To Write or Not to Write – Written vs. “Drop-Down” MSAs and SOWs

The Question: Should You Use Drop Down MSAs and/or SOWs?

Here is an example of a company using a drop-down term sheet as a Master Service Agreement, or  MSA, and a fill-in-the-blank form to create the Statement of Work, or SOW.

A current client provides content creation (websites, logos. etc.). The firm also provides ongoing marketing services (SEO, social media work, ads, etc.)

The client was well on its way to providing the marketing services via a click-on license. The customer could choose various types of services and the amount of help it needed from drop down menus. There was a click-on terms sheet that came up once the decisions were made.

The question that came up was whether the client could provide the creative services – the creation of creative content – on the same, click-on basis. The master service agreement would be the drop-down term sheet, and the process might require a statement of work at the end, but the customer would be inputting its needs and wants.

This article is merely an opinion piece, not a lecture. I have no idea if my arguments are correct, persuasive or based on correct assumptions. All legal aspects of the question are ignored entirely. This is no more than my opinion.

Observations and Opinions

My reasons for landing on the side of the written statement of work (SOW) and Master Services Agreement (MSA) signed by both parties include:

Statement of Work

Information Gathering

  • If the customer inputs its needs and wants into a system, the program (short of the deployment of AI) has a limited ability to change the next set of questions according to the previous answers. Yes, a decision
    Man-Typing-on-keyboard

    (c) Can Stock Photo / Kzenon

    tree could do some selection. But a decision tree has a finite number of choices and cannot pick up nuances. In the arena of targeted creative content, the decision tree would also have to be huge.

  • If my client is asking the questions in real time, there are several advantages:
    • The client has a good idea of the starting point – what questions need to be asked first – based on its experience with various industries, company size, etc. The customer is seen holistically when determining what to ask. A decision tree would require the prospect to fill in a huge number of blanks to approximate this outcome.
    • My client probably has a better idea of what the customer really needs than the customer. The gathering of the information will be much more efficient in total. If the prospect were filling in blanks, it might be the wrong blanks with the wrong answers.
    • The client’s team can react to nuances in the customer’s input as the questions are asked and answered. That means the questions will focus in on the actual needs (and wants) of the customer.
    • My Client also knows what the end product – the SOW – should look like and can tailor questions to reach the correct end point.

Reduced Ambiguity & Errors of Omission

  • If it were possible to create a complete SOW online, which I obviously doubt, and even if both parties had to sign it, there still is room for ambiguity and errors of omission.
    • The customer may focus on the wrong aspects of the SOW.
    • Nuances may be missed.
    • My client knows what sections to go over with a customer to be certain they are on the same page as far as deliverables and specifications.
    • Ambiguities can be corrected before they become a problem.
  • This interactive, real-time process reduces the probability of errors of omission.

MSA

The MSA is Read Before it is Signed

  • A drop down MSA may not be read carefully by the customer.
  • I will not address the legal implications if, as is often said, most people never read drop-down agreements (though I do admit to being curious.)
  • My preference is to do everything possible to make certain that the customer has read at least the key commercial aspects of the MSA before signing it.
    • The assumption that a written or electronic version (Word, Google Docs, etc.) of an MSA will be read more carefully by the customer than a drop down may not be correct. I would take a bet on that though.
  • An example of a key term the customer needs to understand is the change order process – something I build into MSAs. The contract not only requires a signed change order to modify a SOW, but also sets out a process to be followed to get there.
    • The risk of not having a strict process is that people working on the project (and possibly low-level people at that) may decide on a substantive change without bothering with approval or even informing management. If the customer decides it is in its best interest to claim the change is binding, my client has a major problem. It may have to choose between a loss of margin on the project or making the customer angry.

Negotiation

  • Presenting a drop-down contract indicates unwillingness to negotiate.
  • If changes were to be negotiated, the contract would have to be converted to another format and then marked up, so a “written” agreement would still be required.
  • A contract provided in Word, Google Docs, or Apple Pages indicates room for compromise.
    • The Client does not have to accept every, or even any, proposed change.
    • If negotiated properly, my client will explain why the Ts and Cs are what they are;
    • The customer can make a rational risk-versus-reward determination based on the facts;
    • If the parties cannot negotiate a win-win contract, should they do business together?

Adaptability

(c) Can Stock Photo / photography33
  • Assume, hypothetically that the MSA requires my client to modify deliverables that fail to meet the specifications, but no time limit is given:
    • The customer may come back with a proposed time limit.
    • Following further discussions, the customer may retreat to a requirement that my client make its “best efforts” to match the deliverable to the specifications. “Best efforts” is a tough requirement.
    • My client may then come back with “commercially reasonable best efforts.”
  • A drop-down license does not provide a method to negotiate purposely ambiguous, but effective, compromises.

