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Statement of Work: A Procurement Professional's Step-by-Step Guide to Contract Hiring

Jul 21, 2016 12:32:24 PM

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It is commonly accepted that the cost of SOW-based services is estimated to be 200% to 400% greater than the spend associated with an organization’s staff augmentation workforce. This is due, in part, to the fact that many organizations have yet to tackle the management of SOW spend, and because the type of labor being engaged (and the work being performed) is often of a higher caliber, and involves more strategic relationships with the organizations’ executive leaders. Clearly, the SOW hiring process cannot simply be a modified version of those used to hire staff augmentation resources. Here’s what you need to know when embarking on a plan to hire SOW-based services.

First, it is important to define a governance team with cross-functional representation to properly define the scope and goals of the project. Ask questions like, “Will your organization include all labor categories including outsourced services such as the cafeteria workers or security guards?” Use the answer to that key question to ensure alignment of sourcing strategies with all relevant current engagements. Another good question for the governance team to find an answer for is, “What is the desired value to be gained in managing this spend? Is it cost savings? Compliance? Increased quality?” Ensure the corresponding rationale is included in all change management communications to help ease adoption. 

Next, be sure to focus fostering frictionless change management both internally and externally. Among internal resources, it pays to ensure education about proper labor classification is easily digestible for your internal stakeholders. Define the differences between a Services Provider’s SOW and the hourly-based, staff augmentation resource. Establish and communicate procurement paths and grant of authority or spend thresholds aligned properly with the corporate structure.

For external stakeholders, work towards gaining buy-in from top executives who hold the relationship with key providers. They can champion the need for the providers to agree to changes in process, and potentially contract language. Focus on the development of strong compliance policies ensuring there is standard language for background checks and (where applicable) drug screening.

Once change management protocols are established, foster continuing evolution of the processes and overall methodology. Beyond the visibility, cost savings and compliance gained by your initial deployment, examine what other goals may exist and when it may be most realistic to achieve them. The initial roll out of such infrastructure may take between 12 and 24 months. However, it is wise to set goals for 36 months out as well. Consider when it will be possible to recalibrate/streamline the program through vendor optimization/reduction. Examine workforce planning and total talent management practices with the goal of defining the proper mix of full-time, temporary, and outsourced services.

Another key factor in successful contract hiring involves determining a sound sourcing strategy. Decide whether your organization should allow for sole sourcing to one provider or require that every engagement be bid competitively. Some organizations even opt for a hybrid sourcing method with established thresholds to help determine which method is best to source the required contractor. To arrive at the proper determination, review current engagements, SOWs and accounts payable records. Categorize providers into buckets by spend type. For example:

  • Strategic Spend – those providers suited for large high dollar engagements and likely representing very influential relationships such as PWC, IBM, Accenture
  • Tactical Spend – these should be the support or operational suppliers with maintenance contracts or ongoing supportive contracts such as call centers
  • Discretionary Sspend – smaller, independent contractors engaged by managers and or directors to complete tasks not accommodated by existing in-house talent; e.g. graphic artists or trainers

Then, align service spend thresholds with the categories as defined. For example, any roles with rates of less than $100K are left to the manager to sole source. Those up to $500K, require the hiring manager to receive at minimum, three bids and stipulates the inclusion of justification as to why the manager selected the chosen provider. For those over a $500k threshold, Procurement must run a full RFP event with multiple providers to take advantage of negotiation and vendor selection processes.

Lastly, engage sourcing tools. Weigh the use of a VMS technology if none is already employed by the organization. Be sure any VMS technology selected is flexible enough to align with the sourcing strategies that were developed. 

It may seem like a lot of planning to cover and groundwork to be lain. But the results of proper planning are too significant to ignore.

Topics: Blog, Procurement Services

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