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THE ULTIMATE GUIDE TO SOW MANAGEMENT IN 2020

Discover how to create a services procurement strategy to help your organisation drive better outcomes, increase value from spend and maximise competitiveness.

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It’s no secret that the use of the contingent workforce has gone mainstream. Organisations across the world recognise the importance of contingent labour in accessing critical skills. Which is why more buyers have established contingent workforce programmes, often outsourced to Managed Service Providers to leverage this critical source of talent effectively.

Progressive organisations are now expanding their contingent workforce programmes to also incorporate Statement of Work based engagements. With several studies suggesting that indirect spend is more challenging to manage effectively than direct spend, these organisations have realised that many of the same principles and benefits outsourced expertise brings to their use of temporary labour can be applied to SOW based services too.

By strategically managing their SOW spend organisations can become more productive and potentially achieve double-digit savings.

What is services procurement?

Why is services procurement important?

Services procurement examples

Services procurement strategy

 

Sound interesting? Keep reading to learn about the ways your business can implement services procurement best practices and most effectively manage Statement of Work projects.

What is services procurement?

What is services procurement?

Services procurement is the process of identifying and prioritising user requirements, identifying potential sources of supply, negotiating and contracting with selected service providers and then overseeing the delivery of agreed outcomes with the third parties engaged to deliver specific outcomes and milestones.

For more information visit our FAQ page.

Why is services procurement important?

Why is services procurement important?

The global market for SOW services is worth several trillion and encompasses all types of non-permanent service providers, from the largest global players through to individual consultants and contractors. Many organisations are now concluding that a more integrated approach to the selection, engagement and output tracking of SOW services could increase their overall competitiveness. SOW management also provides a great opportunity for in-house procurement teams to positively influence best value and stakeholder experience. Specifically, by:

  • Helping budgets go further
  • Introducing speed and simplicity to the engagement process
  • Assuring project outcomes
  • Leveraging new and innovative supply options
  • Becoming the client of choice

Services procurement examples

Services procurement examples

Every organisation will purchase some kind of services. These could include;

  • IT (Infrastructure, Hardware, Software, IT Consultancy Services)
  • Market Data (Information or data supplied by Bloomberg, Reuters etc.)
  • Business Operations (Card Platforms)
  • HR (Recruitment Agencies, Employee Benefits, Training & Development)
  • Professional Services (Legal, Insurance, Tax, Audit, Management Consultancies)
  • Travel (Air, Rail, Hotels, Cabs, Car Rentals)
  • Marketing (Creative, Digital, Print)
  • Business Process/Information Technology Outsourcing (near shore, offshore)
  • Facilities (Furniture, Catering, Utilities, Fleet, Property)
  • Logistics (Storage, Mail)

services procurement strategy

Services procurement strategy

1. Enable the people with the need and the budget

  • Always start with the work
  • Embrace the nuances
  • Practically inform decision making

2. Write Statements of Work that are fit for purpose

  • Help both the buyer and supplier by including not only the commercial terms but clearly answering these six core questions; Why? What? Who? How? When? Where?

3. Don’t wait till you have all the data, but ensure you apply the right tools and levers

  • There is never a perfect time to start and no off the shelf solution. Procurement teams will add most value by streamlining processes and advising on commercial and contractual considerations

4. Become the client that every service provider wants in their portfolio

  • Driving the most value from a supplier depends on equitable relationships and forthright communication. It is also essential to introduce the right feedback loops and have all stakeholders invested in mutual success

1. Enable the people with the need and the budget

1. Enable the people with the need and the budget

The number one success factor for any services procurement solution is that it must be designed to support the work outputs an engagement manager is responsible for. They should not feel trapped in a one size fits-all SOW factory. Processes should not disproportionately focus on unit costs and worker types, and certainly supply choices should not be artificially constrained.

Always start with the work

An SOW management solution should clearly and practically enable a choice of service provision that can be relied upon to deliver perceived best value for the engagement managers and what they are trying to achieve.

Many SOW based needs arise situationally. Organisations can rarely predict the services they are going to need 12-24 months in advance. When it does happen, these needs tend to form part of a large and wide-ranging transformation programme. However even in these circumstances the precise timescales and scope of work will be refined much closer to the actual point of need.

This means that the SOW management solution must be designed with inherent flexibility, so it can adequately support evolving requirements and priorities. This flexibility also needs to be considered across the enterprise as engagement managers themselves do not all fit the same mould.

Embrace the nuances

As value means different things to people depending on their personal role in the SOW engagement decision, it is so important that any comparisons made between service providers, fees, timescales, expertise and deliverables are relative. This means that the buying terrain is very nuanced and needs to be properly understood.

The SOW landscape is going through a radical shift. For example:

  • Many SOW based workers now operate this way as a career and lifestyle choice. They would no longer consider taking a permanent role
  • Traditional services provision is becoming far more modularised – more and more companies see themselves as ‘solution providers’ and incorporate advice within their propositions. As a result, it is often a challenge to level set market offerings and attempting to do this can deter supplier innovation
  • Service providers themselves are going to market with a larger proportion of non-permanent workers. This can create a hidden ‘margin on margin’ situation. The best example of this lies in the strategic consultancy arena, where clients are often blind to how much of their project work is being performed by individuals who could be engaged directly and without the associated overhead
  • The boundaries between spend categories are far more fluid than ever before, and, in some cases, services can traverse these boundaries in one engagement. It wasn’t too long ago that text messaging was bought within the IT or telecoms category. Now it is part of a marketing services campaign. This means that procurement professionals must work together far more laterally across the enterprise if their organisation is going to take full advantage of an SOW management solution.
  • Finally, engaging resources via an SOW is a primary method of addressing legislative changes, such as IR35 in the UK, that focus on disguised employment
     

Practically inform decision making

A decision tree is an important element of a SOW management solution and it should inform engagement managers at the point that they first identify a need for SOW based support. Many decision trees, often delivered via a set of automated rules, merely represent ‘traffic management’ and they end up disproportionately focussed on enforcing procurement policy.

