SOW (Statement of Work)

What is a SOW (Statement Of Work)?

A statement of work (SOW) is a formal document that captures and defines the work activities, deliverables, and timeline for a specific project or service. It includes detailed requirements, pricing, and regulatory and governance terms and conditions. Essentially, it’s a project blueprint outlining a valid contract’s basic elements.

Broadly speaking, there are three types of SOWs: design, level of effort, and project-based.

• Design SOWs focus on product design and development. They outline specific tasks related to these functions, like research, wireframing, prototyping, and testing. The agency or contractor delivers a design or finished product according to client requirements. This SOW includes milestones for design reviews and approvals (and, usually, corresponding payment installments).
• Level of effort SOWs (also called time and material or unit rate SOWs) involve hourly payment plus charges for materials used, making them ideal for projects where you’re unsure of the time or resources required to complete it. They may have a “not-to-exceed” limit on hours. Clients receive detailed, regularly itemized invoices for work performed.
• Project-based SOWs are outcome-driven. They highlight the project requirements and goals, which the service provider is responsible for achieving. They’re ideal when the outcome is more important than the process. It’s a fixed-price, fixed-scope contract and the most common type of SOW.

It’s important to note an SOW is not a formal contract. Rather, it’s a way for service businesses to define expectations and limit scope creep. It serves as a foundation for the more detailed contract that follows.

It also is not a service-level agreement (SLA) or a master service agreement (MSA). An SLA sets specific performance levels and targets (and what happens if the contractor misses them). An MSA outlines the terms of an ongoing, open-ended relationship between two parties.

Synonyms

• Project scope
• Project statement
• Work order

Purpose of SOWs in Service Businesses

In service businesses, the output is often intangible. And project success heavily depends on clear communication and mutual understanding. An SOW aligns the provider and client on the project’s objectives, deliverables, and execution plan before the project begins. This goes a long way in preventing misunderstandings, scope creep, and other common problems.

Let’s dive into the most critical functions SOWs serve for project- and service-based businesses.

Establishes Clear Expectations

A statement of work sets mutual expectations for the client and service provider. It outlines the work to be done, when it’s due, and how much it costs. When clients understand what they’re getting for their money (and in what timeframe), there are fewer chances of misunderstandings, disputes, and compliance issues.

Defines Scope and Deliverables

Data from the Project Management Institute shows that roughly half of projects experience scope creep in one way or another. Assuming clients and project managers abide by the SOW, it prevents this from happening by clearly defining the scope of work for the project, including special requirements.

Setting Project Timelines

Although some projects have ambiguous completion dates, most have defined timelines. SOWs outline the tasks and activities needed to complete it. Many SOWs include milestones for project phases. And they specify the start and end date for each significant deliverable.

Allocates Resources and Responsibilities

Setting a timeline as a North Star is just one way SOWs hold parties accountable for their project contributions. They also assign roles to each participating member, which makes it easier for project managers to stay on top of day-to-day tasks that bring service work to completion. In the statement of work, the service provider also optimizes the project budget in terms of hours and resources.

Provides Legal Protection

Although it isn’t the final contract, an SOW is the foundation for what’s included in it later on in the contracting process. As such, it gives both parties legal protection concerning scope, payment terms, and project deliverables. It also serves as a reference document in the event of disputes between the service provider and the client.

Key Components of an SOW

1. Overview

At the beginning of your SOW, you’ll include a brief summary of the project, including its purpose and objectives. This “intro” provides context for the rest of the document.

2. Project objectives and goals

Here is where you’ll go more into detail about why you’re being contracted for this project. It outlines what the client expects to receive from you at the end of the project.

For example, the goals of a web development project might be…

• Designing a new website
• Developing a mobile-responsive layout
• Integrating ecommerce functionality
• Creating a content management system for the client

…with the overarching objective of increasing online sales and enhancing the customer experience.

3. Detailed scope of work

The scope of work section describes the specific tasks and activities you or your team will perform as part of the project.

It includes:

• Deliverables (what you’re producing)
• Exclusions (what you aren’t producing or including)
• Constraints (what might delay progress)
• Assumptions (what you’re basing your work on, like timely client feedback)
• Acceptance criteria (what determines if a deliverable meets quality standards)

Give a detailed breakdown of who’s responsible for what in this section, too. Identify the project manager, decision-makers on the client side who approve deliverables, subject matter experts on your team, and individual team members and their responsibilities.

