A statement of work (SOW) engagement can really be anything. But, basically it’s an agreement for someone to “do this” and “get paid that.” Unless you have SOW engagements really clamped down at your company, you can bet they are not all being used appropriately.
Staffing Industry Analyst's biggest conference, the Contingent Workforce Strategies Summit, is returning in a few weeks and SOW management is a topic that comes up year after year. Often when calendar years come to an end (but it can be at any time really), many companies use SOW's as yet another hedge to hiring full time employees to fill in any necessary gaps in their budget. But because they don't often plan or utilize this spend correctly, it's also ripe for abuse.
Why Use SOW
Well, probably the first reason is because it’s easier than asking for headcount. SOW spend is typically part of project budgets and therefore it’s easier to conceal. Second, it’s not really temporary workers, which can also be tracked on an hourly basis and look much more like headcount.
But there are other factors that need to be taken into consideration, such as the comparative costs versus direct or temporary employees; as well as any contractual risks such as insurance.
Keep in mind that it’s perfectly acceptable to bundle skills and expertise into an SOW, even when they may just be providing supplemental labor (like temporary workers) as long as you are still getting value from the engagement and as long as it’s visible and appropriate.
How to Optimize SOW Spend
SOW-based spend gets a bad wrap. Labeled as being overly-complicated or too complex for even the most seasoned procurement professional, there are processes and benchmarks you can use to effectively manage SOW work.
Clearly Defined Deliverables
An SOW (or even an independent contractor agreement) should have specific work to be done, how it will be delivered and can easily be accounted for – meaning you’ll know you got what you paid for.
Skills, Timing or Equipment You Don’t Have
One good reason to use an SOW engagement is so that you can gain expertise, processes or supplies and equipment you don’t have. If you are just supplementing your existing workforce for scale, or filling holes you would normally use temporary workers or direct workers for, then you might be paying much more than you need to.
Acceptance of Work
At the end of the engagement, are you clearly getting what you should in terms of delivery? Someone needs to be on point to make sure that happens and that contractual terms are enforced. This is also to validate the use of an SOW engagement in the first place (or in the future)
Who Can Approve an SOW and Why?
Is the use of an SOW engagement clearly defined in your company, and who can choose and approve this type of arrangement? You don’t want to handcuff your managers, but you also don’t want them hiring just anyone.
While many companies continue to better manage their contingent/temporary workforces, there’s still a gap for SOW and independent contractors. More in-house managed services programs and managed service providers are including SOW work in their programs, but it takes effort to find all of the SOW spend to get it into the program.
At the end of the day, what doesn’t work are vague statements of work or ongoing contracts that never seem to end. If you have no idea how much your company spends on SOW work (or independent contractors), then you might find your SOW spend is out of control.