Hiring Managers are turning to Statement-of-Work contracts to maximize their job outcomes. Why? And what are the implications of adopting them in your talent strategy?
Statement-of-Work contracts place a focus on work outcomes, not hours worked
A Statement-of-Work (SoW) is a form of contract between a company and a staffing provider or individual that agrees to pay the contracted party for their efforts based on the achievement of pre-determined project outcomes. Typically, these outcomes are formed around project way-points (sometimes called ‘Milestones’). An effective SoW will define the specific services the contractor is expected to deliver, including work details, costs, timelines, terms and expected outcomes.
Use of contingent workers and ‘the gig economy’ means that firms can get their work done faster, with no employment risks. SoW turns requirements for contingent workers into ‘jobs to be done’ that can be contracted out by purchasing departments. These contracts then, are popular today because they allow hirers of indirect workforce resources to pay on results, rather than hours worked. Departmental managers, with work to be performed, can hire specific skills for each project or activity stream they need to complete.
According to Staffing Industry Analysts, over 50% of organizations in the US have already adopted SoW in their Contingent Workforce programs, and those that aren’t already doing it are likely to do so in the next 2-years.
The widespread adoption of SoW contracts in the US illustrated by the figures above, remains untypical across the rest of the world. Most other countries show SoW contract adoption in less than 10% of organizations. This suggests that one of the main reasons why SoW is favoured in the US comes down to the higher level of co-employment risk; meaning that employers adopt SoW contracts to avoid falling foul of employment law more than for the benefits it brings to get work done.
Us of SoW contracts is booming
SoW contracts are growing in popularity. Partly, the noticeable increase in SoW usage is spurred on by the desire of firms to tap into the contingent workforce. Use of contingent workers in the US continues to grow, and already represents over 35% of most large enterprise workforces. In the UK, analysts including Accenture and Deloitte predict that the contracting and freelancing market will grow to represent 30% of the workforce in the next few years. By focusing on project outcomes, not hours worked, organizations can to sugar-cube their resourcing needs and source best-fit, value-for-money solutions from a large addressable market of talent.
Key attributes of a Statement of Work include:
- A description of the job to be done and of the skills and qualities needed to perform the task
- Qualification of the way-points against which the contracted worker will be paid
- Clarity over what qualifies the way-point as being complete (this is important because the hired contractor or agency needs to be clear on when they can bill for work done)
- Details of the resources provided, location of work and other meta-information related to the activity
- Confirmation of contract duration, payment terms (including how expenses will be covered), method of payment, currency etc.
- A summary of obligations of the contracted worker in terms of expected behaviors, hours of attendance etc.
When it doesn’t work
SoW contracts are an effect hiring option for companies that have a long list of work to be done that are struggling to source the talent they need, but there are some ‘must-do-well’ aspects that companies considering SoW contracts need to get right.
Representing an exhaustive description of the requirement in your contract
When SoW contracts are poorly formed, they can lack the level of detail needed to protect both parties from mis-understandings and contract risks. That’s why we recommend organisations that have never used SOW contracts to source good impartial advice on how to design their scheme.
Being clear on way-point outcome measures
It’s vital that the SoW contract is clear what constitutes the completion of a way-point because any lack of clarity can result in upset should the contractor not be paid. It’s not common but occasionally disputes flair up when parties disagree on the quality of work produced. Being clear on what constitutes completion can help to avoid this.
Paying a reasonable price for work done
It’s no good thinking that the hourly rate you pay for a contractor will be anything similar to the hourly rate of a full-time employee. Contractors face a significant amount of downtime between jobs and they have to cover their ‘cost-of-sale.’ They may even have to cover their own expenses if these are not reimbursed. Bear in mind also that contractors are commonly more skilled and therefore expect to be paid for their knowledge and delivery capability. Fail to pay a reasonable market rate for your work and you’ll find your SoW ambitions will soon go away.