Over the last decade, the definition of contingent worker has evolved to include seasonal workers, independent contractors and statement of work consultants. In fact, it has been quite a natural progression toward enfolding statement of work (SOW) project spend into a managed service provider (MSP) model.
The MSP has achieved a certain popularity: It has proven its value with large Fortune 500 and 100 companies by streamlining CW operations and revealing cost savings. Given MSPs’ success, it is assumed that the savings and efficiencies achieved from managing temporary workers will naturally translate to the SOW spend categories. It could, but there still are some things contingent workforce managers should watch out for.
For starters, CW managers should carefully consider whether the SOW route is the right one for your project and company. Using SOW to avoid increasing worker headcount or tenure restrictions may come back to bite you.
There are key differences between engaging temps and consultants. The differentiating factor lies in the management of the work product and daily direction. Is the company or the supplier assuming the risk for properly completing the work product? In an SOW arrangement, as the supplier delivers services without the daily direction of a hiring manager. These services may involve milestones, activities and deliverables set in a contract that defines the anticipated outcomes of an engagement. Consulting firms sell an end result, not just the use of a resource for a given period of time. A SOW supplier assumes the risk of keeping its resources working until successful project completion at no extra cost to the customer.
Procurement professionals want to simplify the SOW engagement process, hence the desire to wrap SOW management into an MSP program. But there is an inherent bias among vendors and end-users against putting SOW consultants into a CW pool — and it has nothing to do with glamour, suppliers argue. It’s about headcount issues, they claim. Temporary workers have the potential of going permanent and adding to a company’s headcount, but SOW workers do not.
End users, meanwhile, want to use these consultants while maintaining their relationships with the SOW suppliers. The conflict mirrors the age-old problem in staffing where the CW program office wants to limit vendor access to hiring managers, but there’s a difference.
The reality is that the SOW world involves big dollars and C-level interest from the customer as well as with the supplier. As a result, both groups are reluctant to give up control of the SOW process. What transpires is a short-term, limited approach to handling this labor pool.
The most successful programs have specific criteria defining different types of SOWs and how they are sourced and engaged. It helps to set appropriate expectations with customers and suppliers during the lifecycle of a project by defining criteria for when to utilize an RFX (includes request for quotes, proposal or information) or when to simply directly source an SOW engagement.
A fully functioning SOW program presents different challenges to implement and manage than a traditional contingent workforce program. For instance, the communication and negotiation process takes place at multiple levels of the SOW engagement. The VMS can facilitate much of the communication; however, these factors affect the level of human intervention required in the overall process.
Today, many companies using SOW are content with relying on the VMS to track and administer the lifecycle of these workers. But there’s so much more that can be done, claim CW experts. The full functionality of the VMS is not being utilized. The tool allows for competitive bidding and side-by-side comparisons of different bids. SOW templates can be loaded into most VMS tools, which allows for better comparisons of projects and costs over time to be used for future sourcing and buying decisions.
Meanwhile, from a risk perspective, standard language can be included in SOW contracts for better consistency and risk management.
SOW projects require more collaboration among business units. Often, legal, procurement, and other groups may require the opportunity to give feedback before the finalization of an SOW engagement, and that can create a logistical challenge. VMS tools can also allow for better collaboration among those departments on contracts and SOW terms.
Challenges notwithstanding, there are benefits to be had by incorporating SOW projects in the MSP/VMS. In the first year, benefits can include process efficiencies, data transparency, supplier consolidation and rate management. In year two and beyond, the customer gains by having a single point of contact to manage the SOW lifecycle. Standardization of SOW terms and sourcing criteria as well streamlined program management, audit, and risk mitigation help make the client’s life easier.
Transparency of SOW financial data helps the customer manage costs. Further, knowing who and where these workers are and having high-quality on-boarding and off-boarding processes will help customers run a tight, secure operation. On/off boarding of SOW workers is most often the responsibility of the MSP, unless, of course, your program is managed in-house. Then you can assign someone in your CW team to take care of it. What used to take many people communicating at multiple points to manage the SOW process can be achieved easily by the MSP/VMS duo.
Similar to traditional CW programs, there is a finite number of funding models — supplier funded, client funded and hybrid funded. The choice to implement one over the other is based primarily on costs. In a supplier-funded model, the MSP holds back a percentage of the supplier invoice to cover the fees. The supplier still benefits through improved process efficiencies and exposure to more SOW opportunities through the MSP/VMS. This model requires that the supplier agreements are amended to include the MSP/VMS fee.
In a client-funded model, the client company pays the fees to the MSP/VMS. This process typically requires business units to pay and will involve a charge-back mechanism in the amount of the fees. This is a hard sell as the onus is now on the business unit to show how using SOW is helping it save money, but the MSP should have active cost-saving strategies that are tracked and reported on to show the value the business units are deriving from the program.
Hybrid-funding models are designed to please suppliers and businesses in the early stages of a program. They typically either agree to split the fees or grandfather some engagements at a low existing cost structure while enforcing a supplier funded model on all future engagements.
At the end of the day, you could gain savings from your SOW program by wrapping it into your MSP/VMS. Maybe you are not there yet. But remember, typical consulting projects are more expensive than their temp services counterparts — the premium you pay is for the specialized resources. So secure executive buy-in as to why the program is being implemented. At the same time, work with your MSP/VMS team to make sure that you create clearly defined, documented and communicated policies and workflow practices.