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Statements of Work

Checklist

Preliminary Considerations

□ Due diligence process

□ Form of professional services agreement

General Requirements

□ Term—open-ended or limited

□ Termination provisions

  • - Material breach of agreement
  • - Insolvency/cessation of business
  • - For cause

- Acceptance testing

  • - Procedures
  • - Criteria
  • - Remedies at no cost
  • - Timeframe for failures to correct
  • - Payment of fees linked to milestones and testing completion

□ Personnel requirements

  • - Minimum skill requirements
  • - Interview process
  • - Naming of key personnel
  • - Replacement procedures; no charge for overlap and ramp-up
  • - Efforts to ensure consistency of personnel
  • - Turnover penalties
  • - Supplier has sole responsibility for personnel

□ Use and identification of subcontractors

□ Warranties

  • - Material compliance of services
  • - Compliance with applicable laws
  • - Workmanlike manner
  • - Timeliness
  • - Disabling devices
  • - No IP owned by third parties
  • - Compliance with data security and privacy laws

□ Indemnification

  • - Intellectual property infringement
  • - Violation of applicable laws
  • - Personal injury and property damage
  • - Breach of confidentiality
  • - Procedures to permit supplier control of claim
  • - No settlement without customer consent
  • - Exclusion from limitation of liability

□ Limitation of liability

  • - Mutual
  • - Exclude indemnity obligations
  • - Exclude gross negligence and willful misconduct
  • - Exclude confidentiality and data security breaches
  • - Tie cap to all fees paid under agreement

□ Intellectual property ownership

  • - License to use preexisting materials
  • - Who owns IP developed under the agreement
  • - If supplier owns, restrictions on use (competitors)
  • - Identification of third-party IP and fees associated with third-party IP

□ Change order process

□ Confidentiality and information security

  • - Simple provision (basic information)
  • - Detailed provision (sensitive information)
  • - Information security requirements depending on nature of data

- Force majeure

  • - Ensure proper scope
  • - Avoid overbroad provisions to include staffing problems, unavailability of materials, and failure of third parties
  • - Right to terminate
  • - No payment for services not rendered

□ Nonsolicitation of supplier’s employees

□ Insurance tailored to customer’s requirements

□ Fees and costs

  • - All fees expressed in contract, SOW, or change order
  • - Payment schedule for all fees
  • - Fixed fee vs. time and materials
  • - Overall cap for time and materials projects
  • - Ensure estimates are accurate
  • - Specify percent over estimate to be paid by supplier
  • - Specify percent over estimate to be shared by both parties
  • - Rate card for future services
  • - Allocation of taxes (customer pays only for tax on services received)
  • - Payment of fees tied to performance
  • - Hold back if payment is based on the passage of time
  • - Travel and expenses tied to customer’s policies
  • - Financial audit rights

Relationship to Other Agreements

□ All contract terms in a single agreement

□ If multiple agreements, ensure termination rights across agreements

□ Acceptance testing of services linked to acceptance testing of related software and hardware

□ Limitation of liability caps accounts for fees paid across agreements

Overview

Statements of work, commonly referred to as SOWs, are the heart of any professional services engagement. It is critical that the SOW clearly describe all services and deliverables the customer expects to receive. Without that clarity, the customer may not receive what they expect, cost overruns may result, and delivery schedules may be missed. Remarkably, even though SOWs are key to the success of a professional services engagement, they are frequently written at the last minute, seldom given the time they deserve to perfect, and generally fail to provide the level of detail necessary to clearly define the services and deliverables to be provided. SOWs are also frequently drafted by contractors with little or no input from the customer’s business.

SOWs are typically used as exhibits to an overarching agreement of some kind (e.g., a professional services agreement, implementation agreement, software development agreement) to define specific requirements for a set of services or project. The SOW usually includes a detailed description of the services to be provided, deliverables, milestones, payment terms, service levels, acceptance criteria, specifications, and due dates. In most cases, the SOW describes “what” the contractor will be doing, “where” the contractor will be doing it, “who” will be providing the services, “when” the services will be provided, and “how much” the services will cost. The SOW does not address legal terms, which should be addressed solely in the agreement. However, SOWs often include additional commercial terms that supplement the commercial terms in the agreement. Generally, commercial terms that may be included in a SOW should never supersede conditions defined in the agreement and should only be permitted in a SOW where the agreement expressly contemplates these additional or different commercial terms.

In the typical scenario, the contractor usually prepares a proposal for the scope of work to be performed, and the agreement should include a description of the type of information that must be included in each SOW (e.g., specific services to be performed, deliverables, project schedule, acceptance criteria, fees, expenses). The contractor’s proposal should not replace the SOW; with appropriate revisions, it can, however, be incorporated into the SOW, perhaps as an attachment. Once the customer approves the proposal, the parties typically prepare a draft SOW, which is then reviewed by the project manager and all other relevant stakeholders (e.g., legal, compliance, information security) prior to signing.

Hie importance of ensuring the SOW clearly describes all services and deliverables to be provided by the contractor cannot be overemphasized. Courts have made clear that the contractor is only responsible for delivering those items expressly identified in the SOW. If a deliverable service or any other SOW element isn’t clearly and expressly identified, the contractor will not be obligated to provide it.

If the SOW cannot be negotiated and executed concurrently with the agreement, the agreement should be clearly drafted to ensure the customer has no payment obligation and may terminate the agreement if a SOW is not agreed upon. That is, if completion of the SOW must be deferred until after execution of the agreement, the customer should not be required to commit to a purchase of services until the SOW is fully negotiated. Doing otherwise would seriously undermine the customers negotiating leverage and potentially obligate it to pay for services without an acceptable SOW in place. The foregoing is particularly important in software license agreements, where the customer may be required to irrevocably commit to pay the license fees, while the critical SOW to implement the software is left for future negotiation and agreement.

Hie following is a checklist of the various topics and issues that should be considered in drafting SOWs. The checklist should assist with the review of a SOW to ensure that it is consistent with the requirements of the underlying agreement and with the customer’s legal and contract management requirements and processes.

 
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