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These Are the 3 Biggest Trends in Workforce Innovation

Keeping up with the changing world requires constant innovation — and this includes hiring. Evolving technology, the shifting generational makeup of the workforce, and a candidate-centric market[...]

February 18, 2020

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MSPs Can Help Procurement Slay the SOW Dragon

If you’ll be attending ProcureCon’s Contingent Staffing 2016 Total Talent Management event, you may hear a lot about scope creep, tail spend and SOW. In many ways, they’re interrelated issues. Scope creep occurs when a project is not properly defined, documented or controlled. This leads to unexpected changes, delays and soaring costs as the project balloons into a continually expanding beast. Tail spend refers to spend in the organization that’s not actively being managed across the usual labor categories. More often than not, both of these issues reside in the world of Statement of Work (SOW) projects. SOW is truly the next frontier for procurement. However, capturing this lucrative and competitive piece of the market poses some challenges. By enlisting a Managed Services Provider (MSP), procurement leaders can reap the rewards SOW has to offer.

Transforming High Risk into High Reward

Last year, Staffing Industry Analysts (SIA) pegged the U.S. SOW market as a billion-dollar industry. Unfortunately, SOW engagements are intricate and sometimes daunting undertakings. Projects include multiple sub-categories and specific types of services.

Beyond that, many procurement organizations wrestle with the notion of losing control. SOW relationships focus on deliverables and outcomes, rather than the intangibles of providing an ongoing service over the course of an assignment. Also, vendors identify and assign project resources independent of the client’s direction. So the big obstacles boil down to mitigating risk and assuring a comfortable level of control over performance.

The SOW services category can be complex. It’s a notorious hiding place for rogue spend and misclassification. Traditional staffing firms have trouble finding the highly skilled talent needed, at the right time and right price. Some vendors classify agency temps as SOW consultants to inflate the rates -- outside the view of procurement.

SOW suppliers aren’t just filling open positions for ongoing work. They specialize in placing specific (often niche) categories of highly skilled 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.

Managing spend creep and ensuring cost containment is another challenge. Procurement officers need a strong team to run a quality sourcing event. More often than not, requirements are inaccurately captured or scrutinized, and money is wasted on unnecessarily high-specification products and services. Integrating SOW contractors into the rest of the blended workforce can also lead to out-of-control expenses, compliance risks and performance issues. Procurement teams that attempt to run SOW programs themselves may not have the specialized supplier networks they need. Fortunately, there are experienced MSPs and exceptional staffing suppliers ready to assist.

The Benefits MSPs Bring to SOW Engagements.

  • They create unique sets of SLAs at the onset of the program, defining specific SOW performance metrics and KPIs for milestones, deliverables, timelines, and targeted payment and penalty processes.
  • Automation technologies play an important role in services spend. Leading VMS providers have already incorporated SOW functionality into their systems, or they’ve developed modules to facilitate the communication and tracking of project milestones, including changes in time and materials. These SOW tools help MSPs maintain a clear and consistent understanding of project deliverables, budgets and timelines -- while eliminating extraneous expenses.
  • SOW projects require more collaboration among business units. Stakeholders from legal, procurement and the supply base may require the opportunity to give feedback before the finalization of an engagement. This can create a logistical challenge. Supported by VMS tools, MSPs facilitate better collaboration among those departments on contracts and SOW terms. From a compliance perspective, MSPs help standardize language that can be included in SOW contracts for better consistency and risk management.
  • Through their watchful eyes and involvement in the RFP process, MSPs create competitive pressures among bidding suppliers. As a result, those staffing partners are less likely to pad the scope of their solutions with extraneous items. Through the MSP, procurement leaders are more likely to see all the bids and scores. Having other prices as benchmarks for comparison helps provide objective backing to price negotiation tactics.
  • SOW consultant classification has become an issue in light of potential risks and high costs. They are typically paid a higher premium than temps because of their specialized skills. There are instances when temporary workers end up classified as SOW contractors to circumvent tenure limits. When that happens, excessive rate structures remain in place much longer. In an MSP program, SOW consultants who are really functioning as temporary talent (filling a role instead of delivering a tangible result) will be reclassified. Industry analysts estimate substantial savings from these efforts -- between 30 and 60 percent.
  • Some procurement departments source SOW engagements to the same suppliers out of convenience or a “default operation” mindset. This can be dangerous for companies that rely on innovation for competitiveness. MSPs extend SOW opportunities to the best qualified staffing curators, which exposes procurement leaders to multiple perspectives, solution approaches and increased price competition.
  • MSPs contain spend. It’s not uncommon in unmanaged SOW programs for spend to fall outside procurement guidelines, beyond the view of client decision makers. MSPs ensure a level of visibility that helps rein in maverick or misclassified spend. In some cases, a small percentage of SOW spend ends up distributed among a large supplier population. Experienced MSPs consolidate that tail spend under the smallest number of top performing suppliers.

The Power of MSP and Supplier Partnerships for Procurement

When MSPs and SOW suppliers orchestrate their efforts, program results are optimized. Procurement leaders realize amazing ROI on projects. MSPs tap into a powerful new spend category. And 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.

As many procurement leaders have probably discovered, high-performing SOW suppliers prefer a strong degree of autonomy. They’re accustomed to working outside traditional workforce programs, and many of the contractors on their staff have been hand-selected. SOW providers see this vital talent as an extension of their own organization. Because of that, procurement teams often encounter resistance when attempting to control the project scope. This is another area where MSPs prove instrumental.

  • MSPs and SOW suppliers align and integrate into the program as partners, not opponents.
  • SOW suppliers 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 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 help suppliers by investing time in preparing the VMS to expedite reporting, electronic budget approvals, deliverables, invoicing and SOW amendments.
  • SOW suppliers help MSPs by committing to utilize the VMS instead of their own systems (ERPs, PO platforms, etc.). This ensures consistency in communications.
  • MSPs 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 help MSPs mitigate 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.

SOW engagements are often described as “high risk, high reward.” And that’s because procurement teams think about them in a self-managed context. MSPs understand that SOW engagements differ from temporary work. They provide procurement with a crucial level of visibility, program oversight, performance monitoring, reporting, worker classification, compliance and supplier selection. That translates into significant hard and soft cost savings, higher quality service, more 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 workers, and offering unique tools and resources that ensure success. If one brings the combined strengths of MSPs and SOW suppliers to bear in a close partnership, procurement will see its SOW engagement soar.

Continue the Discussion at Contingent Staffing 2016

If you’re attending ProcureCon’s Total Talent Management conference in Atlanta, please join our CEO Sunil Bagai for a unique opportunity to explore the inner workings of a fresh and unprecedented approach to hiring – one that’s fueling the innovations of enterprises like SpaceX, Google, Walmart eCommerce, Experian and Illumina.

If you missed Sunil’s session on July 11 at 10:40 a.m., you can catch him at the panel discussion "Breaking Down Total Workforce Management" at 12:10 p.m. today. He would love to meet with you and trade insights on how suppliers and procurement leaders can co-create the future of talent.

Image courtesy of (c) Can Stock Photo

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