- Writing an effective Statement of Work can help you ensure that contracts are performed on time, on budget and to the required capability.
The Statement of Work is a critical part of any procurement contract because it sets out what the procuring entity/purchaser wants by detailing the specific requirements in relation to the contractor's obligation to manufacture the equipment, supply the goods, construct the infrastructure or provide the services (as the case may be).
In large part, the Statement of Work often represents the sharp end of the contract in that it is frequently a source of dispute between the parties whenever contractor performance becomes an issue. Where the Statement of Work is inadequate, there is a significant risk that the objective of the contract will not be achieved.
In this article, we will consider a number of practical issues which will help purchasers get the Statement of Work right.
Invest time in preparing the Statement of Work: Procuring entities regularly devote substantial time and resources in settling the conditions of contract. Given that the Statement of Work sets out the purchaser's requirements, procuring entities should also invest appropriate time and resources upfront to ensure that the Statement of Work contains sufficient detail, having regard to the nature of the procurement. This should include a detailed review of the linkages between the conditions of contract and the Statement of Work.
The procuring entity should also ensure that appropriate technical input is obtained from persons with experience in the relevant industry. Amending the Statement of Work midway through the procurement process where the procuring entity fails to get it right up front can often result in additional costs (to both the purchaser and bidders), bidder frustration and substantial delays.
Consider adopting an output or performance based Statement of Work: Procuring entities should generally seek to adopt an output- or performance- based Statement of Work, which prescribes the purchaser's requirements by reference to the output or performance required. It is then up to the contractor to determine how to meet those requirements. This can be contrasted with an input-based Statement of Work which defines the purchaser's requirements by reference to specific inputs; the contractor must meet the purchaser's requirements in accordance with them.
The benefit of an output-based Statement of Work is that the risk of performance can more readily be transferred to the contractor. By defining the contractor's obligations by reference to the outputs, the contractor's obligations are specifically linked to performance. Statements of Work which are output-based often contain some input-based requirements.
Where a purchaser adopts an output- or performance-based Statement of Work, the purchaser needs to consider how best to capture the contractor's solution or response to the Statement of Work. In a tender process, a bidder's submission will generally provide a detailed response as to how the bidder proposes to meet the requirements of the Statement of Work.
Frequently, the tender response will offer a solution which exceeds one or more of the requirements in the Statement of Work. In the conditions of contract, the contractor should not only be under an obligation to meet the requirements of the Statement of Work but also the tender response so as to capture the bidder's solution. Ideally, any conflicts between the Statement of Work and the tender response should be resolved by amending one or the other of the documents to reflect the agreed position. It is also often sensible for the conditions of contract to provide a mechanism for dealing with any conflicts between the Statement of Work and the tender response.
Don't make the Statement of Work a wish list: Purchasers can be tempted to ask for more than they actually need in the Statement of Work, leading to bidders tendering a price which does not provide value for money. Accordingly, care should be given to ensure that the Statement of Work reflects the purchaser's needs. Where the purchaser conducts a tender process and uses an output-based Statement of Work, it can sometimes be difficult for bidders to determine the type of solution which the purchaser requires ie. whether the purchaser requires a top of the range solution or something less. Procuring entities should ensure that the Statement of Work or the tender documentation provides sufficient guidance to bidders in this regard.
Use appropriate language: The purchaser needs to use appropriate language in the Statement of Work to describe its requirements. For example, if it is intended that the contractor comply with a particular requirement, use mandatory language such as "must", "shall" or "will" rather than non-mandatory language such as "may" or "should".
Avoid imposing contractual obligations in the Statement of Work: It is important to distinguish between contractual obligations and the detailed requirements of the Statement of Work. The conditions of contract, not the Statement of Work, should be the primary source of contractual obligations. The Statement of Work's purpose is to prescribe the detailed requirements of the contractor's obligation to provide the equipment, goods, infrastructure or service.
The Statement of Work should be reviewed to ensure that it does not contain any provisions which would more appropriately be included in the conditions of contract (such as provisions entitling the contractor to claim additional money and/or time). Likewise the conditions of contract should not contain any provisions which would more appropriately be included in the Statement of Work.
Avoid inconsistencies: The conditions of contract will generally contain a clause providing that the conditions of contract have priority over the Statement of Work to the extent of any inconsistency. This makes it important to ensure that the Statement of Work is consistent with the conditions of contract as parts of the Statement of Work that are inconsistent may have no effect.
Be careful when referring to other documents: Statements of Work often require contractors to comply with requirements contained in documents outside the Statement of Work such as standards or policies. These documents can contain a broad range of requirements which may be inappropriate to the procurement or inconsistent with other requirements in the Statement of Work. Bidders will normally fully price the cost of complying with such documents and this may not provide value for money. Purchasers should carefully review any such documents to ensure that the requirements are appropriate and specify in the Statement of Work which document is to apply in the event of inconsistency.
Another issue which arises when requiring the contractor to comply with such documents is whether the contractor should comply with a specified version of the document or the document as may be amended from time to time. Requiring the contractor to comply with the document as may be amended from time to time may not provide value for money for the purchaser as the contractor may build in a contingency to its price in the event that a change to the document requires the contractor to incur additional expenditure if the contract does not otherwise compensate the contractor for complying with any such changes. Accordingly, the purchaser needs to carefully consider its requirements when specifying the contractor's obligations in relation to such documents.
One size doesn't fit all: Rarely will any two procurements be the same. Accordingly, care needs to be taken when using templates or pro formas for the Statement of Work to ensure that the Statement of Work has been properly tailored for the procurement. In addition, overly complex templates are often not appropriate for more simple procurements.
Consider testing the market: If in doubt about whether the requirements in the Statement of Work are achievable or whether the Statement of Work will satisfy the purchaser's requirements, consider testing the market to obtain bidder feedback. A draft Statement of Work can be issued to prospective bidders either before or after the commencement of the tender process for the purpose of obtaining feedback. This will help to ensure that the Statement of Work is commercially realistic and reflects the purchaser's requirements. It may also save time in the long run. You should be aware, however, that this approach may carry some probity risk which will need to be properly managed.
Unproven technology: If the procurement involves unproven technology, consider engaging a specialist consultant to help develop the Statement of Work or, alternatively, consider adopting a staged approach in the contract. The first stage would involve the contractor developing the Statement of Work and, if the purchaser approves the Statement of Work and decides to proceed with the second stage, the second stage would involve the contractor implementing the Statement of Work.
Another approach sometimes used is for the purchaser to appoint a contractor to develop the Statement of Work and to then carry out a tender process for the appointment of a contractor to implement the Statement of Work. Frequently, the contractor who prepares the Statement of Work will also be a bidder in the subsequent tender process. To ensure that the tender process is effective and attracts tenders, the purchaser will need to consider how to address the advantage which the bidder who prepared the Statement of Work has so as to best achieve a level playing field. This is often addressed by ensuring that all bidders are given access to all information which the bidder who prepared the Statement of Work had access to, ensuring that the bidders have sufficient time to prepare their tenders and ensuring that bidders are given the opportunity to ask questions prior to the submission of tenders.
Writing an effective Statement of Work can help procuring entities/purchasers ensure that contracts are performed on time, on budget and to the required capability.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.