What Every Business Owner Needs to Know

There are several issues to consider prior to drafting a Statement of Work (SOW). Failing to consider key issues often results in unanticipated obligations, unintended breach of contract, damage to business relationships, and financial loss. This blog will detail the key issues that should be considered while drafting an SOW on behalf of yourself or your company. These tips apply to the drafter regardless of whether they are the buyer or supplier. 

Though the information in this blog should help you identify and address key issues, the best way to ensure that your company is protected is to collaborate with legal counsel. The attorneys at DZ Law specialize in contract drafting and are here to help you navigate the entire process.

INVEST IN A COMPREHENSIVE STATEMENT OF WORK FORM

SOW are often project-specific documents. Because of this, companies can use the same SOW form for multiple service agreements. When choosing a form of SOW, you should ensure that: 

1. The situation calls for an SOW. 

2. Decipher how detailed the SOW will need to be. For example:

   • A fixed price contract should include a more detailed SOW to ensure both the service provider and the party requesting the service share similar expectations as to work to be performed for the bargained-for price.

   • Time and materials contracts will not require as detailed an SOW because the price may fluctuate depending on the amount of work requested and performed.

3. Review the Master Service Agreement to ensure that no conflicting terms exist between it and the SOW.

   • Using the same attorney to draft both your SOW and Master Service Agreement forms can reduce the risk of possible conflict between the two agreements. Regardless, the employee drafting these agreements to send to clients should also review the two side by side. 

4. Exert extra caution when using the other party's form SOW:

   • When presented with an SOW drafted by the other party, always remember that the document is most likely drafted heavily in their favor and may contain disfavorable terms including one-sided indemnification and terms that conflict with the Master Service Agreement.

   • Remember, the SOW is executed after the Master Service Agreement and if not properly referenced may serve to nullify the terms of the Master Service Agreement. 

WHAT NOT TO DO BEFORE EXECUTION OF A STATEMENT OF WORK:

Often, exchanges between contracting parties and their legal representatives that occur before the parties reduce their agreement into writing can confuse and contradict the real goals of the contracting parties and differ wildly from the final written agreement. To avoid this situation the contracting parties should:

1. Only allow authorized representatives of the contracting party to engage in negotiations. On the same note, this party should ensure that they are negotiating with an authorized representative of the other party. 

2. Remember negotiations are not considered confidential just because the parties believe that they are.

   • The best way to ensure negotiations remain confidential is to ask the other party to sign a confidentiality agreement.

   • This agreement may also be referred to as a non-disclosure agreement or NDA. 

3. DO NOT PURPOSEFULLY OR UNINTENTIONALLY MISLEAD THE OTHER PARTY. 

4. Ensure negotiations remain negotiations and you do not unintentionally bind your company to an oral or written contract. To do this:

   • Note in every written communication (likely email), as “subject to contract” or “negotiations and not legally binding”

   • In some situations it may also be appropriate to enter into a letter of intent, outlining the party's intentions to negotiate and enter into a final written contract after negotiations as the only contract they intend to enter into. Do not enter into a letter of intent without first contacting legal counsel to avoid unintended obligations. 

KNOW THE PARTIES THAT WILL BE BOUND TO THE STATEMENT OF WORK CONTRACT

As a general rule, only the parties noted within a contract will be bound to its terms. If this was not the case, a person could bind another to perform under a contract without their knowledge or agreement. A third party, however, may be bound to the terms of a Statement of Work by doing the following:

1. The third party may agree to the terms of the Statement of Work by entering into an agreement to participate simultaneously. 

2. The third party and the two original contracting parties may enter into a separate agreement with appropriate terms and conditions. 

3. If not prohibited by the Master Service Agreement, the original parties may assign or delegate their obligations under the agreement to the third party.

ADDITIONAL CONSIDERATIONS

Depending on the terms of the Master Service Agreement, a third party may have beneficiary rights. If so, they may be able to receive the benefits of the agreements. 

Always consider the consequences of changes in ownership or structure of the other contracting party and the effects on their ability to perform under the project-specific Statement of Work. In considering this, it may be wise to allow for termination of the agreement if the other party is completely sold or undergoes a majority of asset sale. 

The attorneys at DZ Law are ready to consult with you regarding your Statement of Work and Master Service Agreement needs. Intentionally investing in legal resources now is the responsible thing to do as a business owner and we are here to partner with you as you begin. Contact us today.