Statement of Work Program Absorption

Leslie Marsh, SPHR
Vice President, Channel Partnerships at HireTalent

January 2016

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Challenges aside, the absorption of a Statement of Work (SOW) population into a Managed Service Provider (MSP) or Internally Managed Program (IMP) allows for a broader and more sophisticated view of the contingent workforce. This non-traditional category of the contingent workforce has historically been argued as “different” from hourly and daily contingent workers and therefore carved out of the program by internal stakeholders. How so? In theory, the SOW projects are tied to a completed project/ deliverable and invoiced to the vendor on lump sum payments. In addition, SOW consultants are not interviewed and selected by the SOW Manager for the project; they also work independently of the SOW Manager’s direction.

Organizations often manage the completion of “mission critical” projects for which they lack the skillsets and bandwidth in house through the use of SOWs. Vendors have a talent pool of consultants that move from one SOW project to another. So, in theory the SOW is farmed out to a vendor community (often a small subset of the broader vendor community) through a competitive bidding process. The SOW Manager reviews and selects the most competitively presented SOW and work commences. What often ends up occurring and ultimately negates the intent of the competitive bidding process (cost savings) is that SOW Managers work directly with a vendor of choice rather than with a vendor community competing with itself to secure the project. Obtaining program buy in and adherence to competitive bidding by the business units utilizing SOWs becomes a significant challenge for the program.

Historically and even in today’s sophisticated times, the SOW bidding process is often handled “manually” through email. One can imagine the administrative burden on the SOW Manager of managing complex SOWs through multiple rounds of editing by multiple vendors – all at the same time! So, the market has responded to the absorption of the SOW population by programs and now most off the shelf Vendor Management Systems (VMSs) offer SOW management modules. Some of these modules even include editing and change tracking features to assist in the bidding process.

Another common challenge of SOW absorption is the validation of the employment classification. The great news is that the VMS can provide a program immediate visibility into how vendors are invoicing the organization. In general, it is expected that SOW invoicing occurs in lump sums/milestones associated with the grand SOW budget approval and that contingent invoicing occurs as time and materials/expense invoicing. However, when the data indicates that there are misclassifications of headcount the program must resolve with the business unit and vendor. When this happens, stakeholders must often be engaged to assure disruption to the business will be avoided.

Why are misclassifications occurring? Typically there is a defined headcount approval process for all contingent resources. However many organization carve their SOW management out of their programs. Therefore the business may feel the need to use the SOW process to obtain talent which they feel they cannot obtain FTE or contingent headcount approval for.

Another major benefit gained with the absorption of the SOW population into a program is the reduction of organizational risk surrounding access to facilities and proprietary systems.  Since HR/Talent, Procurement, and Finance are utilizing unique tools for headcount and budget tracking, there are regular variances in data regarding headcount and cost within the program. How are organizations able to accurately identify which workers should be granted facilities and systems access when unsure of who is working when, where, and for whom?

As alluded to previously, another win for the organization in this piece of program evolution is cost control. Given the ability of the VMS tools to support a competitive bidding process, it should be used! Another component to realizing cost savings is ensuring that there are review and approval processes built into SOW extensions. It can be challenging for even the SOW Manager to ensure the project is completed as originally budgeted.

At the heart of a successful program is ensuring program buy in by managers and vendors. A program, specifically a SOW program, can simply not succeed without it. How can buy in be accomplished? It is critical that the strategy is reviewed, agreed upon and socialized internally
from the senior leadership level. SOW Managers must understand the enterprise strategy and support the processes designed to achieve the strategy. Process exceptions should not be allowed by the program and there should be stakeholder support for these decisions.

It’s often not known by the program and its’ stakeholders the true volume, proprietary access rights, and spend associated with this SOW population. Despite the approach, there are immediate and real benefits towards program evolution in this direction. It’s clear that contingent workforce strategy has enterprise wide impact and therefore there is an inherent risk to the business should the SOW population be isolated from the program with minimal stakeholder participation.