In 2021, statement of work (SOW) procurement rose in prominence as businesses looked to bring on board top talent on a project-driven basis. In the UK, this was partly a response to the extension of IR35 rules into the private sector. More widely, SOW became a go-to way of securing skills, services and delivering work at a time of acute talent scarcity.
However, a significant number of businesses are failing to fully capitalise on the potential of this way of working. Poor visibility and control, unnecessarily high levels of risk, and inefficient buying cultures are common SOW problems in large organisations.
In 2022, we expect more procurement teams than ever will look to improve their organisations’ use of SOW services procurement. Here are the top three things they should be looking for.
1) Boosting ROI from SOW with an MSP and VMS
Even when agreed outputs and timescales offer good value to a business, it can be all too easy to let the project slip. Poor monitoring and management of deliverables, timelines, milestones and outcomes can quickly turn a great deal into a drain on budgets.
Unless services providers are supervised and benchmarked diligently, there is absolutely no guarantee that their use will pay dividends. Research from SAP Fieldglass found that one in four projects done by services providers runs over time or budget, while only 36% of service providers meet their agreed goals and objectives.
Managing SOW effectively as part of your MSP
In order to boost the ROI of statement of work procurement, it is clear that those overseeing projects must tighten the reins and prioritise project visibility. There should be clear and consistent processes, for example, around supplier selection, rates, terms and conditions, milestone setting and payment approvals.
Engaging an MSP to manage statement of work procurement through a vendor management system (VMS) is almost always the most efficient option. Communicating the value of this route internally is key to getting buy-in from the rest of the business.
External specialists can bring benefits across four key areas:
- scoping and sourcing
- strategy, and
However, choosing the right MSP to partner with is key - those that can deliver both expertise and a cutting-edge technology platform are best placed to optimise SOW use. That said, never be dazzled by a shiny tech-based solution: remember people should always remain at the heart of services procurement.
2) Understanding and mitigating the top SOW risks
SOW can be a great alternative to traditional time and materials contracts in many instances. But SOW is not a perfect solution, and procurement leaders can’t allow an increased use of SOW to justify poor buying behaviour. By being aware of potential SOW risks, procurement professionals can:
- improve buying behaviours
- bring greater consistency, and
- inject more clarity and structure into project milestones and outcomes.
Misclassification of contingent workers arguably remains the biggest SOW risk for businesses, particularly for those who are inexperienced in managing talent and projects in this way. The primary reason for this is that some mistakenly believe that SOW is simply a ‘workaround’ to avoid IR35-associated risk, rather than a distinct means of procuring skills.
SOW only works when the scope of work, and deliverables, can be clearly defined and measured – and status determinations must always reflect this.
A note on statement of work and IR35 in the UK
In the UK, one of HMRC’s recent ‘Employer Bulletins’ includes a warning to businesses which may have misinterpreted the practice and value of statement of work services procurement. It reads:
“We understand that in some instances, arrangements are being put in place that mean some client organisations would no longer be responsible for considering the off-payroll working rules. These may be labelled as ‘contracted out services’ or ‘statement of works’. It is important that you fully consider any arrangements you enter into in response to the off-payroll working rules changing. Be especially cautious of any that claim you do not need to consider the off-payroll working rules.”
It then continues:
“Whether a contract is for a fully contracted out service is a question of fact, based upon the commercial reality of the arrangements… As a first step we recommend looking critically at the services you require, and if it is a supply of labour then it is highly unlikely that the contract represents a fully contracted out service.”
It is crucial that hiring managers always consider if a piece of work has a beginning, middle, and an end before they even contemplate if a project is suitable to be categorised as SOW.
Other top risks to consider (and manage) with SOW
Ensuring that suppliers are on and off-boarded correctly is crucial. Security-wise, this means having processes in place to guarantee that digital and physical access is granted and revoked correctly. Consistency in on and off-boarding processes also assists with quality control, ensuring that suppliers are chosen based on past performance or ability to deliver on ROI – rather than cosy relationships.
Poorly defined milestones and outcomes can also be a major pitfall when it comes to managing SOW contracts. There is a real risk of paying over the market rate, or being locked into unfavourable and varying terms, if service agreements are not reviewed and scrutinised. Once contracts have been signed, there is little option but to let the arrangement run its course.
3) Initiating procurement culture change
In order to really improve outcome-based statement of work activity in 2022, procurement professionals must be ready to initiate a culture shift within their own teams and beyond. This is crucial if we are to overcome any historic ‘us vs. them’ mindset, which still exists in some organisations between procurement professionals and in-house talent acquisition teams, or hiring managers.
Rewind a couple of decades, and most organisations were handling procurement in a fully centralised way: a CPO and their procurement team would control all business spend. Since then, procurement has become largely devolved within many large organisations, with individual hiring managers taking responsibility for purchasing decisions.
This has created a culture in some businesses where procurement leaders routinely think of others in their firm as ‘rogue’ or ‘maverick’ spenders. The truth is that most organisations have been good at delegating spend authority down to ‘the coalface’, but less good at passing along the skills and tools that hiring managers need to manage resources wisely.
Procurement’s opportunity to shape a better buying culture
Hiring managers have a lot on their plates and are often not experts in specialist areas such as compliance and the mitigation of security risks. Making sure workers are correctly classified, for example, is both difficult to track and critical for the employer. Similarly, contract management and supplier negotiations can be complex as both parties strive to attain their desired outcomes.
By using a VMS managed by an experienced MSP, forward-thinking organisations can overcome any historic ‘us vs. them’ scenarios which persist. Moving all SOW spend into a VMS means procurement teams can finally gain visibility over what’s being spent. New project briefs are made by project managers within the system, bringing a level of transparency to the buying process that procurement could previously only dream of.
With these standardised processes and protocols in place, procurement can better support and guide hiring managers to make the right decisions - instead of experiencing frustration at what they see as their ‘poor’ buying behaviour.
We can improve your SOW processes and performance
The use of services SOW has exploded over the past two years, but while a significant number of businesses are reaping the true rewards of this way of working, others could benefit from taking their statement of work procurement to the next level in 2022. As true experts in their field, procurement professionals must lead on this change which, in a Covid-hit world, effective SOW has never been more crucial.
Working with an experienced MSP is the best way to make sure that terms and conditions, rates and outcomes of SOW projects are favourable. By capitalising on a specialist provider’s market intelligence and supplier management expertise, procurement professionals can gain valuable insights which can inform initial agreements - and provide insight and analysis throughout the project.
Contact us to find out how we can help you get there.