Get your Statement of Works Right or Pay the Price
Many of you will know that I’m a straight-up procurement nerd. I would say that I’m a Contract Procurement Nerd who loves to fuse both the legal elements with the practical, straight-talking elements of Procurement. At this intersection, I often find the Statement of Work (often abbreviated to SoW). The Statement of Work is the main document that sets out the specific activities the parties to the contract will undertake whereas the contract will set out the framework to govern these obligations. As you can see, it’s good to get both the Contract Terms right and the Statement of Work which we are going to focus on here.
A Statement of Work usually follows a similar template with nuanced differences depending on the type of work that will be undertaken. A Statement of Work will often cover off:
Description of the works to be undertaken (often referred to as scope);
Fixed Deliverables that need to be delivered;
Costings/Prices for the in-scope services and additionally, pricing for out of scope services agreed at the outset at times;
Assumptions, dependencies, and equipment;
Service Levels and Credits (although, this could be in the contract depending on the type of contract document being used);
Management Information and Metrics (although, this could be in the contract depending on the type of contract document being used);
Governance Structures (although, this could be in the contract depending on the type of contract document being used);
Security needs (although, this could be in the contract depending on the type of contract document being used);
Compliance and Regulatory needs (although, this could be in the contract depending on the type of contract document being used).
Hopefully, from the above list, you can see why it is important to get the Statement of Work right. Without having a Statement of Work that covers the required elements of any Procurement you could get stung with additional costs as a result of scope creep. When you go out to the market with your procurement activities you need to have the end in mind to some extent. You might be thinking, we go out to the market to use the expertise of our supply chain to come up with a solution. I get that and I’m used to working with suppliers in this way. You still need to have the understanding and foresight to know what you will likely need to include in your final Statement of Work with elements such as ISO Certifications, Regulatory requirements and Certifications, potential SLAs, potential KPIs, the types of Management Information, and Metrics you want, etc. This list could go on. It is important to have considered these elements at the outset as you need to include them in your Request for Proposals that you issue to the market otherwise what will happen is that you will discover additional requirements along the process, maybe pre-contract signature or maybe post-signature and this is going to lead to one thing - increased costs.
To help you create and draft your Statement of Works with your Supply Chain we are going to cover off the 9 above points and give you some tips on how to cover these elements off appropriately in your Statement of Work.
Drafting the Statement of Work
Description of the works to be undertaken
The Description of the works/services or whatever it is you are procuring is essential. You need this to be drafted appropriately to specify what needs to be undertaken and how. It is likely that you issued a requirement to a supplier (or multiple suppliers if undertaking a competitive process) and that they have responded to this with what they can do and maybe you agreed to some negotiated point on what the scope of the services is. The final agreed-upon position is what you need to include in the Statement of Work.
The description should not consist of generic descriptions. Let’s consider a Facilities Management contract where we require a pool of cleaning staff who need to keep multiple facilities clean (think a scientific laboratory/pharma etc). Each building they are required to clean will likely have different cleaning needs.
A standard office building, where a Procurement Team is going to be operating will need a more “standard” version of cleaning. Although, you may want to consider with the outbreak of COVID whether the quick dust and once in a blue moon cleaning of the office is truly appropriate. However, your Statement of Work might state:
“Building 5g requires daily cleaning between standard Working Hours (let’s assume this a defined term in the contract or the SoW) that consists of vacuuming, polishing, antibacterial and antiviral cleaning off all floors, soft furnishings and contact points and responses to any spills, messes or other incidents that would reasonably be expected to be covered by this service (PS. this last bit is a bit weak but it’s early in the morning and my brain isn’t quite in gear to write a fictitious service element of a Statement of Work).
Whereas, a secure facility that has pathogens in the environment will likely need specialist cleaning staff as opposed to domestic cleaning staff, with the use of different cleaning materials and substances that are likely governed by some form of regulation or legislation.
The specifics need to be detailed whether that be the use of a particular product, specific schedules and timeframes, and even the level of qualifications that would be expected of any individual working on the contract (this is usually supported by a suitably qualified and experienced personnel (SQEP) clause in the contract). Details matter in the SoW and the level of prescription is usually relative to the understanding of your organisation in what you are procuring.
2. Fixed Deliverables
I’m still amazed at the amount of Statement of Works for services, technical works, or any Statement of Work that has a supplier creating an item or anything for you that does not contain deliverables.
Your contract is focused on the deliverables and ensuring that you receive them. It is the heart of the contract and what you are procuring. Say you were procuring a bespoke component build that took twelve weeks to manufacture due to design, testing, and manufacture. What I’m fairly used to seeing in the Statement of Work for a deliverable for this would be:
“Delivery of Bespoke Component (Date TBC)”.
You might think that I’m being flippant or exaggerating this point but the simple truth is that many Statements of Works are not clear on what the supplier should be delivering.
If we continue this example, I’d expect to see multiple deliverables such as:
Completion of the design process by (enter a date or include a T0+ type date);
Completion of prototype
Testing of the prototype following Test Plan V2.0
Completion of the final component to Buyer on (as per above regarding the date).
Linked to these deliverables would be clear payment structures to ensure that your supplier can maintain good cash flow but these must be linked to the individual deliverables to leverage the need to perform before being paid.
Besides, your contract terms and Statement of work should clearly articulate the intellectual property rights that apply to each of the deliverables and any other works that are created concerning the deliverables.
3. Costings/Prices
The agreed-upon pricing should be included within the Statement of Work. That’s the initial simple element here. Additionally, if you have negotiated a contractual option, work that can be taken up at a defined point for an agreed price with agreed performance that is stated in the Statement of Work then the pricing for that should also be included here.
