Next time you need to change the terms of an SOW (or Task Order, Order Form, etc.), ask yourself if the changes are limited to the services, timeline, or fees of the project. If so, then a Change Order may be the most effective instrument to use rather than an Amendment, while also reducing some of the friction you may encounter in getting it signed.
Picture on the top is by Leeloo The First and is in the public domain.
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