Potential impacts of blurring lines between Statement of Work vs. regular agency contractor

“Statement of Work” (SoW), or “IT Services”, are common labels assigned to the supply of Contingent staff in the IT sector.

However, while the use of these terms has increased in recent years, they have become misnomers, often used to describe a service that bears a closer resemblance to regular agency contractor usage.

The original intention of a SoW was a literal ‘statement of work’ that defined the project or tasks that were to be successfully completed before payment would be made.

However more recently, the term has been increasingly applied to workers who are engaged by a client on a time-only basis and paid a daily rate regardless of whether or not they complete specific outcomes.

Further complicating matters is that the SoW, if it exists, often contains vague terminologies such as “to work in Dev/Ops” or “to provide IT project management services”.

Many of the workers engaged under a SoW may actually be supplied by an IT recruitment agency who has developed the ability to supply staff via this channel, as well as through the agency recruitment panel arrangement.

Some IT recruitment agencies have also established a different brand for this type of supply. For example, a recruitment agency supplier may provide a client with both IT contract workers and day rate SoW staff.

In some cases, the supplier may be a true IT services company, simply providing day-rate staff augmentation, but often the actual workers are contractors to the services company.

This could lead to potential problems.

The impact and risks

Time based workers engaged through the SoW or IT services supply channel detailed above are typically more expensive. The margins are generally uncontrolled and not disclosed, and the pay rates may be higher.

Since these engagements typically sit outside the standard process for hiring IT contractors, critical checks and onboarding can be missed. Even fundamental issues such as whether the worker has a valid visa can be overlooked if the hiring manager thinks they are employed by a services company.

Tenure may not be measured, the organisation may not know who is coming into their office and accessing their systems, and various other checks may be neglected.

More fundamentally, this type of engagement can encourage rogue behaviour. A SoW, which was originally intended to only pay when a project has been successfully completed, regardless of the time it takes, may be being used as a work-around for the expensive and uncontrolled engagement of contract labour.

How to address this challenge

There are several options to manage this situation, with the key one being that all non-permanent engagements must be made via the Vendor Management System (VMS) technology.

The message, typically requiring active support at CPO and CIO level, should ideally be that unless a non-permanent worker is set up correctly and recording their hours of work in the VMS – regardless of source and even if they are not paid for time-based work – no invoices will be paid.

The VMS then allows an organisation to monitor who is coming into their workplace regardless of source or engagement method, confirm their on boarding and induction, record their hours of work and deactivate their building and system access at the completion of their work. Reporting is also available on their use, cost, distribution and tenure, if required.

Some organisations are content with such visibility. Others choose a more detailed approach to assess at the point of requisition which staff engagement option is most suitable.

This typically involves:

1. Decision Wizard: Built into the VMS, this feature steers the hiring manager to the most appropriate engagement method through the process of answering a series of questions. The questions also alert the onsite TA or MSP team member to contact the hiring manager to discuss their requirements.
2. Solution Design: The business rules for the engagement of SoW and IT services workers are reviewed. The VMS or MSP solution is then designed to reflect those rules, whether for time or outcome-based engagements.

As a result of these actions, an organisation may reduce their use of time-based SoW and IT Services staff and instead increase their use of lower cost IT contract staff.

Alternatively, they may simply gain visibility of these workers to better understand their use and monitor their induction and on and off boarding.

Either way, such actions help to clarify misleading terms and ensure the most suitable service outcome for the issues at hand.

There are numerous reasons for the muddiness surrounding use of SoW and agency contractors. Sometimes hiring managers feel that the approval process for hiring IT contractors is too complex, that their needs are different or not understood by a central Talent or HR function, or that SoW staff do not appear on headcount listings or can get charged to a different cost code.

It is important to note that the above engagements are very different from those offered by genuine income-based IT services organisations that predominantly employ permanent employees and provide them with IP, training in specific technologies and management support and backup.

Ensuring that you have the right process in place could save you from a lot of potential issues in the future.

Cover image: Shutterstock

This article is contributed by Hays Talent Solutions.

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