Key Takeaways:
- Consistency across all contractual documents is crucial for avoiding disputes and ensuring agreements are clear and enforceable.
- Include an integration clause in the master agreement to ensure it serves as the final and complete expression of the parties’ agreement.
- To avoid unintentional modifications to agreements, include non-waiver and modification clauses.
In contract negotiations, significant time is spent meticulously drafting and negotiating foundational documents that contain overarching clauses, such as those related to limitations of liability, intellectual property, confidentiality, termination, and other key terms. Yet, a critical component that often receives far less attention is the Statement of Work or SOW.
SOWs are often seen as the domain of the sales or procurement departments because they largely contain commercial terms such as pricing, duration, and requirements. For this reason, it is often incorrectly assumed that the legal department does not need to review SOWs. However, legal review can be critical in some cases, especially if the business departments are not properly trained or don’t have a good template.
Below are three key tips to consider when drafting or reviewing a Statement of Work.
1. Clearly Define Obligations and Use an Integration Clause
An SOW can focus on transaction-specific details because it relies upon referenced, interrelated agreements such as terms and conditions, master services agreements, or software-as-a-service agreements. But those obligations that are only defined in the SOW should be clearly laid out. Therefore, it is imperative to draft SOWs properly to avoid misunderstandings, disputes, and breaches.
To avoid ambiguity in which terms actually apply, you should include an integration clause in the master agreement. An integration clause states that the master agreement is intended to be the complete and final expression of the parties’ intentions.
Courts generally rely on integration clauses to exclude extrinsic or parole evidence. If your master agreement does not contain an integration clause, you could risk the court determining the contract is only partially integrated, allowing extrinsic evidence to supplement or modify its terms, which can lead to increased litigation risk, uncertainty in enforcement, and potential changes based on prior agreements or oral statements.
Here’s an example of a common integration clause that you would find in a master agreement (generated by LexCheck Insights):
This Agreement embodies the complete and entire understanding and agreement between the Parties with respect to the subject matter hereof and supersedes any and all prior or contemporaneous representations, understandings, agreements, or communications, whether written or oral. No manifestation of intent or understanding not expressly set forth in this Agreement shall be binding upon the Parties.
2. Draft Consistent and Non-Conflicting Terms Across All Related Documents
Ensuring consistency across all your contractual documents, including SOWs and their master agreements, is essential for building strong business relationships and avoiding costly disputes. When terms are inconsistent or contradict each other, they can create confusion and leave room for legal challenges, especially if obligations or expectations aren’t clearly defined. By maintaining consistency, you ensure that all parties are aligned on their roles, responsibilities, and deliverables.
One effective way to maintain alignment is by creating a detailed list of obligations outlined in each interrelated agreement—such as a master agreement or representations and warranties—while excluding the SOW. Compare this list with the SOW to identify overlaps, contradictions, or gaps, and address them proactively. Removing duplicate or conflicting terms ensures the SOW complements the listed obligations rather than clashing with them. This approach reduces the risk of disputes and lays the groundwork for clear, consistent, and enforceable agreements, setting you up for a productive and successful partnership.
You may save time and ensure consistency by using LexCheck Insights to ensure that your preferred language is in each document before executing them. Visit LexCheck for more information.
3. Ensure Both Parties Stay Aligned with Their Obligations
Parties must act in accordance with the obligations outlined in the SOW and only accept performance that aligns with the terms of the SOW to avoid inadvertently modifying any of the other Interrelated Agreements. Courts may permit modifications that arise unintentionally through actions like consistently accepting, without protest, performance outside the agreed terms of the SOW.
Additionally, a pattern of behavior, such as prior transactions that deviate from one party’s interpretation of the contract, can also establish a course of dealing that shifts contractual expectations. Courts look to these behaviors to interpret the parties’ intent and may enforce modifications implied through these patterns if they meet fairness standards.
When drafting obligations, include clear non-waiver and modification clauses explicitly stating that no modifications are valid without a written agreement signed by all parties. To ensure fulfillment of obligations, maintain detailed records of communications and actions, and require formal approvals for any deviations.
Below you will find a sample modification clause and non-waiver clause, both generated by LexCheck Insights:
Modification: Any modification to this Agreement must be made in writing and signed by both parties to be effective. Actions taken outside the scope of this Agreement do not alter its terms and are conducted solely to uphold good business conduct.
Non-waiver: The failure of either party to enforce any right or provision of this Agreement shall not constitute a waiver of that right or provision unless acknowledged and agreed to by the party in writing.
