In order to avoid having a multiplicity of contracts between such vendors and clients, and to save time, a Master Service Agreement (MSA) is entered between the parties with corresponding Statements of Work (SoWs) for different services or work orders to be performed by the service providers for future transactions. An MSA is entered between the parties which establishes the terms which once negotiated remain fixed between the parties, for example, representations and warranties, confidentiality obligations, ownership of intellectual property, the liability of the parties, indemnity, the scenarios under which the parties can terminate the contract, dispute resolution, etc. Therefore, the MSA forms the genesis of the legal relationship between the parties which is generally negotiated once. The Statement of Work (SOW) on the other hand is a concise document executed for a specific project. It lays down specific services to be provided as a part of the work order, the deliverables, the commercials, etc.
Key components of an SOW are as follows:
- Specific services have to be detailed in an SOW. An SOW should clearly spell out the specific services which need to be provided under the project. It should also state the roles and responsibilities of each party and the safeguards which should be kept in place if there are any inaccuracies in deliverables or delay in the project. An SOW in addition to providing the details regarding the exact nature of the services to be provided should also provide the key assumptions, dependencies of the project, if any. Once the assumptions of a project are identified it helps to shape a project in ways such as identifying the skills required to complete a project, the availability of a member working on the project, the delivery times of the project, etc. Dependencies on the other hand in an SOW clearly spell out the factors which the respective parties are dependent on for the completion of the project. Dependencies can be a crucial part of the SOW as one can assess the dependencies to fasten the liability on a party in case the project is not completed successfully. The SOW should have in place a timeline for the project i.e. the start and the end date of the specific project. The commercials involved canned be mapped to the timeline in certain cases. If a specific project is time-based it is recommended to state the number of hours or days that one should take to complete the project.
- An SOW should outline in detail the particular items which need to be delivered, if any, i.e. the deliverables, and provisions should be in place to safeguard the interest of the client in case the deliverables are inadequate. Acceptance criteria is one of the ways of safeguarding the interests of the client. Acceptance criteria lays down the requirements and essential conditions which must adhered to vis-a-vis the deliverable. For instance, in an SOW for the development of a software various quality/functionality analysis tests could be included in the acceptance criteria to ensure that the software is functional and suits the needs of the client. At times the parties may want to change the services which have been agreed to be provided through the SOW. This is can be done if the SOW provides for change orders which have been agreed by both the parties.
- SOW should also provide the specific location where the services are required to be performed.
- Finally, it is a good practice in the SOW to have in place the staffing requirements needed to complete the project, and to appoint a Project Manager from each party who would serve as the point of contact.
There are two key issues which arise from the interplay between an MSA and an SOW. First, what should be the position the parties should take to tackle conflicts between provisions of an MSA and an SOW and second should all the SOWs terminate if the parties terminate the main agreement i.e. the MSA.
An SOW generally uses the MSA as a backdrop and then builds upon the MSA to bring the project to life. Therefore, the SOW terms are supplemental to the MSA terms and as MSA is the one which is vetted heavily by legal professionals and negotiated at length between the parties, the parties would usually want the MSA to prevail over an SOW.
On the other hand, there can be scenarios when the parties would want the SOWs to prevail over the MSA. For example, if specific conditions for termination are laid down for a particular SOW in the SOW, and the same conflicts with the termination clauses stated in the MSA, the parties would want the SOW’s provisions to prevail over those of the MSA. However, one should note that only the particular SOW would prevail over the MSA(in relation to such conflict) and not the other SOWs which have been entered between the parties. Therefore, the decision on which of the agreements will prevail over the other has to be taken in accordance with the flexibility the parties need to exercise while entering into the SOW and it is dependent on the level of scrutiny that an SOW would go through.
The second issue pertaining to an MSA and an SOW is the effect of termination of an MSA on the SOWs. The same has to addressed keeping in mind the intention of the parties. The Parties may decide that upon termination of the MSA for any reason, all SOWs then in effect and all rights granted pursuant to the MSA and the SOWs would continue in accordance with their terms, in which case this MSA will continue in effect with respect to such pending SOWs until the completion of such SOWs, even though no new SoWs can be executed post the termination of the MSA.
Author: Anuj Maharana