CHECKLIST FOR DRAFTING STATEMENTS OF WORK
(HINT: NOT JUST A FORM)
By D. John Hendrickson
Not too long ago, the typical ad agency services agreement was a pretty simple document that included, among other things, industry-standard provisions identifying the products to be advertised, the services to be provided, and the fees to be paid for these services.
However, with the ongoing convergence of technology, media and advertising, the agency services agreement now incorporates contract provisions that were previously more commonly found in IT agreements. These include more detailed intellectual property ownership and licensing provisions, limitations on liability, stricter confidentiality requirements, and – of relevance to this update – the incorporation of statements of use (SOWs) for the handling of specific work assignments.
The challenge is that, all too often, the SOW is treated as a standard “form” that needs to be “filled-out” rather than an as integral part of the overall agency services agreement with serious implications for both the advertiser and its agency.
In light of this, here is a short checklist of issues to consider when evaluating any SOW:
- In many cases, the agency services agreement or master services agreement (MSA) will include general language stating that the advertiser will pay the agency the compensation and expenses as set forth in one or more SOWs attached to the agreement. In addition, there will likely be language stating that, except as set forth in the SOW, the agency will invoice the advertiser for all fees and approved expenses, and payment will be due within [X] days of receipt agency’s invoice. But be careful:
- If there is any guaranteed compensation owing to the agency, whether monthly or annually, consider whether it should be included in the MSA so that it survives termination or completion of the individual SOWs. And if the guarantee is, in fact, tied to a specific SOW, consider the implications of possible early termination of the MSA.
- Make sure that the payment terms, if different than those described in the MSA, are set forth with specificity. This may be especially important where big ticket items such as production and media buying were not contemplated at the time of the MSA’s execution, but were instead later agreed to by the parties. Also, consider including language expressly stating that these terms will supersede the default payment terms set forth in the MSA.
- Term and Termination. It is customary for the SOW to have its own “term,” which may be for a specific period of time (e.g., from [date] to [date]), for so much time as is necessary to complete the work, or for the time period commencing upon signature and continuing until terminated by either party. But regardless of the time period selected:
- Make sure to address what happens to the SOW if the MSA is terminated or expires. Many MSAs have provisions allowing either party to terminate on [X] days’ notice, and it’s very easy to overlook the impact of such a provision on any outstanding SOWs. Do they continue in effect until the services are complete? And, if not, how will any outstanding compensation be handled?
- Similar to the above, if all services under the SOWs are complete, does the MSA automatically terminate?
- Most SOWs include a list of the agreed-upon deliverables. Since successful fulfillment of these deliverables is the contractual obligation of the agency, and since failure of the agency to fulfill these obligations may provide the basis for the advertiser to declare a default, it is in both parties’ interests to be as specific as possible. Consider including:
- A detailed schedule that sets forth delivery obligations at each stage of the creative process (to avoid having the agency go too far down the production path before obtaining review and approval of the materials by the advertiser);
- A clear statement of what corrective actions may be required of the agency (e.g., the number of revisions, edits, etc.) and how the costs of these corrections will be handled; and
- A provision addressing the change order process, as any material changes will likely impact the delivery schedule as well as the compensation and expenses payable to the agency.
- Indemnities and Insurance. If an SOW reflects a material change in the types of services to be provided by the agency, consider whether there is also a material change in the potential legal risks that may attach to the work (patent liability, trademark infringement, and claims substantiation, to name a few). If so, consider revisiting the indemnification and insurance provisions to ensure a proper allocation of the risks between the parties and adequate insurance coverage for the added risks.
- Effect of Default. How will the default by a party affect the parties’ continuing obligations under the SOW? Will this trigger a suspension or termination right of the other party as to the affected SOW only, or as to the MSA, too?
- Conflicting Terms. Although the MSA will likely include a provision explaining how conflicts in language between the MSA and any SOW will be resolved, if there is still any potential for ambiguity on this point given the proposed content of the SOW, consider including language in the SOW specifically stating that the provisions of the SOW will, in fact, prevail (assuming this is the intent of the parties).
Bottom line: Give the SOW the same attention that you give the MSA and you should be in good shape. And whenever there is any room for “interpretation” or doubt, take the extra time necessary to draft clear and specific language so that the risks of even a good faith misunderstanding are minimized.