AN OVERVIEW OF THE STATEMENT OF WORK

A statement of work (SOW) is the written description of an agency requirement, used in the acquisition of supplies or services. The Federal Acquisition Regulation (FAR)¹ mandates that government requirements be described in a manner that promotes full and open competition to the maximum extent practicable and that restrictive provisions or conditions be used only to the extent necessary to satisfy the needs of the agency or as authorized by law. The FAR² goes on to say that requirements should be stated in terms of the functions to be performed, the performance required, or the essential physical characteristics of the requirements.

WHAT IS A STATEMENT OF WORK?

Although commonly used throughout the government, the term statement of work is not defined in the FAR. The FAR uses the term work statement when discussing research and development (R&D) contracting and the term statements of work in the coverage of performance-based contracting, but no specific definition is provided. For our purposes, statement of work is used to refer to the document that completely describes the contractual work requirement. Unless otherwise noted, the term also encompasses the term performance work statement (PWS) used in performance-based service contracting (PBSC).

To put the term statement of work in the context of the FAR language, the following are some of the terms the FAR uses when discussing the description of a work requirement:

•    Specification. A specification is a description of the technical requirements for a material, product, or service that includes the criteria for determining whether these requirements are met. Specifications state the government’s minimum needs and are designed to promote full and open competition, with due regard to the nature of the supplies or services to be acquired. The two sources of formal government-approved specifications are (1) the General Services Administration Index of Federal Specifications, Standards, and Commercial Item Descriptions, which lists federal specifications and standards that have been implemented for use by all federal agencies, and (2) the Department of Defense Index of Specifications and Standards, which contains unclassified federal and military specifications and standards, related standardization documents, and voluntary standards approved for use by DoD.

•    Standards. Standards are documents that establish engineering and technical limitations and applications of items, materials, processes, methods, designs, and engineering practices. Standards include any related criteria deemed essential to achieve the highest practical degree of uniformity in materials or products, or interchangeability of parts used in these products.
The FAR³ states that agencies shall select existing requirements documents or develop new requirements documents that meet the needs of the agency in accordance with the guidance contained in the Federal Standardization Manual, FSPM-0001; for DoD components, Defense Standardization Program Policies and Procedures, DoD 4120.24-??; and for IT standards and guidance, the Federal Information Processing Standards Publications.

•    Voluntary consensus standards. Voluntary consensus standards are standards established by a private-sector body (other than a private standard of an individual firm) that are available for public use. The FAR⁴ states that in accordance with OM? Circular A-119, Federal Participation in the Development and Use of Voluntary Consensus Standards and in Conformity Assessment Activities, and Section 12 (d) of the National Technology Transfer and Advancement Act of 1995, Pub L. 104-113 (15 U.S.C 272 note), agencies must use voluntary consensus standards in lieu of government-unique standards, except where inconsistent with law or otherwise impractical.

•    Purchase description. A purchase description is a description of the essential physical characteristics and functions required to meet the government’s minimum needs. A purchase description is used when there is no applicable specification that adequately describes the requirement. This term is usually associated with acquisitions using simplified acquisition procedures.

•    Product description. Product description is a generic term for documents such as specifications, standards, and purchase descriptions.

Each of these terms addresses only part of a complete description of a contractual requirement, generally just the technical requirement. A complete description would include what the agency wants to buy; why the agency wants to buy it; where the work is to be performed; when the work is to be performed; what the work is to accomplish; what, how much, and when it is to be delivered; and how the government will determine that the work has been performed satisfactorily. The SOW encompasses all these elements and may, as appropriate, include other documents such as specifications, standards, voluntary consensus standards, and purchase descriptions.

IMPORTANCE OF THE SOW

In the past, the government stressed the use of formal government-approved specifications and standards when describing requirements; however, that is no longer the case. Current policy encourages the acquisition of commercial items (i.e., any item, other than real property, that is of a type customarily used by the general public or by nongovernment entities for purposes other than governmental purposes) or nondevelopment items (i.e., previously developed items or previously developed items that require only minor modifications of a type customarily available in the commercial marketplace). In other words, government agencies now must first consider acquiring supplies or services available in the commercial marketplace rather than using government specifications and standards.

Agencies are permitted to choose whichever requirements documents they deem to be most suitable. They may use existing requirements documents (federal or DoD specifications and standards), modify or combine existing documents, or create new requirements documents. When creating new requirements documents, the FAR5 cites the following order of precedence:

1.  Documents mandated for use by law

2.  Performance-oriented documents (e.g., performance work statement, statement of objectives)

3.  Detailed, design-oriented documents

4.  Standards, specifications, and related publications issued by the government outside the Defense or federal series for nonrepetitive acquisition of items.

