A key risk when engaging a true, standard statement of work is completion. Appropriately, when taking on an SOW engagement, contingent workforce program managers might be concerned with overpaying for the engagement, effectively managing intellectual protection risks or even independent contractor misclassification. But overall, a strategic risk of every SOW engagement is whether the SOW solution provider is actually able to complete the project or service for which they are engaged to deliver.
This concern makes establishing effective acceptance criteria in an SOW agreement a fundamental best practice. Acceptance criteria are conditions that must be met before the deliverables are accepted — including performance requirements and essential conditions. This requires leveraging predesigned SOW contractual templates that codify repeatable acceptance practices and ensure policies are built to guarantee the best outcomes when executing milestones and/or some of the final stages of an SOW engagement. This critical piece is sometimes overlooked — or even intentionally skipped — which creates negative consequences for the sake of expediency when problems are missed. Other times, a milestone is accepted prematurely with the vague understanding that its content gaps will be completed before the final project has ended — a major red flag.
Still other times, a milestone itself is difficult to mutually agree as complete, so a third party may be engaged to make sure the SOW stages or deliverable is ready for signoff.
Effective milestone management and the final signoff process should focus on being appropriately thorough. The signoff criteria itself should be clearly described and documented at the start of the SOW creation process and, if required, tailored for unique milestone steps. Subsequently, this means these predetermined criteria for milestones and eventual deliverable signoff actions should allow for appropriate and significant due diligence. Signoff should include a review to ensure the deliverable meets the criteria for satisfactory completion leading up to the final milestone event.
There are some key standard signoff process steps and procedure policies that need to be established and agreed upon well in advance of evaluating milestones and deliverables for signoff. The following questions raise important signoff procedure issues:
- What is the quality standard of the milestones and the ultimate final deliverable? Sometimes the signoff evaluation may be subjective versus objective.
- Who is tasked with final approval? The actual engagement manager may be the only individual with the technical expertise and insight to judge the quality of deliverables or service performance requirements.
- Could a third-party standard or third-party entity define and execute the strategic milestones and/or final signoff criteria and approval?
- What are the engagement manager’s and SOW solution provider’s expectations? Are the signoff needs of both parties clear and measurable? How is completion of subtasks evaluated?
- Over the life of the project and/or service, have milestone quality levels been consistent?
Be Diligent
The acceptance clause within the SOW agreement details significant aspects of how the client company will accept the deliverable, with the SOW solution provider’s obligations to produce and deliver measured against a particular milestone. This can include the specifications the parties agree the deliverables must meet, the end client’s opportunity to inspect and/or test the deliverables to make sure they meet the performance requirement specifications, and how rejection is handled if the deliverables do not meet the agreed-upon specifications.
A sample clause from a draft SOW agreement follows. Limited to a basic time to inspect the deliverables and the acceptance criteria the deliverables must meet, this version might include a more prolonged opportunity to test and inspect and stipulates acceptance conditions. The complexity of the deliverables is a key determining factor in choosing the length and process of the acceptance signoff.
SOW Acceptance Language
Acceptance:
1. Acceptance of delivery. [PARTY A] will be deemed to have completed its delivery obligations if, in [PARTY B]’s opinion, the [DELIVERABLE] satisfies the acceptance criteria and [PARTY B] notifies [PARTY A] in writing that it accepts the [DELIVERABLE].
2. Inspection and notice. [PARTY B] will have [INSPECTION PERIOD] business days to inspect and evaluate the [DELIVERABLE] on the delivery date before notifying [PARTY A] that it is either accepting or rejecting the [DELIVERABLE].
3. Acceptance criteria. The “acceptance criteria” are the specifications the [DELIVERABLES] must meet for [PARTY A] to comply with its requirements and obligations under this agreement, detailed in [ATTACHMENT], attached to this agreement.
Deemed Acceptance
Under certain circumstances, even if the buyer did not formally accept the deliverables, legally implied acceptance can be binding under the following conditions:
- Failure to notify. Poor to no communication on the status of the final acceptance step.
- Other acceptance mode considerations:
- Constructive acceptance (be sure this is defined)
- Empress acceptance
- Implied acceptance
- Conditional acceptance
Adjustment Fees
These fees are moneys to be paid by the SOW solution provider for repeated failures to deliver deliverables/milestones against the delivery milestones within the SOW engagement specifications — an important disincentive.
Ultimately, acceptance criteria protect the core completion value of an SOW engagement, which represents the primary reason for engaging the SOW solution provider in the first place. Depending on the SOW engagement’s acceptance criteria and the contract clauses that codified them, signoff procedures are critical and sometimes complex. Be sure to carefully design the engagement signoff procedures and process and execute these signoff requirements diligently to capture the full value of the SOW engagement promised.
