A statement of work is a legally binding document that outlines different elements of a project, the deliverables, timelines, and costs.
In this article, I will break down the meaning of a Statement of Work so you know all there is to know about it!
Keep reading as we have gathered exactly the information that you need!
Let me explain to you what is a statement of work and how it works!
Are you ready?
Let’s get started!
Table of Contents
What Is A Statement of Work
A statement of work is a legally binding document that individuals and companies use to manage different aspects of a business project.
A statement of work can be a very simple document for small projects or it can be a highly detailed document for large and complex projects.
Typically, the statement of work outlines the different activities that the parties need to perform to successfully deliver the project, define the expected deliverables, agree on the timetable for each phase of the project, and determine how the project cost will be computed.
For example, a company may want to have a software integrator implement a software solution in their network and have it integrated with other applications.
For this project, the parties will agree on what are the client’s needs for the project, deliverables, and timelines so the service provider can assess the feasibility of the project.
The first project document that is signed by the parties is generally the statement of work and that is used by the project managers to prepare their project plan.
Keep reading as I will further break down the different aspects of a statement of work.
Recommended article: What are trade secrets in Canada
Why Sign A Statement of Work
The main purpose of a statement of work is for the contracting parties to mutually agree on the scope and details of their project.
Since the statement of work is the first of a series of project documents, it allows the different parties to understand and agree on the project requirements, determine the acceptance criteria, define payment terms, set deadlines, and agree on each party’s deliverables.
Another important reason why you should sign a statement of work is that it is a legally binding agreement.
In other words, when a service provider agrees with a client on the overall project terms and deliverables, the parties will be held accountable for the content of the statement of work.
The client cannot ask for more (unless the parties agree) and the service provider cannot deliver less.
The statement of work also provides for the payment terms, which is quite important.
The parties can agree on different types of project pricing, such as time and material, cost-plus pricing, fixed price, and so on.
Recommended article: Understanding cost-plus pricing
Statement of Work Content
Although a statement of work can vary in scope, let’s look at the content of a standard statement of work for a relatively standard project.
We can divide the statement of work into several components: project scope, project design or detail, project assumptions, identification of deliverables, project timeline, pricing and effort, and acceptance criteria.
The project scope refers to the overall nature of the project and what the parties are trying to achieve.
The project design or details provides detailed specifications of the different activities to successfully handle the project (such as how the parties will deliver the project).
The project assumptions may indicate different assumptions based on which a statement of work was negotiated (such as the software will be developed on certain types of servers).
The identification of the deliverables will specifically outline if the parties are to walk away with the delivery of something at the end of the project (such as the delivery of a custom software build).
The project timeline will outline the delays and timelines the parties must adhere to in such a way as to complete the project on time.
The pricing and effort refer to how the parties have priced the statement of work and how much effort they anticipate will be required to deliver the project.
The acceptance criteria refers to the procedures and tests that the client may perform to accept the delivery of the project or different phases of the project.
Recommended article: What is a software license
How To Write A Statement of Work
Writing a statement of work will largely depend on the nature of the project, its complexity, and the sophistication of the parties.
You may have a much more detailed statement of work if you’re engaging a company to build a bridge than you would for a small construction job.
Here are the different sections of a standard statement of work:
- Project scope
- Project assumptions
- Project tasks
- Project milestones
- Acceptance criteria
- Payment terms
- Project closure
There could be other sections that may be added depending on the needs of the client, such as:
- Where will the work be done
- The maximum period allowed to deliver the project
- RACI matrix
- Identification of the parties’ resources
- Identification of project managers
- Acceptance testing specifications and period
- Price caps
Recommended article: What are different types of contracts
What Statement of Work Is Not
There are different types of project documents that may be used, particularly in larger projects.
It’s important to understand the purpose of each document to ensure that you’re properly documenting your project and that you ensure optimal legal protection.
To start with, a statement of work is not a standalone contract (at least, it’s not intended to be).
A statement of work is a “child” agreement within a body of a larger agreement, such as a Master Services Agreement or Professional Services Agreement.
The objective of the statement of work is to be focused on details relating to the project and not legal clauses and other provisions found in a complete contract.
Also, a statement of work is not the same thing as a scope of work.
Although the statement of work does include the scope of the work, it is a document that provides a high-level description of the project, timelines, pricing, deliverables, and other important project parameters.
On the other hand, the scope of work refers to a specific element within a statement of work that is aimed at providing details of what the parties are looking to achieve and how they will get to the desired state.
The third distinction is between a statement of work and project plan.
The project plan is a document where the project managers will specifically outline how they will handle the different tasks and activities, assess dependencies, and plan for resources.
The project can start once the project plan is agreed upon and in place.
A statement of work is a high-level description of the project which is used to prepare the project plan.
Recommended article: What is the “end of work”
So there you have it folks!
What is a statement of work?
In a nutshell, a statement of work is a legally binding document that outlines the details of a project such as project scope, assumptions, effort, pricing, deliverables, milestones, acceptance criteria, and closure.
A statement of work is used in many industries and many companies to define and describe what’s included in a particular project and what’s not.
Fundamentally, the statement of work allows the client and service provider has a clear and common understanding of what the project is all about.
It’s important that the parties align on the details of the project before engaging time and resources and avoid future causes of dispute and litigation.
When a statement of work is basic and standard, it may not be difficult to put one together.
However, if the project is complex, long, or has special characteristics or risks, it’s best to work with a qualified attorney so you avoid unintended surprises and disputes.
AK-Law is a boutique law firm having a core focus on all facets of the business. We support businesses of all sizes in their day-to-day as well as strategic legal needs. If you want to know more about our firm, better understand what we do, or get a quote, be sure to reach out!
You May Also Like Related to Statement of Work Meaning
Work breakdown structure
Master services agreement
Request for proposal
Request for information