Best Practices for Drafting a Statement of Work (SOW) Template

As attorneys and contracts professionals, we often focus on the legal terms and conditions of a commercial contract. Statements of work or SOWs are typically handled by the business unit responsible for performing the work. This is because in practice they are the most knowledgeable on the subject matter and the SOW should not include any legal terms and conditions.

However, if we are to adequately manage risk, we need to ensure our colleagues are effectively capturing the terms of the business commitments in their SOWs.

Establishing a solid SOW template using best practices is a proven way for legal to effectively  manage risk on the SOWs drafted by other business units. The template becomes your gatekeeper–if there are any issues or additions that need oversight outside of your template–it helps to ensure that legal is included.

The following best practices are the key to creating an SOW template that positions your business and your colleagues to be successful. This step by step guide is certain to make your organization better at drafting Statements of Work.

Note: Foster will be presenting a free CLE webinar on this topic on Wednesday January 25, 2023: Best Practices for Improving SaaS Order Forms and Statements of Work. You can sign up here.

Best Practice #1: Always include a reference to the Master Agreement

The first best practice is to ensure that your SOW template has a place to reference the legal terms and conditions that govern (the “Master Agreement”). The Master Agreement should govern all the legal commitments between the parties, and while it will also include general business and commercial terms, only business and commercial commitments should be memorialized in the SOW or order form as applicable.

When you establish this paradigm and train the personnel drafting the SOW to include this reference, you in turn train them that the inclusion of legal terms is reason to engage you for review. If the SOW with an existing customer comes back with the inclusion of a limitation of liability clause, then they’ll know to strike that or ask legal to review, ensuring those risks are managed.

For more ways to demonstrate the value of your contract work to the rest of your organization, check out Pramata’s recent eBook Making the Case for Contract Management.

Best Practice #2: Define deliverables and avoid “Scope Creep”

The second step is to format your SOW template so that the scope of work is broken into two sections:

1) Deliverables

2) Out-of-scope of work

This is the most important best practice to follow to manage business risks related to any SOW. Including the work that is in scope is obvious, but many fail to expressly state what the deliverables are and moreover, fail to state what is out of scope work. As a result, “scope creep” happens, a common term known to just about every professional services organization in the universe.

Scope creep happens for a few reasons: failure to articulate deliverables clearly or failure to estimate deliverables accurately. Often it is because the scope of work is drafted in such a way that opens it up for clients to claim that more work is included in scope than was initially contemplated. When you have a section that defines what is out-of-scope then you best position yourself to push back and insist on a change order or additional SOW for the increase in scope.

The best practice for drafting your out-of-scope section is to tie it to a change order. Your change order process should be formalized in your Master Agreement, as it’s inefficient to include it in each SOW. When formatting your out-of-scope section, you should state it thusly:

“Any work not set forth in the scope of work section is out-of-scope work and will require a change order to be performed. For the avoidance of doubt, the following work is out-of-scope and will require a change order to be performed: …”

Your business should be able to identify the types of work that often come up as “scope creep” and what they can conceivably do–this should then be used as the list of out-of-scope work. Allowing them to point to this section when inevitably the client asks them for work that is listed in the out-of-scope section of the SOW.

Best Practice #3: Set expectations with an assumptions section

The third best practice is to include a section on assumptions that the scope of work is being drafted with. This section helps your business position their project for success, by ensuring expectations are set with the client and any dependencies are surfaced. 

Examples that you may include in your template could be:

• Information the client, or third parties controlled by the client, must provide
• Tasks the client must complete within specific timeframes
• Environmental and other prerequisites required of the client for various phases of the project to proceed

Best Practice #4: Facilitate revenue recognition

The final best practice for your SOW template is to have a section on acceptance that is drafted to facilitate revenue recognition. From a business standpoint, no acceptance period is best for revenue recognition, but the client will want the opportunity to adequately test the deliverables. How you draft your acceptance section will be highly dependent on your type of business:

For SaaS Businesses: If you’re a SaaS business that is doing implementations and not providing deliverables, then the best practice is to deem acceptance upon the customer signing off on their UAT and moving into a production environment.

For Complex Businesses: If you’re a business that does complex projects with multiple deliverables, then the best practice is to list criteria for which each phase and ultimately the project will be deemed accepted.

If you haven’t reviewed your SOW template in a while I hope you’ll find these best practice tips helpful. These tips should help you and your professional service peers better manage risks on each and every project.

For more ways to demonstrate the value of your contract work to the rest of your organization, check out Pramata’s recent eBook Making the Case for Contract Management.