As Staffing Industry Analysts’ Stephen Clancy remarked in a 2017 Contingent Workforce Strategy article, statement of work (SOW) spend management is becoming an integral and growing part of most companies’ services portfolios. SOW arrangements already infuse most internal functions of business today, yet many clients try to push these services out of their contingent labor programs, deeming them too complicated. On the other hand, Clancy noted, “Too many times, SOW spend management is added to a program for short-term, tactical reasons, without a strategic vision in mind or understood.” Given the rise of work that’s increasingly project-based, SOW engagements will certainly influence staffing models and shape the nature of the modern workforce. But to run efficiently, heightened levels of collaboration and visibility must exist between every stakeholder in an outsourced workforce management program. That’s why it’s essential for MSPs and SOW staffing suppliers to form tight, communicative partnerships.
SOW: Businesses Want a Piece of the Pie But Struggle to Find the Recipe
Last year, Bartech sponsored a webinar on Cracking the SOW Code for Staffing Industry Analysts (SIA). In the United States, the share of SOW workers by major geography was quite mature at 57.83%, with 786 MSP contracts reported. In 2016, SOW accounted for about 25% of MSP spend. Despite the rise of SOW, in addition to MSP involvement, challenges persist.
On a larger scale, SIA estimated SOW consulting to be worth 13.5% of the total $3.68 trillion in contingent workforce spend in 2017. It’s a lucrative component of staffing that business leaders, suppliers, and MSPs long to capture. But it’s not a clear-cut path to success.
“A common pitfall in statement-of-work engagement management is not understanding clearly the strategic reasons the contingent workforce program is going to manage SOW in the first place,” Clancy wrote. “The tactical reasons are sometimes fairly evident, such as rooting out rogue staff augmentation spend, increasing the volume of spend management and savings through the CW program facility, or adding management value to SOW engagement activity not formally managed by services procurement.”
While some professional SOW categories bring intricacies beyond Time and Materials, they inevitably weave themselves into the MSP/VMS program—leaving those teams to wrestle with a mishmash of categories, processes, maverick spend, and suppliers vying for control.
SOW Engagement Complexities
The SOW services category can be complex. It’s a notorious hiding place for rogue spend and misclassification. Because SOW projects typically involve specialized IT professionals, generalist staffing firms have trouble finding the highly skilled talent needed, at the right time and price. Some vendors classify agency temps as SOW consultants to inflate the rates outside the view of MSPs and company decision makers. And others rely on the same processes and HR technologies they use for temp placements.
SOW suppliers aren’t just filling open positions for ongoing work. They place specific—often niche—categories of talent. They also provide a greater degree of direction, and they own the delivery risk. Because SOW staffing firms tend to operate more independently than traditional staff augmentation providers, they require a sophisticated, high-touch strategy, especially when rolled into an MSP/VMS program.
MSP and SOW Supplier Partnerships Are Critical to Success
For MSPs, this specialized and historically autonomous supplier population can present unique barriers to entry. First off, SOW suppliers may be unfamiliar to MSPs that are just starting to manage SOW engagements. MSPs spend years sourcing top performing staffing partners and cultivating those relationships. They have developed a keen understanding of their partners’ capabilities, quality, performance standards, and costs.
However, the existing supply base may not have the experience or resources to handle the deeply specialized roles demanded by an SOW project. That’s why it’s imperative for MSPs and SOW suppliers to work in concert. Otherwise, the program can suffer as sacrifices occur in visibility and control, mitigating contractual risk and misclassification, competitive sourcing, and reporting and analytics.
To create a thriving engagement, MSPs and SOW suppliers may need to step out of their comfort zones. SOW suppliers will have to consider relinquishing a small amount of control and direct access to hiring managers. MSPs may have to forgo relying on familiar staffing partners to source a new crop of suppliers through formal bidding processes. Contracts, too, will differ as both parties have a strong stake in the terms and conditions of the actual statement of work. Yet in reality, these small compromises can yield tremendous results for everyone involved.
Program Benefits from Collaboration
When MSPs and SOW suppliers orchestrate their efforts, program results are optimized. Clients realize amazing ROI on projects, MSPs tap into a powerful new spend category, and qualified SOW suppliers reap the rewards of increased volume through preferred tiering and consolidation.
- Visibility: greater insight to services procurement and spend.
- Compliance: a robust bench of pre-qualified supplier partners, SOW conformity, risk prevention, timely approval processes, effective onboarding, diligent screening and properly classified workers.
- Spend: volume pricing leveraged with top tier SOW suppliers, greater opportunities and incentives for SOW suppliers in future projects, strategic negotiations and delivery savings, and established rate cards tied to output and budgets.
- Service: more accurate supplier invoicing and payments, greater opportunities to identify and utilize SOW suppliers with stellar past performance, enhanced project management, improved cycle times, and clear monitoring of budgets and timelines.
How MSPs and SOW Suppliers Can Partner for Success
- MSPs and SOW suppliers should align and integrate into the program as partners, not opponents.
- SOW suppliers can work in tandem with MSPs to centralize visibility for all project-related activities and rein in maverick spend from procurement purchases made by internal client managers.
- MSPs and SOW suppliers must both have input when drafting the statement of work template, ensuring conformity and clarity over the scope, clauses, deliverables, budgets, timelines, performance expectations, rates, negotiation cycle times, etc.
- MSPs can help suppliers by investing time in preparing the VMS to expedite reporting, electronic budget approvals, deliverables, invoicing and SOW amendments.
- SOW suppliers may help MSPs by committing to utilize the VMS instead of their own systems (ERPs, PO platforms, etc.). This ensures consistency in communications and transparency into milestones, budget adherence, rates, schedules and more.
- MSPs help streamline costs and incentivize SOW suppliers by identifying misclassified or diluted services spend across the organization, and then consolidating it with strategic SOW staffing partners.
- SOW suppliers can assist MSPs in mitigating risks by validating the proper classification of contractors and freelancers. They can further support these efforts by organizing compliant and comprehensive onboarding initiatives for all talent involved in the project—even remote workers, who may have access to systems or intellectual property.
- Established SOW suppliers have a great deal of influence with client project managers and buyers. MSPs can forge strong partnerships by remaining sensitive to this when establishing expectations, performance standards, and the consequences of policy deviations with SOW suppliers. They can continue to nurture the relationship by advocating for SOW suppliers and extending opportunities to support new projects with other clients.
Regardless of the program type, MSPs provide a crucial level of visibility, administrative oversight, performance monitoring, reporting, and compliance. For clients, that translates into cost savings, superior service, effective rate and contract negotiations, competitive bidding processes, and greater control over project timelines.
Proven SOW suppliers have demonstrated records of procuring high caliber talent, delivering timely and exemplary results, controlling risks, developing contracts, assuming greater involvement in directing talent, providing program management expertise, and offering unique tools and resources to ensure success. By uniting the combined strengths of MSPs and SOW suppliers, the engagement will provide a strategic, meaningful, and mission-critical solution to clients in need.