As the temp market continues to grow, it’s time for organizations to put strategy around SOW.
By Bill Hatton
Ask a group of experts about statement of work (SOW) employees, and you’ll 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. There’s 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, deliverables—and 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 there’s a strategy in place to get the most out of them.
What’s Driving the Trend?
Chris Dwyer, research director and VP of operations of research firm Ardent Partners, says that nearly one- third of the entire workforce is comprised of contingent workers—and it’s growing. “One of every three workers is at a company because of an SOW, because they are a contractor, because they are consultants, they’re 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.”
Gene Zaino, CEO of contractor management services provider MBO Partners, says more and more companies are moving toward SOW engagements because they “like to have a little more budget integrity. People like to buy results rather than buy effort.” It’s 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. “We 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,” says George Lanzano, executive director of business solutions for global MSP programs for workforce solutions provider Staff Management | SMX. “Clients are becoming more interested in support for the entire SOW lifecycle including management of the RFP process, milestone compliance, and on and off boarding.”
Organizations are also turning to SOW engagements to help avoid some of the costly implications of the Affordable Care Act. “Some companies are looking to see if they can outsource a whole department to fall below that threshold of having to offer insurance to everyone,” says Beth Roekle, VP of operations for workforce management provider Advantage xPO. “There is some wisdom that will increase somewhat because the ACA becomes more fully entrenched, as more and more people are going to be taking advantage of insurance that’s offered to them, companies will be looking for ways to offer insurance to fewer employees.”
Strategic management of SOW engagements also allows organizations for significant savings while obtaining specialized skills. “SOW can be an attractive option for clients that want to outsource responsibility for complex projects or services and fix their costs up front,” says Lanzano. “Effective 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.
“Centralized 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,” Lanzano says.
Dwyer advises that organizations have tight control over SOW workers. In some cases, companies don’t know where the SOW workers are, and they don’t know their impact 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. “An SOW worker or consultant is going to be tied to a project that’s going to have delivery dates and milestones. It’s 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,” 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, 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 worker’s achievements.
Advantage xPO’s Roekle warns that organizations should err on the side of caution: VMSs may not be providing the entire picture. “The VMS tools aren’t caught up as 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,” she says. “I 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 it’s getting better. But it’s not meeting everyone’s 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.”
To manage SOW workers on a strategic level, Dwyer recommends a solution that blends “the best of talent management and spend management.” That means on the spend management side: supplier performance management, supplier information management, supplier relationship management—are you tracking the quality and impact of your suppliers? Do you know which ones are performing well and which ones aren’t? 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. “Are we supporting those SOW workers in the right way?” Dwyer counsels.
BOX: Knowing the Risks
HR: Take heed. SOW workers—when not managed correctly—pose 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. “When you get into more complex types of services, rate cards are probably delivering negative value to the customer. Procurement can’t put a rate card on it because they can’t figure out a mixture of how to put a price on the skills and the effort,” he says.
Staff augmentation work may lead to reclassification. “Worker reclassification is not about what the contract says; it’s about the facts and circumstances and behavior between the worker and the buyer.”
Be sure to have clear communication and a defined contract to avoid legal complications. Disgruntled SOW workers might change their minds, if they don’t feel like they were treated as SOW. For example, if a customer doesn’t like the finished product and decides not to pay, the worker may take legal action. “And 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,” he explains.
For a SOW engagement to work properly, Zaino says: “It needs to operate truly as a project, truly there has to be risk on the part of the provider, there’s got to be real control of payment by the buyer, (and) there has to be true independence in how the work is being performed.”