For creative content, among other types of deliverables, a drop-down SOW is not practical. A drop-down MSA is even less so, as any needed changes requires the parties to begin working with a separate document anyway. That is the only way valid negotiations, compromise and purposeful ambiguity can be introduced.

An additional article: 6 Elements of Good SOWs is available here.

6 Elements of Good SOWs

Much of the work I perform for high tech enterprises deals with Statements of Work or Scopes of Work (there may be other names out there as well – I will call them SOWs.)

The SOW can be a major stumbling block in a project if it is not properly written. One reason it often is not is that the people working with the customer to develop the SOW are usually stretched thin, and producing a clear, concise SOW takes time, concentrated effort, and expertise.

Here are some of the major SOW requirements that will be discussed below:

  1. Tie every SOW to a Master Services Agreement (MSA) that includes the key provisions.
  2. Have a strictly limited, but available, method of contradicting the terms set out in the MSA through specific wording in the body of the SOW.
  3. Take care in wording the pricing sections of the SOW to prevent pricing meant for a short term to be locked in for a much longer period.
  4. Include a change order process (actually contained in the MSA but referring to the SOW) that sets out strict requirements, without which a change to the scope of work is invalid.

Consider each of the requirements in more detail:

  1. To have a workable SOW, tie the document to a Master Services Agreement or some other document that sets out the terms and conditions under which one company will provide product and/or services to the other. Include in the MSAs sufficient detail so that the parties know exactly what to expect when an SOW is executed, and work begins. General requirements for a proper MSA will be covered elsewhere. Elements of a good MSA as it relates to the SOWs include:
    • The minimum requirements for SOWs to be valid under the MSA
    • Escalation procedures to handle minor disagreements about the services before they become major ones
    • A strict change order process for adjusting the SOW during the work term. This is frequently omitted, which can be a costly error. Without a clear, step-by step procedure, changes of scope are made in the field and on the fly. Margin erosion for the service provider and disagreements about the final deliverables are potential results.
    • The clear delineation of what intellectual property will be owned by whom when work is performed. If this section is not properly drafted, the parties may have a short and stormy relationship.
  2. There are always special cases where the particular SOW does not fit the terms of the MSA. Reasons for such deviations may be as simple as extended payment terms or as complex as a different allocation of intellectual property (IP).
    • Make the MSA rule in most cases if there is a contradiction between the documents. Then add language that allows for the SOW to overrule portions of the MSA if specific sections of the MSA being modified are referenced by section number. Then make it clear the exception applies only to that one SOW.
    • An exception would be an SOW that specifies unique parameters. For example, an SOW for the production of pictures or videos may include a “style guide” that sets out the quality of the pictures, time of the videos, the number of “talent” included, etc. In the unlikely event there is a conflict between the MSA and the style guide, the latter should rule. This can be specified in the SOW.
  3. Place pricing in the SOW unless, for example, the party performing the work will charge the same hourly rate regardless of what is in the SOW. These cases are rare.
    • Serious errors can occur in the pricing section. I have handled many SOWs stating that the price for a quoted service will apply for the term of the Agreement.” The SOWs for that company defined the MSA as the “Agreement” in the opening section (to tie the documents together, as required). The writers of the SOWs meant for the price to be good for the term of the SOW, but as they dealt with SOWs and not MSAs, thinking of the SOW as “the Agreement” was an easy error to make. MSAs frequently have a term of three years or more, or are evergreen, renewing automatically unless one party objects. Locking in the price for that term could be very costly to the service provider.
  4. Absolutely define what is going to be done by the performing party in a way that is so clear that there is no room for controversy. This requires a lot of work, and it is the place where most companies get into trouble. If the SOW is inexact, inaccurate, poorly written, and full of errors of omission, or all of the above (they go hand-in-hand), the room for disputes between the parties is huge, and project delays or even cancellations are likely.
    • One test is if someone with a moderate understanding of the service to be performed (especially when they are high-tech) cannot decipher what the services and/or the products to be delivered are, then the SOW is inadequate.
    • When the SOW is going to describe complex, high-tech operations, the developers or other technical people that will perform the work should review the schedule, each deliverable, any deliverable testing and other technical concerns for correctness.
      • In one memorable case, I finally got the CTO into a conference room, only to discover that the SOW described, in every instance, services the company could never perform. It took over four hours of difficult work to rewrite the entire SOW so that it accurately described the work that would be performed.
  5. Use good grammar and concise writing for clarity. Good grammar reduces the possibility of misinterpretation. Being concise makes for a shorter cleaner document. It also forces you to understand the point you wish to make well enough that extra words are not needed to express it. Even when there are bullet points rather than paragraphs, how those bullets convey the information is critical.
  6. Include an execution block. It is best that both sides agree to the terms of the SOW in writing.

