In our previous blog entitled "Statement of Works - Drafting Tips" we looked at the key requirements for an effective Statement of Works ("SOW"). In this blog we explore some of the post contract activities the parties should undertake to ensure that, even when the lawyers are no longer directly involved, the parties' operational teams are still able to comply with and implement the scope, activities and responsibilities agreed as part of the SOW.
Scope of Services
The scope of the services should hopefully have been clearly and accurately documented in the contract/SOW. The operational teams of both parties should then begin working closely together to ensure the solution is delivered in accordance with the SOW terms and agreed methods of delivery. It should also be noted that any changes to the scope which could impact the deliverables, project schedule and/or pricing are only agreed by the parties using the contract change control procedure.
A point to note about scope is that the parties may have agreed in the SOW that certain elements of the scope of service are to be agreed after signing. This is not ideal because it is advisable to agree all aspects of the scope prior to signature of an SOW. However, for some complex deals this may not always be possible, in which case other more creative methods for contractually agreeing the scope and the price may be required. For instance the parties could document in the SOW a process by which, using the contract's change control procedure, the delivery schedule and pricing can be objectively adjusted within "x" period of time following the SOW start date. It should also set out the options in the event agreement cannot be reached, such as triggering the contract's dispute resolution mechanism, or in extreme cases, permitting the client to terminate the SOW.
From the supplier's perspective care should be taken to ensure that the method of delivery aligns with its internal operational processes, policies, tools and procedures. The risk for the supplier of not doing so is that any deviation from its standard operational processes, not agreed through the contract change control procedure, could lead to the supplier missing key deadlines, breaching its contractual obligations (e.g. service levels), regulatory obligations (e.g. GDPR), as well as incurring additional costs which it may not be able to recover under the contract. This is because quite often to produce the business case or risk profile underpinning its solution the supplier has used input costs associated with the implementation of its standard operational processes, policies and procedures (e.g. number of personnel, equipment, security protocols, software, sites, facilities, usual business hours etc).
From the perspective of the supplier, it is important to keep in mind that its performance is likely to be dependent on the client fulfilling certain responsibilities. It was noted in the previous blog that those responsibilities should be appropriately drafted and set out in the contract/SOW. Where such an express provision granting the supplier the right to delay performance or increase its charges exists, the operational teams should agree a process for monitoring compliance/non-compliance, as well (where possible) a process for defining and agreeing the monetary impact of a specific instance of non-compliance by the client. For example, through the use of the contract change control procedure. This will benefit both parties in the long run by minimising the potential of a commercial dispute arising.
In our earlier blog, we also discussed the importance of including in an SOW a clear and objective acceptance process, which should be the sole method for determining the successful achievement by the supplier of its obligations. However, it is not unusual in poorly managed, but time critical development projects, for both parties to abandon the contractually agreed acceptance procedure, because it involves too much management time and paperwork. This would be a mistake. The operational teams should agree a process for ensuring that no deliverables are put into use by the client prior to formal sign off under the agreed acceptance procedure. To do so would not be in the interests of either party, because it could lead to uncertainty as to which defects fall inside or outside any agreed warranty periods, and runs the risk of the supplier becoming liable for defects under the warranty which would have been identified had the acceptance process been followed.
Finally, it is often the case that the parties, for very good reasons, choose to defer the finalisation of the specific acceptance criteria for each deliverable to the post SOW phase. Where this is the case the operational teams should be aware of the obligation on both parties to agree using - the contract change control procedure - the relevant acceptance criteria by the dates set out in the SOW.
Long term transactions should contain governance provisions that guide how the parties will work together to manage the contract and the relationship. The governance process must be collaborative and should clearly set out the parties responsibilities and areas of control. The “Project Plan” discussed in the earlier blog should detail the activities, roles and responsibilities to be performed by each party at each stage of the project lifecycle. The risk of not having a good governance model is that a party could inadvertently become responsible for a commercial or legal risk that ought properly to be the responsibility of the other party.
Where a good SOW has been drafted and agreed it is in neither parties' interests to ignore their obligations as set out within it. The negotiation and subsequent signature of an SOW requires much skill and effort on the part of the stakeholder professionals involved. It is not surprising therefore that once completed the parties may be tempted to "take their foot of the pedal" when in fact this - the delivery phase - is precisely the moment at which the parties ought to be paying maximum attention to their obligations as described in the SOW. A good way to ensure that this is the case is to have a good joint supplier-client project team, with clearly defined roles and responsibilities, working in a spirit of collaboration and cooperation.