Many indicators, including our own survey data, point to an increasing use of statement-of-work (SOW) business across the staffing industry. In the world of IT, such engagements most often take the form of a discrete project with a defined end point, but can also involve the provision of a service on an ongoing basis. The term “SOW” derives from the document that formalizes the engagement, specifying details such as the activities to be performed, timeline for completion, minimum quality standards and the basis for pricing. We plumb the depths of this topic in a new report for corporate members, “Higher Risk, Higher Reward: IT Staffing Companies and Statement-of-Work Engagements.”

IT staffing firms have faced margin erosion over the past decade due in part to the heightened price competition associated with the rise of vendor management systems (VMSs). For them, SOW engagements represent an opportunity to build a more consultative relationship with the customer, differentiate their offerings from those of the competition, and potentially enhance their profitability. End clients, meanwhile, are drawn to SOW business because it allows them to shift a measure of risk onto the supplier while relieving the day-to-day burden of project management and worker supervision inherent in traditional staff augmentation (staff aug).

Not all SOW engagements are created equal, however. Some staffing firms have used SOW to repackage bulk staff aug, often at a higher bill rate but without the acceptance of additional risk (the defining characteristic of a valid statement-of-work agreement). Likewise, client business-line managers have used it to circumnavigate contingent workforce program policies such as tenure restrictions.

In cases where an SOW is being used strictly as a vehicle for bulk staff aug, and priced on a time & materials basis not tied to any milestone, deliverable or other risk-sharing mechanism, clients have a valid interest in moving that spend under the traditional staff aug model. With that in mind, here are some tips to avoid that pitfall, and keep your SOW business from being identified and reclassified as staff aug:

Focus on:

• Specializing in areas of core technological competency for your firm and top subject matter experts.
• Deploying a project manager from the earliest stage to develop a project plan and assemble a team of consultants.
• Leveraging any proprietary processes or other intellectual property (IP).
• Providing computers, software and other tools your team will use in executing the project.
• Ensuring the language of the SOW document:
  
  • Identifies the unique competency your firm is offering the client.
  • Includes demonstrable milestones or tangible deliverables if possible.
  • If the engagement does not lend itself to milestones or deliverables, the service-level agreements (SLAs) must clearly demonstrate the acceptance of risk by the supplier by linking payment to performance.

Avoid:

• Relying on the client’s personnel to provide direct oversight of the work being performed.
• Engaging in “layered” staffing by using temporary workers from a subcontracted supplier as consultants under your own SOW.
• Drafting an SOW document that:
  
  • Reads more like a job description than a project.
  • Specifies a number of consultants and length of time, but no deliverables or SLAs that require specific performance.