NEED FOR A CLEAR AND CONCISE SOW

An SOW is usually developed by the person responsible for ensuring that an activity’s technical requirements are met, with the support of contracting personnel. Because the SOW describes the contractual work requirements, it is the heart of the procurement action and must include a clear and concise description of the work requirement. Developing the SOW is, without a doubt, the most important step in the procurement process. A poor description of the work requirement is likely to be misunderstood, leading to—if not causing—problems throughout the procurement process and subsequent contract performance. Although a clear and concise description of the work does not guarantee the contract will be successful, it does significantly reduce the likelihood that problems will arise.

The author of the SOW is usually part of the organization for whom the work will be performed and therefore has a vested interest in the quality of the SOW. If the SOW does not work, the project may fail. Because it usually takes longer to solve a problem than it does to avoid one, it makes sense to take the time to develop the SOW right initially.

A clear and concise SOW is essential both before and after contract award. Before award, contractors must understand the SOW requirements to be able to develop their technical, management, and staffing plans and to price the proposal properly. The SOW in the request for proposals (RFP) is the only official description of the work requirement. Accordingly, it must provide prospective contractors enough information to develop and price the proposal—without the need for further explanation. A clear and concise SOW helps ensure the receipt of a well-written proposal. It also establishes a uniform basis for evaluating proposals (matching the proposed effort to the stated technical requirement) and for comparing prices.

If questions about the SOW arise during the solicitation process, they must be answered. Oral explanations, unless put into writing as an amendment to the SOW, are usually not binding. The questions should be forwarded, along with the appropriate answers, to the contracting officer for an official response.

If deficiencies in the SOW are identified before award, the RFP must be amended to correct the deficiencies immediately and prospective contractors must be given additional time to make appropriate revisions to their proposals. Delaying changes until after award can also make the agency vulnerable to protests from unsuccessful offerors who perceive the delayed changes as favoritism to the successful offeror.

After award, the contractor must understand the SOW requirements to be able to perform the work properly. The SOW in the contract is the only description of the requirement that the contractor is legally bound to follow. Accordingly, it must clearly and concisely describe what the agency wants to buy and any special considerations or constraints that apply.

The SOW, as published in the contract, defines the contractual scope of work—the contractor is required to do only what is written into the contract. A poorly defined SOW, therefore, often results in a need or changes in the technical requirements, opening the contract to pricing and delivery changes. The number of changes and difficulties in negotiating their scope and price are usually directly related to the quality of the SOW. If the SOW is ambiguous or unclear and a dispute arises over contract interpretation, the courts will follow the contractor’s interpretation, as long as it is reasonable. The courts generally hold the originator of the SOW responsible for its clarity.

Before and after award, the SOW serves three main purposes:

•    Establishing performance standards and a contractual baseline

•    Providing the contractor with a basis of estimate

•    Communicating effectively.

Establishing Performance Standards and a Contractual Baseline

The SOW, through its description of the work requirements, establishes the standard for measuring performance effectiveness and achievement both during contract performance and upon contract completion. The work description establishes goals that become the standards against which contract performance is measured. The SOW is not complete unless it describes both the work requirements and the criteria for determining whether the work requirements are met.

The SOW also establishes the baseline from which the degree, extent, and ramifications of proposed contract changes are determined. Proposed changes are checked against the SOW to determine if they are within the scope of the contract. If the proposed change is within the scope of the contract, the change is handled by a contract modification. If it is not within the scope of the contract, a new contract is required. The clarity and conciseness of the SOW are, therefore, important throughout the life of the contract.

Providing Prospective Contractors with a Basis of Estimate

Prospective contractors need sufficient information on which to base the estimated cost of contract performance. This “basis of estimate” is provided in the SOW through the description of the task requirements, a statement of the estimated level of effort required (when appropriate), or both.

Contractors develop cost estimates based on the work description in the SOW. First, they break the work description down into its smallest components, and then, starting from the bottom up, they develop estimates of the resources necessary to complete each component of each task. Cost figures are developed for the estimated resources required. Overhead and general and administrative (G&A) expenses are added to make up the total estimated cost. Profit or fee is then added to the total estimated cost to come up with the total estimated price.

The work requirement must be described in a manner that will enable prospective contractors to develop an accurate cost estimate. If the successful offeror’s estimate is too high, the government will pay more than it should for the contract effort. If the estimate is too low, the contract requirement will be underfunded. If the contract is cost-reimbursement, underfunding usually results in a contract modification for additional funding or in contract termination. If the contract is fixed-price, underfunding puts the contractor in a loss position, because the contractor must complete the effort regardless of its own costs. Contractors in a loss position will try to minimize their losses by cutting corners or making contract changes, if they can. Cutting corners adversely affects the contract quality, and changes usually increase the contract cost.

