Explaining Service of Work Agreements and How to Write Them

Explaining Service of Work Agreements and How to Write Them

Written By
Joy Cunanan
Updated on
July 26, 2022
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minutes

No matter what industry you’re in, the constant thing you’ll always encounter throughout a project’s life cycle involves contracts and agreements. There are plenty of these documents that companies constantly have to create, approve, file, and archive. While these project management agreements are important, the statement of work is easily one of the key documents because it’s required at the outset of each project, outlining everything that needs to go into your business project.

A Statement of Work (SOW) is an important part of both project and contract management as it helps guarantee that the work for a project will be done according to certain guidelines and expectations. 

Mastering the creation of an SOW will set you up to successfully lead a project to the very end while still remaining within budget. In this article, we’ll go through what an SOW is, why it is commonly used, and how to effectively draft one.

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Statement of Work Defined

A Statement of Work, often known as an SOW, outlines deliverables and project goals between two parties. These parties could be clients, buyers, government entities, agencies, vendors, or contractors. 

They are created to keep everyone on the same page about deadlines, the scope of work, project expectations, as well as liabilities. This is to guarantee the agreed-upon scope of services within the SOW is being completed on time and within budget.

A Statement of Work should always be written in a language that is precise and relevant to the relevant field of business to prevent any misunderstanding or misinterpretation of the terms and requirements. 

In addition to this, SOW contracts are often used with a Master Service Agreement (MSA), which is a contract in which both parties agree to the terms that will govern future transactions. 

An MSA will typically address topics such as, but not limited to: 

  1. Confidentiality - What you can and can’t share about the work you’re doing and to whom, as well as the implications if you say something you’re prohibited to disclose
  2. General services - The type of work you’re going to do for the client (i.e. web design, content strategy, media buying, etc.)
  3. Payment Terms - The monetary amount, method, and date/s of receiving your compensation and the  expenses  which are to be covered by the company
  4. Terms and Termination - The effective duration of the agreement, the standards and procedures in case of prematurely ending it, and the costs and implications of such an event.

To read more about MSAs, click here.

Statement of Work vs. Scope of Work

The Statement of Work and the Scope of Work can be confusing as they sound very similar. Let’s clarify this common misconception and answer: What’s the difference between a Statement of Work and a Scope of Work? 

A Statement of Work and a Scope of Work both provide descriptions of the work contract to be done. However, a Statement of Work refers to the actual document itself, whereas a Scope of Work is a section of the same document

Statement of Work

Legal document that describes what needs to be done to successfully complete a project

Scope of Work

Section in the Statement of Work that outlines the job description, project terms, and the processes to achieve the  set goals

Now that we’ve gone through what a Statement of Work is and how it’s different from a Scope of Work, let’s run through the various types of Statements of Work that you may encounter in the workplace.

3 Types of Statement of Work

  1. Design/Detail Statement of Work

This category of Statement of Work describes to the contractor or supplier how to exactly do the work and what processes they must follow. It basically provides a detailed breakdown of project goals as well as the tasks and to-do’s that will be required to realize the goals. It will also include a step-by-step breakdown of each project phase, including specific best practices, style guides, or materials necessary for the job.

  1. Level of Effort / Time and Materials / Unit Rate Statement of Work

This type of SOW is for contractors who work on an hourly basis, and it’s meant to outline expectations for a service being performed. This SOW type is more flexible and frequently used for hourly service or temporary workers.

  1. Performance-Based Statement of Work

This is the preferred type of SOW by most government entities. It focuses on what is required for a project to be complete and satisfactory. This type of SOW also covers the purpose of the project, the resources and equipment that will be provided, and the quantifiable end results. However, it does not tell the contractor how to perform the work. This SOW offers the most flexibility in terms of how the contractor works, and it focuses on outcomes over processes.

Although SOW formats can vary from one industry to another, the same key guidelines should be followed in any case for an effective  SOW. In the next section, we’ll go through the essential elements of a Statement of Work and why including each section is necessary.

Essential Elements of a Statement of Work

Regardless of the industry your business may be a part of, it is important that your SOW captures all the important information both parties will need to ensure the work is done according to the agreed-upon specifications on quality and budget. 

Elements of an SOW can include:

  1. Scope of Work

The Scope of Work section outlines the work that needs to be done and the processes involved in completing the work. It covers the project outcome in terms of a service, product, or time commitment, and clarifies an acceptable outcome.

  1. Project Objectives

This section describes the reason why the work is being done. As the name suggests, it talks about the purpose and objectives of the project and why they are important. It may discuss specific benefits or improvements the project is expected to bring, or may simply be a high-level overview of project goals and objectives.

  1. Requirements and Tasks

The requirements and tasks section breaks down the scope into smaller tasks that will be easier to track and manage. This section also lists work standards and requirements that contractors or service providers must meet. This may include certain training or certifications that are required to finish the task.

  1. Deliverables and Schedule / Timeline

Deliverables are quantifiable products or services that are being supplied to the client by the contractor. In this section, the parties will list all the deliverables the supplier or contractor will deliver to the intended recipient. A few examples of the descriptions of the deliverables include the quantity, size, color, page number, or designs that the point person must create.

  1. Payment of the Project

In this section, an outline of pricing for the work will be stated, along with the terms and schedule on which payments will be made. The payment terms can either be by the milestone of the deliverable, or by the schedule.

  • By milestone of the deliverable - Payment is due upon the completion of each milestone or deliverable.
  • By schedule - Payment is due according to fixed dates or days of the week or month, according to the schedule laid out in this section.
  1. Certain Terms, Conditions, and Requirements

This section can detail any specific requirements that may be special or miscellaneous. These could include security requirements, industry-specific standards, and post-work requirements.

Now that you fully understand what an SOW is and what goes into it, it is time to start writing one. 

Tips on Writing Statements of Work

A good SOW is thorough, detailed, and accurate to help align teams on all the details of a project. If an SoW is unclear, it may lead to confusion and misinterpretations, incurring more time and expenses fixing details that should’ve been clearly outlined at the onset.

In this section of the article, we’ll share a few strategies to help you write an effective SOW.

  1. Break up the project. When you have one long list of different tasks, they can be intimidating and overwhelming to look at. You may not even know where to effectively start, so our advice is to break down the project into individual phases and develop separate SOWs for each phase as the project progresses.
  1. Create a plan. Have a detailed level brainstorm and then make an action plan. This process allows you to get a better idea of choices you will need to make later on, or additional features that can be added without much extra work.
  1. Be specific and concise. When creating an SOW, you should always write in short and clear sentences to minimize any room for misinterpretations. 
  1. Define success and failure. The objectives/purpose and acceptance criteria sections should provide details about what the project’s goals are and what a satisfactory end product should look like. This is to avoid confusion as well.

Create Statements of Work Faster and Easier with Lexagle

Aligning your Statement of Work with a contract management software will keep your team on track and help you reach your goals. Lexagle has a full suite of tools that can help you put together an SOW that accurately depicts your forthcoming projects. 

If you need legal help and advice when creating a Statement of Work, then Lexagle can help. We’ll ensure that your document meets expectations while protecting your rights throughout the bidding and service process.

Explaining Service of Work Agreements and How to Write Them
Author
Joy Cunanan
Joy is the Digital Transformation Manager at Lexagle. As a marketing professional in the Tech and B2B industry for over seven years, she is always on the lookout for the next best solution in the ever-changing online world. With a passion for helping businesses thrive and optimize operations, she shares her expertise in the power of contract lifecycle management and its capacity of easing the contracting process for busy organizations worldwide.

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