Seplat Petroleum Development Company Plc
"How do we get out of this contract????" That subject line of an email to Joe (a fictitious character) pointed to a poorly developed Statement of Work (SoW). The whole process stopped suddenly. The team no longer knew how to respond. And now they're asking Joe for help. What does he do next?
By Jean Fine, Director of Contracts, Teledyne Oil and Gas
This article should help you avoid the traps Joe's team fell into, traps they had built themselves, bit by bit by not using four critical tools they needed.
Many have walked in Joe's shoes! Might that be you? Joe's team had no template checklist. No change request form or plan for inevitable changes. They used one template for several types of contracts. They never sent the SoW through stakeholders for approval.
SoW tools – use them properly
Joe knows the problem could have been prevented with a well-drafted SoW. The SoW is the agreed operational document providing instructions and assignments for performance under contracts.
Although a SoW is often relied upon to evaluate change requests, program reviews, and fulfillment of payment criteria, it is often hastily prepared, patched together from emails. Contract, procurement and/or legal professionals don't get the opportunity to review it.
That's why Joe received the email. The writer contacted him after there was a problem. Joe did not get to review the documents to ensure the SoW was written to fulfill its essential roles both operationally and legally.
Sound familiar? Given the architecture of most organizations like Joe's, it is increasingly important to have useful tools globally to prepare SoW(s).
Empower Your Team With A Template/Checklist
You need an adaptable checklist that can be used to address content and approval. These are the essential elements:
Make sure the checklist includes essential elements and can be used as the sign-off tool in collaboration with the customer or supplier.
Include the tasks, sub-tasks, responsible parties, and items that are often forgotten in a haste to complete the SoW. These can include diverse issues such as export compliance review, revenue recognition criteria, intellectual property rights, proofreading, and use of terms in the proper legal manner.
An example is the term “best efforts” versus “commercially reasonable efforts.” Not only is “best efforts” a very subjective term but -- depending upon the jurisdiction -- may impose unintended obligations requiring the performing party to use every resource available to accomplish the task.
The checklist also gains the “cold eyes” review perspective. After reading the SoW many times, it is hard to objectively catch errors and sections missing.
Discuss exclusions with your team and document the important ones in the SoW. For example, the SoW may develop the work in phases with each having success criteria. If the deliverable is non-standard and the feasibility for manufacture is the objective scope of the SoW, it's important to document that the deliverable product is not a definitive obligation but the study is the deliverable.
In documenting exclusions, it's best not reuse templates. Often reusing templates can introduce errors in the language forming a commitment when the template is for R&D efforts. A similar example can occur when the parties have discussed a variety of approaches, and have agreed verbally to not include certain features. Document these verbal exclusions.
Another reason to draft exclusions in off-shore construction contracts is to limit implied decennial liability based upon local law. By carefully stating what is and isn't included in the SoW, the scope of responsibility is manageable and priced.
Use several templates and define by type of contract.
Provide ways to modify the scope of work – and plan for changes. If you anticipate changes to the SoW during the term of the project, incorporate into the SoW template a standard change form or variation form for either party to request a modification to the scope.
Requested changes of all types are inevitable. These include changes such as constructive, directed, and those outside of the scope known as “cardinal changes”. The SoW may identify the type of change and structure the process for evaluation, pricing, and further planning as required.
Plan for missed deadline potential
Appropriately documenting changes can prevent the imposition of liquidated damages and/or performance guarantees. This can be done by schedule relief.
Other consequences of missed deadlines -- such as relying on customers or suppliers to provide test equipment, reports and similar documentation-- may also require changes to the schedule. Given its important role, the change form should be very easy to complete, process, and document.
Have a cross functional list of all stakeholders Establishing a list of stakeholders (reviewers) and approvals (signatories) for each geographical location helps you identify key content drafters and organize the work flow. You can then obtain the cross-functional organization buy-infor designating the back-up personnel for approval of content and the most important check list. This is an essential tool to assist your team as the organization grows and changes.
In summary, Joe's team now has the tools:
These basic tools, collaboratively developed, will better address the needs of the team and its customers/suppliers throughout the course of the project, minimizing the panic-driven emails asking, “How do we get out of this Contract????”.
For further information, click on Top Ten SoW Tips (.pptx, 138Kb)
TO CONTACT THE AUTHOR, please mail your question to Info IACCM
ABOUT THE AUTHOR
Jean Fine is the Director of Contracts for Teledyne Oil & Gas. She has over 20 years of commercial, international, and government contracts and business operations experience and has held leadership roles on both the buy and sell-side. Prior to joining Teledyne Oil & Gas in 2008, Jean lived in Northern California where she first joined IACCM. She earned a B.S. from Embry-Riddle Aeronautical University and an MBA with a Master of Science in Gov't Contracting from the Florida Institute of Technology.
Teledyne Oil & Gas is a global business with multiple manufacturing centers in the US and UK supported by integration, test and field service centers in Houston, Rio De Janeiro, Aberdeen, and Singapore; Teledyne Oil & Gas is Teledyne ODI, Teledyne Cormon, Teledyne DGO and Teledyne Impulse, Teledyne Storm Cable and Teledyne VariSystems. Teledyne Oil & Gas is focused on delivering high reliability engineered solutions for subsea/topside pipeline asset integrity monitoring, sensing, and power/data network interfacing and distribution applications in the oil and gas exploration and productions industry.