3. Milestones and timelines

Here, you will create a section for each major milestone and when you will complete it. These are concrete deadlines clients can reasonably expect you to achieve. As such, they’re a critical part of decision-making and deal closure — e.g., if you’re able to complete X milestone in Y amount of time, they’ll be more likely to sign with you.

Milestones can also serve as benchmarkers for progress payments (if your project is paid in installments). Keep in mind that while you may have more frequent revisions or feedback periods, milestones should be reserved for major moments in the project lifecycle, like the completion of a project phase or delivery of key assets.

As an example, a milestone could be:

• Kickoff meeting
• Design approved by client
• Coding complete
• Production launched
• Product shipped/delivered

In this section, you’ll also include a work breakdown structure. You have to give detailed tasks and phases, and explain exactly how you’ll complete them.

4. Resources and requirements

What you’ll need to get the project done will depend on your specific industry and scope of work. Here are some things to include in this section:

• Tools and technology
• Personnel/roles involved in the project
• Hourly rates for team members
• Materials costs (such as software licenses or project-specific assets)
• Client-provided resources (e.g., access to existing digital assets)

Here, you’ll also detail which costs are paid for by the client and which ones you’ll cover. Often, this will be a combination of both, and the client will send you reimbursements for overages on materials, labor, and other project-related expenses.

5. Payment terms and conditions

This section outlines your accounts receivable collections process to ensure you receive payment on time. It details the payment schedule, milestones where clients will make partial payments before continuing, and payment methods you accept.

Some businesses prefer to bill at the end of a project, but more and more are billing on retainer or maintaining ongoing client relationships through subscriptions.

The payment terms section should also cover what happens if there are significant changes in the scope of the project (think: details about renegotiations and change orders). 

Also, here’s your opportunity to protect yourself from delinquent payments. Every SOW should include your late fee structure and what happens if clients don’t meet their obligations.

6. Terms of confidentiality and non-disclosure

This section protects both parties from any possibility of sensitive information leaking to competitors. If your client needs to provide specific tools or resources, you or they release trade secrets, or the nature of your service is such that your working relationship needs to be private, you’ll need to include a short confidentiality clause in your SOW.

Creating an Effective Statement of Work

To create an SOW that actually helps you achieve your project objectives while protecting your business interests, you have to do more than just fill in the blank spaces of a template.

It doesn’t have to be difficult, though. Here are a few of our best tips:

• Begin your SOW with a straightforward explanation of the project’s goals, expectations, and why it matters. This makes the document easier to understand for everyone, not just technical or legal team members.
• Maintain a high level of detail, especially in describing tasks and responsibilities. If you don’t think there’s enough information in your SOW (or some of the content is redundant or unimportant), consider a preliminary scoping phase to refine these details.
• Write in an active voice to clearly attribute responsibilities, avoiding ambiguity about who is responsible for each task.
• Clearly differentiate between rough guesses and informed estimates within your SOW. Provide a rationale for your estimates, including the basis for cost calculations, to build trust and credibility with clients.
• Pay close attention to the “Assumptions” section of your SOW, as it can often lead to scope and cost overruns. Limit assumptions to those that are absolutely necessary and ensure they are reasonable and clearly defined.
• Enhance your SOW visual elements to bridge communication gaps. Diagrams, flowcharts, and timelines can visually represent project phases, dependencies, and milestones in some types of complex contracts.

Managing Client Expectations

As the service provider, you set the precedent here. You define how clients should anticipate working with you, and they shouldn’t be (reasonably) upset if their expectations fall outside those parameters.

Collaboration between clients and service providers is the most important.

Internally, you have to verify every aspect of project delivery is actually possible.

You can’t, for example, agree to a fixed price if you haven’t consulted your team for an estimate of how long it’ll take (don’t make the mistake of over-committing and burning out your team). Neither can you promise a specific service if you don’t have the tools, personnel, or resources to complete it.

Of course, you’ll customize your SOW based on specific project needs. Client-side, your goal is to take what’s feasible and, based on the flexibility you have, find ways to present an offer they’re happy with.

Clear and concise language goes a long way with SOWs.

Ambiguous or subjective language sets you up for disputes, client dissatisfaction, and misunderstandings down the line. It either (a) makes you an all-around less trustworthy organization to do business with or (b) causes clients to have false expectations of what you will and won’t do for them.

• Use action verbs to describe tasks.
• Avoid vague phrases like “as needed.”
• Use specific and measurable metrics to define success or quality.
• Include contingencies for unforeseen circumstances.

This is especially important in your exclusionary and deliverables clauses. Let’s say you’re a web dev agency that promises to deliver a new site with a modern-looking homepage, image galleries, and contact form. On an ongoing basis, you offer certain support services.

