As the temp market continues to grow, itâs time for organizations to put strategy around SOW.
By Bill Hatton
Ask a group of experts about statement of work (SOW) employees, and youâll get quick agreement that they are on the rise. The reasons vary: the Affordable Care Act, procurement rate cards, and a desire to obtain specialized skills for a fixed rate. Thereâs also consensus that managing these workers requires special attention, as they can expose a company to considerable risk.
SOW engagements come in many forms, but all basically boil down to a formalized process of hiring on a per-project basis, where the company does not control the work and pays for a finished product, similar to hiring someone to build an expansion onto your home. There are milestones, deadlines, deliverablesâand risk on part of the provider. And as with any complex contingent labor, it comes with a variety of classification risks and the potential for misuse to get around company policies. But it also has real benefits, if thereâs a strategy in place to get the most out of them.
Whatâs Driving the Trend?
Chris Dwyer, research director and VP of operations â¨of research firm Ardent Partners, says that nearly one- third of the entire workforce is comprised of contingent workersâand itâs growing. âOne of every three workers is at a company because of an SOW, because they are a contractor, because they are consultants, theyâre there from a staffing agency, they are a freelance, they are a professional service. Based on our research and our data, by 2018, 45 to 50 percent of workers will be contingent workers, which puts a lot more pressure on companies today.â
Gene Zaino, CEO of contractor management services provider MBO Partners, says more and more companies are moving toward SOW engagements because they âlike to have a little more budget integrity. People likeâ¨to buy results rather than buy effort.â Itâs easier to buy a deliverable with a fixed price and can be an easier way to do business.
Since SOW engagements are increasing, there is a growing focus on how they are managed. âWe are seeing the MSPs role in SOW management evolving from administrative to more strategic, with a greater emphasis on collaborating to identify the business need and the appropriate solution,â says George Lanzano, executive director of business solutions for global MSP programs for workforce solutions provider Staff Management | SMX. âClients are becoming more interested in support for the entire SOW lifecycle including management of the RFP process, milestone compliance, and on and off boarding.â
Organizations are also turning to SOW engagements â¨to help avoid some of the costly implications of the Affordable Care Act. âSome companies are looking to see if they can outsource a whole department to fall below that threshold of having to offer insurance to everyone,â says Beth Roekle, VP of operations for workforce management provider Advantage xPO. âThere is some wisdom that⨠will increase somewhat because the ACA becomes more fully entrenched, as more and more people are going toâ¨be taking advantage of insurance thatâs offered to them, companies will be looking for ways to offer insurance to fewer employees.â
Strategic management of SOW engagements also allows organizations for significant savings while obtaining specialized skills. âSOW can be an attractive option â¨for clients that want to outsource responsibility for complex projects or services and fix their costs up front,â says Lanzano. âEffective SOW program management creates financial and operational controls, offers a great opportunity for savings because of the significance of expenditures in this category and provides access to important reporting and benchmarking.
âCentralized SOW management allows for the identification of trends in client usage patterns and costs across disciplines and geographies and the ability to better forecast future costs. This is particularly important as the unemployment rate continues to drop and the market for specialized talent gets tighter,â Lanzano says.
Dwyer advises that organizations have tight control over SOW workers. In some cases, companies donât know where the SOW workers are, and they donât know their impactâ¨on projects, their impact on delivery dates and milestones. This is the perfect opportunity for organizations to use more strategic thinking with these temp workers. âAn SOW worker or consultant is going to be tied to a project thatâs going to have delivery dates and milestones. Itâs really difficult for the average organization to be able to measure the impact on those workers on those projects unless they have the right tools and capabilities,â he says.
Can technology help? Some vendor management systems (VMS) have the capability to track and report on the performance of SOW workers. VMSs can keep track in an automated fashion where SOW workers are in the process of their projects. Organizations should leverage reporting to see real-time visibility into what they are doing and how close they are to hitting milestones and delivery dates.
Dwyer explains that the analytics and business intelligence of a VMS can drill down to specifics. For example,â¨a company can look at a particular project and the consultants tied to it. They can even see the timeline of the project, when the deliverables will be achieved, and when they will be billed for the SOW workerâs achievements.
Advantage xPOâs Roekle warns that organizations should err on the side of caution: VMSs may not be providingâ¨the entire picture. âThe VMS tools arenât caught up as â¨well as the customers, in terms of offering the complexity you need to really utilize the VMS from a milestone perspective, or the compliance of the workers. But they are making progress,â she says. âI see the different VMS tools are continuously releasing enhancements to their 1099 and SOW management suite in terms of the functionality within the tool, so itâs getting better. But itâs not meeting everyoneâs needs yet, because it is complex. It requires one to assess the work and make sure you can measure the milestones and pay according to milestones.â
To manage SOW workers on a strategic level, Dwyer recommends a solution that blends âthe best of talent management and spend management.â That means â¨on the spend management side: supplier performance management, supplier information management, supplier relationship managementâare you tracking the quality and impact of your suppliers? Do you know which ones are performing well and which ones arenât? Do you have a way to understand the compliance and identify management aspects?
And on the talent-management side: Are you onboarding everyone properly? Does everyone understand that when someone comes on board the SOW contractor knows what they are working on, they know who they have access to, the types of information they can have access to, and if the organization is giving them access to the enterprise systems so they can perform at a high level. âAre we supporting those SOW workers in the right way?â Dwyer counsels.
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BOX: Knowing the Risks
HR: Take heed. SOW workersâwhen not managed correctlyâpose considerable risk to the entire organization. Gene Zaino, CEO of contractor management services provider MBO Partners, offers some key advice.
Rate cards may not work with SOW workers who offer specialized work for specific projects. âWhen you get into more complex types of services, rate cards are probably delivering negative value to the customer. Procurement canât put a rate card on it because they canât figure out a mixture of how to put a price on the skills and the effort,â he says.
Staff augmentation work may lead to reclassification. âWorker reclassification is not about what the contract says; itâs about the facts and circumstances and behavior between the worker and the buyer.â
Be sure to have clear communication and a defined contract to avoid legal complications. Disgruntled SOW workers might change their minds, if they donât feel like they were treated as SOW. For example, if a customer doesnât like the finished product and decides not to pay, the worker may take legal action. âAnd an attorney says, you really were not operating as an independent contractor, but as an employee, and by the way, you get benefits, you get overtime, unemployment, and you get everything else,â he explains.
For a SOW engagement to work properly, Zaino says: âIt needs to operate truly as a project, truly there has to be risk on the part of the provider, thereâs got to be real control of payment by the buyer, (and) there has to be true independence in how the work is being performed.â