What is a Statement of Work (SOW)?
When a vendor and a client have agreed to and signed a master service agreement (MSA), there is still one more step before work can begin. Both parties need to agree to and sign a statement of work (SOW). But what exactly is this document, and how does it fit into the broader landscape of business agreements? Read on to learn more about SOWs, what they are used for, and how to create your own.
What is an SOW?
In the business world, SOW stands for statement of work. It’s a document that describes in detail how a project will be executed. The purpose of an SOW is to ensure all parties are aligned on scope, deliverables, execution, and payment prior to signing an agreement.
Another common use of SOW refers to the scope of work. However, there is a substantial difference between a statement of work and a scope of work. A scope of work defines, in detail, how the agreeing parties will work together to achieve the goals outlined in the statement of work.
Generally speaking, SOW refers to a statement of work rather than the scope of work.
Difference between an SOW and a master services agreement (MSA)
An SOW provides details surrounding a specific aspect of the relationship, like a project or service agreement, whereas an MSA defines the terms and conditions for the entire relationship. If the MSA is the book that governs the business relationship, you could think of an SOW as a chapter within that book.
Who creates the SOW?
In some cases, the buying organization initiates the SOW process by issuing a request for proposal (RFP). The goal of the RFP is to provide a framework for potential business partners to follow when submitting a proposal. The RFP helps potential business partners determine whether they should submit a proposal, and if so, what the proposal should include.
The RFP more or less paves the way for an ensuing SOW. Like an SOW, an RFP will likely address budget, timeline, scope and goals. Unlike an SOW, an RFP may also include criteria the client will use to select a vendor, along with examples and expectations vendors should consider when submitting a bid. While many vendors may submit RFPs, usually only a select one or two earn the opportunity to collaborate with the client on an SOW.
Many agreements are initiated by the selling organization and don’t include a formal RFP. Whether an RFP exists or not, the completion of an SOW should be a collaborative effort between buyer and seller.
Many sole proprietors in business services and consulting will often create an SOW to propose a set of services to their clients.
A thoughtfully crafted SOW—one that encourages input from both sides—can help ensure that all parties have the working conditions and resources needed to achieve the shared objectives.
Elements of an SOW
An SOW will usually contain four elements:
- A summary that explains the purpose of the project
- A project governance section that explains who has approval to do what
- A project scope that identifies key deliverables, who’s responsible for what and pricing terms
- A project schedule, sometimes called a work breakdown structure (WBS), that breaks down the deliverables into tasks and milestones
A vague SOW leaves room for interpretation, which can later lead to misunderstanding. On the flip side, when an SOW is too detailed, it can lock partners into rigid and ineffective methods for delivering the work.
A good rule of thumb is to scope what you know. For large scale projects, you may be better off splitting the project into phases and creating a separate SOW for each phase. As the project progresses, the next phases should become clearer and you’ll have a better idea of what the next SOW should look like. A phased approach doesn’t change the objectives. Rather, it allows for learning an adaptation along the way to achieving the objectives.
It’s a good idea to confirm with the customer or client what elements their organization requires as part of the SOW. For example, many procurement departments require specific start and end dates as part of the project schedule, as well as the expected total fee or charges. If pricing is project-based, the SOW should include terms that cover unexpected delays in the process.
If pricing is based on an hourly rate, some clients may prefer a not-to-exceed maximum amount of hours, or explanation of the process required if a project takes longer than expected and will impact the overall fee.
Create an SOW using DocuSign templates
Creating your own template can help boost signing speed because it will automatically populate a document with the same tags in the same locations—a big time-saver if you’re sending heavily tagged documents to many different recipients.
Even before you hit send, though, by having your own template in DocuSign, you already have a built-in and streamlined solution for processing and sharing SOWs and other frequently used documents. As for tracking, every completed document includes a full audit trail.
You can create your own SOW template and explore all the other ways DocuSign makes drafting and signing agreements easier with a DocuSign free trial.