It’s fair to say that over my 17 years in recruitment I’ve been asked more questions about Statement of Work (SOW) contracts than any other issue or trend related to the world of work.

SOWs have been around for some time, but in the Recruitment Process Outsourcing (RPO) and Contingent Workforce Solutions (MSP) space it seems there is still some confusion about what such a contract actually achieves and if it helps to manage and reduce contingent labour costs.

In this blog I thought I’d share with you the most common SOW questions I’m asked and the answers I give.

What is a SOW?

A SOW is designed to offer flexibility for employers who want to utilise contingent workers with specific expertise to perform a particular task or work on a particular project. These workers are then released once the project or task has been completed. The contract is designed to provide commitment on the outcome or quality the contingent worker will provide.

This has made them very popular with employers, however it comes at a premium cost and some organisations have found that they are paying a higher price for temporaries that have simply been on-hired rather than experts who possess considerable IP and knowledge.

What are the typical client payment structures?

Originally, SOW engagements involved payment only on the satisfactory completion of a particular project or task. Sometimes, for larger volumes of work, milestone payments were made on completion of phases of the overall project.

In more recent times however, SOWs have been used for the engagement of time and materials-based staff augmentation. In other words, the services company is paid for the hours the person worked rather than the outcomes achieved. In this case, the employer typically pays a daily rate and there is no transparency on the margin charged and no specific deliverable outcome.

So does this mean the contingent worker I’d be hiring isn’t a permanent employee of the service company or recruiter? Does that matter?

Originally, SOW services were provided by a professional services or IT services company that employed a permanent team of experts who were trained in specific methodologies and systems and had the support of a team of permanent colleagues to help solve complex problems for clients.

As mentioned, these services companies employed a permanent workforce, paying their salary even when they were not working on a billable assignment.

However, more recently, and in the IT sector in particular, a number of large recruitment agencies have begun to provide contractors for SOW contracts. As these people are contractors, they do not have the support of a team of permanent colleagues behind them and are paid for the hours worked on an assignment rather than a specific outcome.

So while you may think you’re engaging someone who is a permanent employee of the supplier, with a known history and specific training and support provided by the supplier, what you’re really getting is a contractor who the supplier could have only had on their books for a short period of time.

In addition, the supplier is also able to provide such contractors on a rate card basis where margins are unrestricted. To put this in context, an IT recruitment agency can make two to three times the margin by supplying a contractor to a client this way rather than through the client’s preferred supplier agreement.

Some of the specialist IT services organisations also hire contractors and provide them to their end clients under these types of agreements.

This means you might be paying a much higher margin for a person you could just as easily have hired from a recruitment agency on a temporary assignment at a third or less of the margin cost.

So people who are effectively a timesheet contractor rather than employed directly by the service provider have no responsibility to complete particular work of a particular quality?

No. Contractors who are supplied or engaged on a SOW agreement but are paid on a day rate basis typically come with no defined deliverable and no requirement to rectify mistakes at their own cost.

What’s the best way to attract the best contingent talent available?

In my experience, contingent workers’ main two areas of concern are being paid reliably and on time, and arranging a new contract that commences promptly following the completion of their current one.

That’s why we suggest employers engage contingent workers through a supplier who pays regularly and on time, ideally weekly.

On a longer assignment, we also advise employers to discuss with the worker when they would like to take some leave. Many contractors are reluctant to ask for leave while in a contract and they appreciate being offered the chance to take a short break. This can include telling contractors in advance if a stand-down period is planned, for example over the end of year, so they can plan around that.

It seems like a lot of work to implement a contingent workforce model that could manage our SOW – if we do decide to do so, how can we get it across the line?

At Hays Talent Solutions our Implementation Director has been doing this for 11 years across Europe, Asia and ANZ, and is supported by a team of 15 subject matter experts. It is a highly complex change management project, and it really pays to utilise people with a lot of experience in delivering successful outcomes in this area.

Key tips include ensuring that you establish a robust project board, a dedicated implementation project manager and a dedicated change manager to oversee the implementation from your side, with realistic timeframe expectations.

AUTHOR

Shane Little
Managing Director APAC, Hays Talent Solutions
As Managing Director for APAC at Hays Talent Solutions, Shane is responsible for the delivery of market leading Talent Solutions to a range of clients across Australia, New Zealand and Asia. He has a unique insight into total talent management, talent acquisition and contingent workforce programs having been involved in early stage PSL arrangements, first generation programmes and mature workforce solutions.