The statement of work is the most important part of your contract. Over the last 30 years, I have seen thousands of scopes, statements of work, service descriptions, and technical specifications in proposals and contracts further detailing the ‘subject matter of sale’ in proposals or contracts. In this article, I will focus on how to successfully write statements of work.
For me, the statement of work is the functional cornerstone of each proposal and contract. And defining a clear and well-written statement of work is therefore an essential first step in any successful project.
When such specifications are predefined and standardized, like in the case of aircraft, ships, off-the-shelf software, well-written, and clear, they don’t need much attention of the proposal writers or contract drafters or legal reviewers.
A detailed, well-written, and clear statement of work leads to better solutions, lower costs, improved implementation and adoption, and higher customer satisfaction. The contract value and other important data are locked in statements of work.
However, as soon as statements of work need to be drafted for non-standard products (like modifications, changes, new products) or new projects or services that need to be defined, the contract value immediately is at risk.
Unclear Statements of Work are the Number 1 Cause of Disputes and Claims
When I ask companies I work for in which areas they have the most issues with their customers, post-signature conflicts about statements of work and scope or goals are always in the top 3 together with parties’ responsibilities and change management (both also important parts of a statement of work).
However, in the proposal and negotiation phase, most of the time companies in all industries spend too much time on discussions about liability limitation, price, and indemnification. Another reason why I believe that your proposal writers and contract negotiators cannot only have a legal background, but also have a solid understanding of your product, service, and operations.
When I review the statements of work in proposals or contracts, I see most of the time that they are unclear or badly written. And therefore I consider statements of work one of the most important factors impacting contract value leakage.
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So what are the factors related to statements of work that can lead to disputes, claims, penalties, delays in payment, and sometimes even termination of contracts? What issues lead to higher costs, wasted time, frustration, wrong solutions, contention during implementation, delivery, or failure of project or rejection of product/service altogether?
Factors Related to the Statement of Work Impacting Contract Value
1. Failure to capture requirements from the customer
Failure to capture customer requirements and understanding their goals correctly is the single biggest cause of the poor performance of contracts. What I see too often is that companies actually do not really listen to their customer. Too often companies think their products and services are exactly what their customers require, without actually asking the customer whether that is the case.
I have often encountered engineering-driven environments in companies where ‘second-guessing’ what the customer actually needs (or should need) is the favorite sport. Nobody even bothers to involve or ask the customer. Hours are spent in internal meetings discussing what is good for the customer.
Of course, this approach leads to proposals going out and customers rejecting them or you having to rewrite them. Which of course again is a waste of resources (time and money), and enhances the risk of losing deals or customers.
You need to involve the customer in creating value propositions. Only the customer knows what its needs and requirements are.
The main issue here is also that many manufacturing organizations don’t have a marketing or sales department. They are ”engineering-driven”. Who don’t have the right commercial skills and don’t understand that product-centric selling isn’t really effective in most cases.
It starts with having a clear process with the customer to capture requirements. Listening and understanding what the customer’s needs are. Which problems the customer is trying to solve. And seeing that requirements are not only related to technology and functionality but also to business objectives, stakeholder needs, the organizational structure and practices of the customer, etc.
The best way to capture requirements is in a question-and-answer conversational approach. Making sure you ask the right questions, in the right order, at the right time, to the right people. In future posts, I will discuss best practices and how this works.
2. Clearly defining customer requirements in the statement of work
The second biggest cause of future poor performance comes from not defining the customer requirements and roles and responsibilities clearly in your proposal or contract.
A problem well-defined is a problem half solved.John Dewey
You can listen carefully to your customers, clearly understand their needs, and what problems they want to solve, but you still need to write it down correctly. Detailed, clear, and well-written requirements lead to better solutions, lower costs, improved implementation, and adoption in the future.
You have to remember that a statement work deals with work performed or goods or services delivered in the future. It is your and your customer’s guide with the who, what, where, how, when, and how much of work must be performed.
This phase is where I have seen most things going terribly wrong. Companies leave drafting statements of work often to engineers, technical experts who may be the best in their domain, but never received training in putting technical descriptions onto commercial or contractual paper.
It leads to proposal writers, pricing managers, and contract drafters, and costing and pricing departments not understanding what actually the statement of work entails. And not being able to apply correct contract forms, terms and conditions sets, or pricing models.
What I see happen most of the time, as a result, is that companies include unnecessarily high contingency and risk factoring in prices. Which again makes their propositions less competitive.
Writing a statement of work and technical specifications requires a skilled writer. Who knows how to write outcomes-based work descriptions. And in industries like aerospace and defense understand how to navigate through complex regulations to create compliant goods or services.
3. Wrong language used in statements of work
The third cause of poor performance caused by defect related to the statement of work is issues related to language used.
Words matter. 40% of all contract disputes occur as a result of poor requirements, and scope creep starts the moment the ink is dry.Deployed.co 404
Even if you have captured all needs correctly, and think you have clearly defined the requirements, you still have to check whether your language used my not lad to value erosion in the future.
An extra complicating factor I have seen is when the tech writers have to write in another than their native language. In international environments like joint ventures where English is the standard language, I often see all but native English-speaking people working without proficiency in speaking, let alone writing English. This leads to hilariously badly written specifications, full of bad grammar, wrong punctuation, whole sentences lost in translation, etc. Which of course again results after signature in long discussions on how to interpret clauses, disputes, claims, and more contract value-destroying events.
Also, the writers of statements of work need to understand that commercial and legal text needs to be separated from technical specifications, processes, procedures, and drafted by other experts in your company (commercial or contract managers, legal or finance departments).
As for technical writing in general, drafting a statement of work and using the right words, correct grammar and punctuation, and understanding what should be in and what not is an art that you can only acquire over time by being trained. So again, you need skilled people doing your tech writing, including statements of work and technical specifications.