Rather than saying “support services as needed,” specifying that it “includes ongoing website maintenance, content updates post-launch, and third-party plugin updates” but excludes “major redesigns or changes to the site structure” is more specific and actionable.

Keep client communications high-level.

The worst-case scenario (other than a series of broken promises) is over-promising upfront. Don’t promise what you don’t have the resources or ability to deliver on, or clients will end up disappointed after investing time and money into your services.

You don’t have to mention every detail of the project in the SOW, especially if they’re not relevant yet (e.g., you don’t need to talk about design specs when the client hasn’t even approved the project). And you certainly shouldn’t send every little status update to clients.

Be transparent about project progress, but don’t inundate them with information.

Minimizing scope creep maximizes productivity and profitability.

“Scope creep” refers to the gradual expansion of project goals and deliverables beyond what was initially agreed upon. Adding more features or services as you go along can be tempting, especially if your client requests them (who doesn’t want to offer a better service for their clients?).

The problem here, though, is twofold:

• Your employees responsible for project execution may not have the bandwidth to take on additional work while also handling their existing responsibilities.
• Customers may take a mile when you give them an inch — expecting additional services at no extra cost might become the norm if you’re too lenient.

You have to draw the line somewhere. So, you might as well draw it before you burn your employees out and come off as disorganized and unprofessional to clients.

Common Challenges When Drafting SOWs for Contracts

A solid SOW sets you up nicely for the first stages of contract management. But…drafting an SOW for a business contract entails several nuanced issues you might not immediately consider. (as far as effectiveness and enforceability are concerned).

Adjusting details based on contract type

The level of detail in an SOW largely depends on the type of contract it supports. For example, fixed-price contracts demand more detailed SOWs to align work and price expectations. On the other hand, time and materials contracts normally require less detail because costs vary with the scope of work performed​​.

Conflict with master service agreements (MSAs)

Ensuring that the SOW does not conflict with any terms in the MSA is crucial. Overlaps and contradictions between these documents can lead to confusion and disputes. Having both documents reviewed together, preferably by the same legal counsel, is beneficial because it ensures consistency and mitigates most of the conflict risk​​.

Challenges with third-party SOWs

Using a Statement of Work (SOW) provided by another party can introduce terms that may disproportionately benefit that party. Such SOWs might include unfavorable clauses like one-sided indemnification or terms that could nullify previously agreed-upon conditions in the MSA. It’s essential to scrutinize and negotiate these third-party SOWs carefully​​.

Ensuring authorized negotiations

Your contract management software will allow you (i.e., an admin) to set permissions and controls that designate who can negotiate, approve, and make changes. But it’s up to you to create and enforce the right rules.

Another common challenge is having multiple individuals, including stakeholders, negotiating an SOW without proper coordination. This can lead to contradictory promises and wasted time, so it’s important to have a clear process in place for negotiating and approving modifications.

Managing confidentiality during negotiations

It’s a common misconception that negotiations are inherently confidential. To protect sensitive information and discussions, it’s best to have a confidentiality or non-disclosure agreement in place. That way, both parties’ interests are protected.

Incorporating flexibility for evolving agreements

One less obvious challenge is designing SOWs that are specific enough to provide clear direction and flexible enough to accommodate changes without requiring frequent renegotiations.

Projects, especially long-term or complex ones, evolve with changing market conditions, technological advancements, and shifting organizational priorities. Drafting an SOW that includes adaptation mechanisms — like scope adjustment processes, innovation clauses, and regular review checkpoints — is critical for maintaining project relevance and momentum.

Best Practices for Implementing and Enforcing SOWs

Implementing and enforcing SOWs requires a collaborative effort across your organization and clear communication with your clients.

Here are our best practices for different roles within your company:

• Project managers: Utilize an established SOW template that references the Master Agreement to ensure consistency and legal alignment across projects.
• Legal teams: Include a detailed section on deliverables and explicitly outline what is considered out-of-scope to prevent scope creep.
• Sales teams: Detail client-provided resources, necessary action items for clients, and other prerequisites for project success in your “assumptions” section​​.
• Finance departments: Structure the statement of work to facilitate revenue recognition by defining clear acceptance criteria for deliverables.
• Client liaison officers: Encourage clients to actively participate in defining project objectives and deliverables.
• Technical leads: Work directly with clients to thoroughly review all technical and project requirements so they’re clearly defined in the SOW.
• Quality assurance teams: Develop a clear and concise process for change orders tied to the out-of-scope work section.

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