When you are a vendor providing goods/services to a customer, the most critical issues in a SOW are those relating to the description of services, payment, and the terms of acceptance. These provisions should be written with clarity and specificity. The remainder of the terms, while important, do not require the same level of detail. To help guide the providing party in its review or preparation of a SOW, consider the following:
- Products and Services
Maintaining the flexibility to modify your standard products/services from time to time is important, particularly if you deliver a standardized product/service to multiple customers. A customer may seek detailed descriptions of the specifications, features, etc. (see Part 2 of this series); but, it is in your best interests to avoid encapsulating them with such granularity in the SOW. A common compromise on this issue to list certain “core” features, while expressly reserving your right to update your product/service subject to a remedy for the customer in the event the modification causes a materially adverse effect on such services.
- Acceptance Criteria
Objective acceptance criteria in the SOW are preferable to any language that would allow the customer to make a subjective determination. For example, the SOW might state that acceptance will be deemed to have occurred if/when products/services meet all of the express specifications of the SOW. For situations where beta testing or other progress check-ins are involved, you might impose a time limit on the customer’s ability to accept or reject the deliverables.
- Pricing and Payment
Include a detailed payment schedule, including payment amounts and specific deadlines, to set expectations from the start. If payments are tied to acceptance, it will be even more critical to include objective acceptance standards in the SOW. Alternatively, the provider might specify that payments are required upon delivery of a compliant service or deliverable.
- Ownership of Deliverables
Intellectual property rights are very important. Although these rights may have already been addressed in the master services agreement (MSA), vendors should be aware that some SOWs will contain ownership terms, particularly if the SOW adds a new or different category of deliverables that was not contemplated at the time of the MSA was signed.
- Termination Rights
Similarly, termination rights may have already been addressed in the MSA. Nonetheless, a customer might try to include them in a SOW if new or different services are being provided which were not previously addressed in the MSA.
- Assumptions and Customer Responsibilities
List any preconditions, assumptions, or customer responsibilities that may excuse your performance if the customer fails to uphold its end of the bargain. For example, your obligation to provide services might be based on the customer first preparing special equipment, software, facilities, and/or providing access to such things. If this does not happen, you want to avoid any disputes over nonperformance on your part.
In summary, as the vendor or providing party, it is acceptable to be a bit vaguer in the SOW, than if you were the customer. However, on issues of payment, acceptance and the description of goods/services, you will want to be as clear (and objective) as possible.