4. Not including relevant stakeholders in setting up and writing the statement of work
Another cause that may lead to contract value being eroded is not involving relevant stakeholders on time when drafting the statement of work or technical specification.
In the case of aircraft and other complex products, the technical specifications often are provided as standardized documents containing the full technical descriptions, configurations, options, and more.
Prices, payment schedules, indemnities, governing law, intellectual property, liabilities can be found in the main document (‘articles of agreement’) or in ‘general terms and conditions’ of the supplier. Often the articles of agreement and terms and conditions are also standardized, depending on the industry you’re working in. In those cases, the statement of work or technical specification often gets its own Annex to the proposal or contract.
However, in projects, especially one-offs (so with ‘non-recurring’ costs), or industries where a lot of customization takes place (like in construction, defense) and in more complex service environments (aerospace, maritime), statements of work often need to be set up from scratch.
Based on my experience, my advice is to involve all relevant stakeholders from day 1 of the project to prevent delays in later phases. Too late involvement of subcontractors/vendors and the customer, but also your contracts/legal/finance and other relevant departments in defining and writing the statement of work is in the top 3 of issues related to contract value leakage.
Not including them will certainly lead to unnecessary delays and even opposition in later phases, and submitting the proposal or getting the contract signed on time. As all said above it can also lead to the wrong contract forms being used which then need to be rewritten, which again costs time.
Customer requirements captured in a well-defined and well-written statement of work and the contracting strategy should be aligned at outset with all stakeholders in your team.
5. Not checking statements of work for commercial or legal wording
Some engineers think they also master commercial and legal drafting of documents and increase your risk exposure by adding wording to the statement of work that doesn’t belong there.
I often find wording related to prices, payments, liabilities, intellectual property, warranties, guarantees, indemnifications in statements of work, or technical specifications. Wording that contradicts clauses in the main body of the proposal or general terms and conditions and can lead to disputes or claims in the future.
So I always advise commercial-, contract-, and legal managers to thoroughly read drafts statements of work and specifications and approve them before being sent out to the customer.
Also, I make sure that in meetings with customers also the commercial or contract manager (or if that’s the case for your company: legal counsel) is present in meetings with the customer when the requirements of first drafts of the statement of work are discussed before the formal proposal is sent out.
I also recommend once in a while to review ‘standardized’ statements of work or technical specifications as described above. This is well worth your time and often you will find stuff there which doesn’t belong there (like legal liability language, performance guarantees, or warranties which you were not aware off, KPIs).
At least, especially when it is done by your engineering department, all your stakeholders should be informed or even consulted when changes are made to such documents. The same goes for general terms and conditions which should be regularly reviewed by all stakeholders.
6. Rushing out proposals or contracts too fast
So you wanted to do it correctly, following the process. First capture requirements by really listening to the customers and understanding the problems. The define the statement of work in clear and correctly written language. Involving all relevant stakeholders, including proposal and contract specialists, or your legal counsel. Because you know that more time spent in this statement of work creation phase will drastically reduce errors and costs in the future.
However, there is no time, the customer wants the proposal or a signed contract before the end of the week. Your salespeople are pushing you, the customer is on the phone every day so now you need to rush out the proposal.
Moreover, you didn’t get the assumptions 100% frozen on time. So your proposal writers of contract drafters are not sure which contract form they should use. Your pricing people cannot determine the costs, so also have difficulty determining the right price.
Now if you had repeatability built into your processes and didn’t have to create every statement of work frustratingly from scratch like some custom artwork. And had standard sets for your terms and conditions or templates for your articles of agreement. Also, it would have been good if you had already reached an early consensus with the customer.
So, what should you do? The best thing is not to let yourself be rushed. Go back to the customer and ask for more time. It will also be to the customer’s benefit to receive a proposal or draft contract which is clear, well-written, and does not lead to issues in the future. Or consider doing a no-bid in the case it is a tender. Sometimes it is better to lose a deal than to go for a bad deal which will destroy your bottom line.
The most important first step in arriving at a well-defined and well-written statement of work is spending enough time on capturing requirements by really listening to the customers and understanding their goals and problems. Then you still need to define the statement of work in clear and correctly written language. and involve all relevant stakeholders, including proposal and contract specialists, or your legal counsel.
Otherwise, accept to redo a lot of work and repeated loops in getting a final offer or draft contract out. Accept that you may have undersized or oversized resources needed for this project. Also already build in a risk provision for scope creep, because of unclarities in the statement of work, extra costs for delays, penalties, liquidated damages to be paid and all the other contract value leakage possible in the execution phase of the contract.
It doesn’t solve all the problems. For instance, given the fragmented use of the statement of work or technical specification and the fact that often multiple business units, departments, subcontractors of vendors need to implement is, no one department owns the document or template. This is the main and most significant issue in the execution of a contract. I will write about that in another post in the near future.
Checklist for a well-defined statement of work
So the statement of work should:
- Only contain clear specifications of the scope of goods and/or services/activities
- Contain ‘deliverables’ that only are what customer actually pays for so no MoMs, reports, etc. (‘milestones evidence’)
- Be aligned with the ‘subject matter of sale’ or scope and price in the main body of the proposal or contract
- Have clear descriptions of roles and responsibilities and activities (all stakeholders of both parties)
- Included acceptance, ordering, change (and other) procedures
- Not contain terms & conditions not belonging in statements of work (like prices, milestone payment schedules, liquidated damages, liability, intellectual property, penalty-related key performance indicators, excusable delay, warranties) that could better go into the ‘articles of agreement’ or ‘general terms & conditions’
- Also, I am not in favor of statements of work containing marketing texts (should go in cover letter or separate presentation).