A statement of work (SOW) is used by many services companies. It is a document that provides a description of a given project’s requirement. It defines the scope of work that is being provided, the timelines of the project, the location, project deliverables and the terms and conditions of the payment.
A SOW should be written in a precise language that is specifically relevant to the field of business. This avoids misunderstandings of words and specifications. A SOW is a general summary of the job, despite being comprehensive. The SOW refers to supporting documents whenever more details regarding a given task are required.
The SOWs generally include agreement about certain aspects like:
- Scope – what work needs to be done
- Deliverables – specific identification of what should be given to the client
- Price – either a single number or a rate (per unit, per employee-week, etc)
- Timeline – when is the major work due
- Acceptance criteria – what constitutes “good enough to get paid” work and what constitutes a fault which needs revision
What are some different types of SOWs?
There are three basic SOW categories that the companies use for the defining of scope and the procuring service, some are more popular than the other within certain industries, although they all have similar components.
Design or detail statement of work
This category of SOW defines the exact requirement needed to complete the project and tell the supplier exactly how much work is required and the path that needs to be taken to fulfil that work.
Additionally, it defines all requirements and any specific industry-related regulations that must be followed by the contractors. Typically, the organisation using design SOWs assumes most of the risk for the project.
Level of effort
This SOW is used for any kind of service, it generally details work hours and any type of material that is needed to perform the task at a given period of time.
Performance-based statement of work
A performance-based SOW clearly specifies the purpose of the project and the resources that will be provided and even the deliverables that will be accomplished. However, the performance-based SOW does not provide the details of how the work needs to be completed or performed. It is also the SOW that is preferred by most of the companies as it provides more flexibility, focuses on outcomes and shares risk amongst the parties.
What are the benefits of managing SOWs?
Managing a SOW has its own benefits, some of them being as follows:
- Increased cost savings opportunities
- Supplier performance and risk mitigation
- Greater process efficiencies
- Detailed reporting
- Project performance management
- Visibility into all outsourced projects within a single purview
- Improved workforce management
- Organisational compliance and risk mitigation
Having a successful SOW management gives the managers the tools necessary to make an informed decision and maximise the productivity level throughout an organisation. A strong SOW management provides the business leaders to make changes based on the tracking and reporting offered by the SOW. Managing a SOW has its own benefits, foremost being the increased cost saving opportunity
What are the disadvantages of a SOW ?
Even though SOW has its advantages, however it has disadvantages as well which include:
- If the deliverables are not met then the liability falls on the agency.
- The responsibility for entering into a contract and supplying labour also fall on the agency making it more problematic
The disadvantages of a Statement of Work can be mitigated by taking comprehensive risk management exercise and project management before creating an SOW.
What is the difference between a statement of work and scope of work?
A statement of work is often confused with the scope of work as both use the same acronym SOW, however, both are different even though they coincide with one another. Statement of scope is just one category that should be included in the statement of work document. The entire statement of work focuses on the details of the project, while the scope of work only touches the goals that need to be achieved. Defining the scope of work in the early stages helps the agency not to deviate from their goals and keep the project to grow in an unexpected and unwanted way.
Anupam is a legal intern at OpenLegal and has recently completed his Juris Doctor from Macquarie University. His interests are Commercial and Corporate law, Criminal law, and Contracts.
Phil is a director at OpenLegal. He has over 16 years experience working in private practice and in-house counsel in Sydney and London, giving him expertise in employment law, IP, finance, leases, dispute resolution, insurance and contracts.