Additionally, if there is any work that you might need that is currently out of scope and not included as an option then you may wish to include that. A simple example of this would be the cleaning scenario we have already detailed. Perhaps, at times you may need additional cleaning, or different premises cleaned, or some additional support that does not fit into the main scope and doesn’t fit the contract option module as it could be ad-hoc support. It might be good to agree on a rate card or some other mechanism that will allow the Supplier to bill you, the buyer, appropriately for the services complete. You may need to create a mechanism for how such requests are raised to the Supplier to ensure that only authorised work is undertaken.
4. Assumptions, dependencies, and equipment
I’ve bundled these three areas together but they could be separated.
At times, not all will be known and one party to the contract may need to assume the state of affairs. This is usually the seller to the buyer and it can occur due to unknowns from the buyers' side due to several reasons (including poor planning so try to do the good work upfront). This might be an assumption around the delivery of a specific component or a computer program (software or some code) during a window of time that is needed for integration. An assumption can effectively work as a get-out-of-jail card that is so infamously frustrating whilst playing Monopoly. As a Procurement Pro you need to limit the number of assumptions and if possible, completely avoid the inclusion of them.
Dependencies are different from Assumptions in that although they are usually in the favor of the seller, the requirement of them is purely that for them to do something, whether that is final testing of a product, provide cleaning services or complete a security review of the coding, you need to ensure that they can do it.
For example, for the final testing of the product, you need to ensure the product is finalised and delivered in the timeframe agreed. To provide cleaning services, you need to ensure that the cleaners have the required access to buildings and a location where they can prepare the cleaning equipment. You get it. Assumptions require careful management and whilst you, the Procurement Pro will not be completely responsible for ensuring that these are met, you need to have oversight of them and communicate with your colleagues who are responsible for the delivery.
Equipment is an interesting one and I see it in some contractual arrangements. Yet, most of the time, it is not specifically noted as part of the Statement of Work or the Contract. Let’s start at the beginning of this one. At times, you will procure services and you will need to provide them with equipment. Whether this is procured services for consultancy, contractor workforce, or a subject matter expert who may require access to your systems and you feel that the best way to do this is to provide them with a company laptop. It may be that you need to provide some components that you want a supplier to upgrade or integrate. You need to ensure that this equipment is articulated in the Statement of Work and/or the Contract. You need to ensure that it states what rights the supplier has over the “equipment”, what they need to do if it is damaged or breaks and what happens at the end of the contract as a minimum.
Ensure that you’ve got each of these covered within the Statement of Work and ideally, that your contract terms support this, especially on the Equipment and Assumptions elements.
5. Service Levels and Credits
Service Level Agreements (SLAs) and Credits are often available when you are procuring a service or software that you require to have a minimum availability time or response times.
Your supplier may have included this as standard, as is the case with some Software providers but this will not always be the case. If you have a service provider, you need to engage with them at the start around what you would consider the minimum levels of performance and then enshrine that, were possible, as a Service Level Agreement.
Let’s take the cleaning example, you may have a requirement that all spills and messes are cleaned up within twenty minutes of them being formally reported. If this doesn’t happen within the defined time, the supplier may give you a credit, which will usually equate to either a reduction in cost usually based on a small % of the fees charged or they may give you additional time at no extra charge. It’s for you to determine which works and it can help incentivise the supplier whilst providing you important performance data so that you can determine if the supplier is performing.
6. Management Information and Metrics
Management Information (MI) and Metrics work as a nice segway from the Service Level Agreements. You may have included a contract clause in the main Contract Agreement that specifies the type of data that the supplier needs to send to you and the cadence for this. If not, the Statement of Work is a great place to include this obligation on the supplier.
This can be particularly important in any work that you have outsourced. Consider an outsourced virtual assistant service where the virtual assistant company takes all of the calls on behalf of your company, they then connect the caller to the correct individual or record the caller's details and pass them to the intended recipient if they were already engaged.
You would want to know a raft of data such as time to answer, successful connections, details around recording the calls, passing on messages, cost per call, number of calls, time of calls, etc. You will need this data to work out if the supplier is performing as expected (and you might create SLAs or KPIs about these) and you would likely want the data around volumes to benchmark the service in the future or to go back out to market with an improved specification. You need to think about the performance of the contract and what comes next when you’re looking at getting data from your suppliers.
7. Governance Structures
Governance structures simply mean how are we (the buyer and supplier) going to manage the delivery of this Contract Agreement. I’d suggest that you reserve this type of governance for the more important procurements you undertake and this then rolls out into formal contract management with dedicated contract/procurement managers.
This could be as simple as having a cadence for governance meetings and a fixed rolling agenda that ensures that the right topics are covered.
This is always best agreed mutually between the supplier and the buyer and you should work closely with your supplier if you are looking to introduce governance into the agreement.
8. Security
Depending on the industry you operate this could cover a multitude of different elements. In the Defence World, this could state the specific Security Clearance requirements of individuals who are going to carry out some work for you.
It might be that you require the Supplier to ensure they have the ISO27001 certification. You get it. You’re likely going to need something in this area so keep it in mind when you’re building out your SoW template or working on a SoW review.
9. Compliance and Regulatory
I’m going to keep this point brief as a lot of the time you will find these points specifically in the contract. However, your standard terms might not cover every situation so you might need to add some points into the SoW to incorporate them.
I hope you get some value here and this helps some of you build out a better Statement of Work for your Procurement activities. I’m sure there are ways you could do this differently and by no means is this an exhaustive list of considerations. I’d say it’s a fairly well-rounded SoW that is going to get you through most Procurements.