A well-written SOW is no guarantee that the contractor will develop an accurate cost estimate. Many requirements (such as studies, analyses, R&D, and software development) are inherently difficult to estimate because of the nature of the work. Therefore, it is important to write the SOW as accurately as possible.

Communicating Effectively

The SOW is ultimately a vehicle for communication. It must communicate the government’s requirement in a manner that can be understood by everyone involved in the solicitation process as well as those involved in contract performance. This includes government as well as contractor personnel. Various people must read and understand the SOW during the course of the solicitation, award, and performance of the contract. These include the contractor’s technical personnel, accountants, and cost estimators; government accounting and auditing personnel; government and contractor legal and contracting personnel; and subcontractors. Readers must be able to understand the requirements without having to interpret, extrapolate, or otherwise guess at the SOW’s meaning.

It is a mistake to use the SOW language as a test of a contractor’s ability to understand the requirements by writing a broad and generalized SOW just to see how contractors will respond. Misunderstandings may well be carried through into contract performance. The SOW must be written clearly and simply.

BENEFITS OF STATEMENTS OF WORK

If you have ever been asked to review a failed or challenged project only to find that the situation could have been avoided by simply having a detailed SOW in place, then you can understand what a frustrating experience it can be. The frustration comes from realizing that millions, and possibly billions, of dollars could have been saved and the project could have been successful simply by taking time at the outset to properly document the work to be performed. In these situations, neither the government nor the contractor wins. The contractor will lose profit and the government will be dissatisfied because its expectations are not being met.

The benefits of having a detailed SOW can be enormous. They include the following:

•    A baseline for measuring change. One of the most important benefits of the SOW is its use as a baseline for determining and measuring change during the project. This is particularly true once the project moves into the execution or implementation phase. Without having a defined baseline to measure change, a project manager might never notice a change when it occurs, which would make change very difficult to manage.

•    A baseline for work completion and payment. If the SOW has been written correctly, it will identify in detail the work contracted for delivery. The SOW’s detailed descriptions, and any approved changes amending the original document during the project, should create a clear understanding between the government and the contractor as to what classifies completed work. The work should be considered complete only after the contractor delivers all products or services and the government accepts those deliveries. Upon acceptance of the product or service, the government can issue payment.

•    A method of recording, measuring, and analyzing products and services. The SOW provides the project team with a single document it can use to specifically address the products and services that will be provided to the government under contract. The primary supporting document to the contract, the SOW establishes the contractual baseline description of each product and service. Having a single document to reference eliminates the confusion that would result if these elements were captured in multiple documents. The team has to reference only one document to measure and analyze the actual work performed.

•    A baseline for audits. Without an established and agreed-upon baseline document, it becomes impossible to determine whether the work is actually meeting the agency’s requirements and specifications. It is also impossible to determine when a change occurs on a project. Without a baseline document, any changes made to the project during its lifecycle will not be documented and properly accounted for. Having an SOW in place allows the team to easily audit the project to determine where changes from the agreed-upon baseline have occurred, as well as the corresponding impact of the changes on project scope, cost, schedule, and manpower.

•    Defined roles and responsibilities. The SOW captures government and contractor roles and responsibilities for the work performed as part of the project. Doing so reduces the probability of future disputes between the parties as to who is responsible for the various elements of work. Clearly defined roles and responsibilities enable each party to properly plan and staff the appropriate resources required to perform the work, thus avoiding potential schedule delays and rework.

•    A snapshot of party agreements. In today’s fast-moving, dynamic marketplace, the makeup of project teams is constantly changing. Thus, it’s extremely important to have an approved SOW in place that captures the baseline description of the products and services scheduled for delivery at a specific point in time. Having the SOW in place helps avoid potential disputes between the various parties, particularly when the project team that made the original agreements changes. The SOW legally binds both parties to what was agreed to originally. It also provides a baseline document for the new team members, which they can use to institute changes that reflect the current needs and requirements of their respective parties.

The benefits of having a detailed SOW on a project are significant and far outweigh the costs associated with its development. Project failures can occur in any industry and any organization at any time. The amount of money lost or wasted on challenged and mismanaged projects can easily reach into the billions of dollars. Taking the time up front to develop a detailed SOW and using it to manage the project throughout its lifecycle will help avoid project failures. Doing so will also help projects to be delivered successfully and achieve a higher return on investment for the work being done.

NOTES

1 General Services Administration, Department of Defense, and National Aeronautics and Space Administration, Federal Acquisition Regulation, March 2005, 11.002 (a)(1), p. 11.1-1. Online at www.acquisition.gov/far (accessed July 2013).

2 FAR 11.002 (a)(2).

3 FAR 11.102.

4 FAR 11.101(b).

5 FAR 11.101(a).