It is important for the service provider to locate and utilize someone who can create an SOW that will serve both parties as an accurate guide for the term of the project. This will speed the process and avoid disagreements along the way.

 

Work Stoppage and Delay Fees

What are work stoppage and delay fees?

Assume you are a service provider and you are taking videos of clients’ products for their websites. You have camera people, production staff, voice over talent and other staff all ready for the day’s shoot, and you have booked the studio for the day.

What happens if the Client prevents the work from going forward on time? Perhaps the product to be shot does not arrive in time to be assembled properly. Or the client decides on one more script edit at the very last minute.

It does not matter if the client stops the work arbitrarily or if work grinds to a halt because

the client failed to meet its obligations on time; you, the service provider, are going to feel the pain.

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What is needed is protection in the form of work stoppage and delay fees in the Statement of Work (SOW) executed with the client:

  1. A provision passing on the unavoidable costs incurred because of the delay; and

  2. A significant hourly fee for the time the work is delayed.

This is a fair arrangement. The hourly fee provides an incentive for the client to keep to the schedule it agreed to. The charge for unavoidable incurred costs is clearly fair. If the service provider can take steps to reduce those costs, it is obligated to do so, so the client pays only for what costs the service provider could not postpone.

Perhaps these provisions do not fit every arrangement, but work stoppage and delay fees payable by the client can be important protection for the service provider.

Contract Terms – Do the Math

This is about saying what you really mean in a contract, not almost what you mean. Contract terms (including the Statement of Work) must be clear and concise to create an effective working relationship.

The document that brought this topic to mind was a Statement of Work (SOW) for a service company client that sells its services in units of filming time. When I took a look at the SOW, I found language that could have caused unnecessary complications.

The salesperson stated in his draft of the SOW that my client had budgeted an average of (say) 20 units/product for product preparation prior to shooting. There are two problems here:

  1. You do not say what you budgeted. You say what the Contract-Terms-Math-Calculatorend-user customer will get for the initial fee and that anything over will incur additional charges.
  2. The math problem arose from the use of the word “average.”
    1. The wording creates a situation where someone must calculate an “average”. Who? When is it calculated? Does someone have to track the time and calculate an average after every product prep?
    2. The logical answer is that the average would be calculated at the end of the project. That is where the math comes in. Saying the end-user client would receive an average of 20 free minutes per product over the life of the project could be detrimental to my client. Assume the 20 minutes was exceeded by five minutes on five out of twenty products. Does my client charge a fee tied to the amount of excess time in total, 25 minutes, or the average  overrun, 25/400 minutes?  The contract should clearly provide for the former by stipulating a maximum of 20 minutes of prep per product, after which additional fees are assessed.

All Statement of Work terms should be clear and concise. When they are concerned with a calculation or accounting issues, particular care should be taken.

Writing a Statement of Work: Examples of Issues

Usually affiliated with a Master Services Agreement covering general terms and conditions, the Statement of Work (SOW) presents several difficult challenges.

See more about Effective Agreements services concerning Master Service Agreements and Statements of Work.

  1. Writing a Statement of Work means drafting very specific requirements with little or no room to maneuver.
  2. Writing a Statement of Work also requires combining a legal document with a sales one. There is room for hyperbole, but it had better be limited and the actual promises regarding services spelled out clearly, concisely and unequivocally.
  3. When writing a statement of work, you are not just doing a separate agreement for each client; you are doing a new one for each project, however small. That means a lotStatement of Work Checklist more work and tough decisions on a regular basis.

I currently have a client where the writing of the Statement of Work is, by necessity, a last minute exercise. Some of the lessons learned working with the client’s current template (and writing a new one) are interesting:

  • Errors of omission are particularly easy when writing a Statement of Work. This client’s V. P., Sales recently caught a problem built into every Statement of Work prepared for a couple of years. The SOW template correctly indicated that the client would receive only one file, but it failed to specify that the file could be in only one of two formats.
  • The same Sow Template had a services table and a charges table. Clearly, the description of the services needed to be the same in both, and it was not. Worse, the terms used were not as clear as they should have been. Where “hosting and streaming” was a correct definition of one service, the term “syndicating” was used. The latter term is open to wide interpretation.

Writing a Statement of Work that does not contain errors of omissions and the describes the service with crystal clarity is a bit of an art, but those are critical requirement.