CWS 3.0: July 11, 2012

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Spotlight on the Rising SOW Spend

According to recent research from Staffing Industry Analysts, statement of work (SOW) spend inside contingent workforce programs has been increasing significantly, leading some to wonder if this is because traditional temporary worker spend is shifting to SOW spend. Is transparency of temp spend creating a demand for transparency of SOW spend? Is program maturity the main factor or is there some other reason we are seeing this shift?

Many companies define these categories very differently and the lines get crossed frequently. Some categorize temps as such based on how their vendor is categorized in their accounts payable system — they come from companies on a specified list and cannot cross over to an SOW list. Others, meanwhile, categorize temporary workers based on the method by which they are engaged and billed. Hourly workers equal temps while fixed billings or milestone billings equate to SOW consultants.

Before understanding what is going on, we need to come to a common language and definition of what constitutes a temp, SOW or independent contractor, and gain agreement of the rules of engaging each category. You can refer to Staffing Industry Analysts' lexicon list for this very purpose. 

Here are some commonly used terms and definitions:

Temp — a worker (especially in an office) hired on a temporary basis, common abbreviation or colloquial expression for temporary worker.

Consultant — A term often used interchangeably with “temporary employee” though typically “consultant” refers to one performing professional-level work in areas such as IT, engineering or management consulting services.

Independent Contractor (IC) — A self-employed individual performing services for a company under contract rather than as an employee, either on- or off-site (also referred to as freelancers, consultants and in the U.S., “1099s.”) In the U.S., the IRS uses a three-factor test looking at behavioral controls, financial controls and the relationship of the parties to determine if one is truly independent. ICs typically utilize a statement of work agreement (SOW) and bill based on a fixed price deliverable or hourly with a “not to exceed” time based deliverable.

Statement of Work (SOW) Consultant — Any consultant performing work on a project under an SOW arrangement.

Freelancer — Freelancers are typically classified as independent contractors.

As you can see, we interchange the terms across all categories, so it makes sense that it is confusing. So why do we see an increase in SOW spend? One thing to consider is that it is also causing the total contingent spend to increase in a given program and then in the market. There are several reasons companies decide to expand their temp program to include SOW consulting, the challenge is to find out which one is right for you.

  • Transparency — Simply run them through the VMS/MSP program to gain visibility to who is working on-site, costs associated with SOW business, financial reporting and on/off-boarding compliance.
  • Consolidated billing — Utilizing the VMS tool to consolidate SOW invoicing on a monthly basis centralizing the approval and payment process and thus reducing internal costs of managing the payment function.
  • Cost controls — Creating more of a bid process for SOW work within the VMS tool utilizing per project bidding and comparing vendors’ proposals side by side.

CW program maturity may be the simple answer for the increase. Often, SOW spend in a company is two or three times that spent on typical contingent labor, therefore, it is an attractive target for proven programs to pitch bringing the added category into the program. Increasing spend under management breeds additional opportunity for cost savings, which is a tough argument to fight.

If you think you want to incorporate SOW into your program, you first need to gain agreement on what SOW means and set up parameters on what is included and second agree on why it should be important to your organization. Once these two things are established you have the platform to begin getting the appropriate executive sponsorship to move forward.

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