A best practice decision tree will offer genuine value within an enterprise and it will prompt engagement managers to consider their needs through the following lenses. Each of these lenses could represent a different type of SOW based resourcing solution:

  • “We don’t know where we are” your engagement managers will be looking for an SOW supplier to provide an objective assessment of their status, performance and prospects
  • “We don’t know what to do” your engagement managers will be looking for an SOW supplier to support them in developing direction and/or defining a strategy
  • “We know what to do but we don’t know how to do it” your engagement managers will be looking for an SOW supplier to support them in shaping an approach/defining and mobilising a change initiative of some sort
  • “We know what to do but we don’t have the capability to do it” your engagement managers will be looking for an SOW supplier who has the resources, skills or experience not readily available to them internally to deliver an agreed piece of work
  • “We know what to do but we want to assess the risk” your engagement managers have decided/embarked on a course of action but want an SOW supplier to provide any additional validation or assurance
     
A well-designed decision tree will also take full and appropriate account of global differences. Countries and regions can apply different definitions, laws, policies and commercial guidelines around how organisations should engage and deploy SOW based workers. There may also be differences in how disputes can be resolved.

2. Write Statements of Work that are fit for purpose

2. Write Statements of Work that are fit for purpose

A well-crafted SOW helps both the buyer and the supplier. For example, for the buying organisation it informs their choice of supplier and negotiation strategy. Procurement teams can help project owners consider what they need by asking question such as:

  • What type of specialist skills are you short of?
  • How deep is the expertise you are looking for? Are there specific certifications requirements?
  • What types of experience are you short of? What type and depth of experience are you looking for an external service provider to bring?
  • How important is the ability to bring to bear a different and independent perspective?
  • What level of challenge do you want them to bring? What level of management will they be working with and needing to influence?
  • How important is thought leadership – the bringing of new insights or approaches?
     

For the supplier it sets out the extent of the business need, helps determine their responsibilities and deliverables, their approach to delivery and any potential risks, their costs and resourcing commitments. A clear understanding of the requirements can avoid any negative outcomes for both parties such as unsatisfactory performance, delays, contract amendments, ligation, high costs and damage to reputation.

When crafting your Statement of Work in addition to the commercial terms there are essentially six core questions for both parties to articulate- why, what, who, how, when and where. The exact contents will vary depending on the services being procured, the complexity of the project and any number of other variables.

Why?

Your why sets out an overview of the services to provide background to the project and will describe how the services fit into the engagement managers overall objectives. Explaining why the services are needed will help inform potential suppliers about the scope of work, the type of approach to be taken and define the roles and responsibilities of the parties when delivering the services.

What?

The scope of services can be described in broad and general terms to allow flexibility, or they can be very detailed and tightly defined to a set specification; the type of support you need will invariably depend on the nature of your requirements and the complexity of the project. It will also drive the commercial model that is suitable.

For example, it is much easier to detail the volume and your expectations if you are looking for SOW based support to conduct surveys. However, a relatively flexible scope of services may be needed when you are looking for guidance and advisory support on defining requirements. A supplier would expect to have much more latitude in structuring its approach and the roles and responsibilities of the parties will be driven by this.

Any assumptions that are made in defining the scope of the services and any deliverables to be provided will be specified so any misunderstandings can then be clarified and, if necessary, modifications can then be made. Whether you are a client, or a supplier of SOW based services, you will need to ensure that the definition of the scope of services is appropriate for your needs and both parties have a complete understanding of what is being asked for and delivered in the contract.

Who?

As no two clients are the same, the services a supplier will provide will differ for each project. For most SOW based services, obligations would typically need to cover:

  • Provision of information
  • Access to relevant staff
  • Client taking management decisions and obtaining approvals promptly
  • Provision of administrative support and space as suppliers are frequently working on client site
  • Notification of relevant developments in the client’s business that will impact delivery of the project
  • Obtaining any necessary third-party permissions, approvals and licences
  • Activities performed by any third party
     

A failure to detail each party’s obligations in the contract may result in disputes and misunderstanding and ultimately cause delays to the delivery of services, but the actual obligations in the contract will depend on the services provided.

How?

Both parties should have a clear understanding of expected levels of performance, expected outcomes and any specifications or standards which should be met. Open-ended and subjective performance requirements and standards such as "as directed by the client," "satisfactory to," and “subject to approval," will not give ether party certainty that the services or any outputs have been delivered. By having a clear approval process and acceptance criteria will benefit both parties as it allows final closure.

Standards can take the form of specifications, guidelines, or methodologies for tasks. The standards you need are entirely linked to the services provided. Both parties should invest the time to ensure that the expected levels of performance and any specifications or standards are suitable in the context of the services and consider these in your commercial negotiations.

When?

Both the client and supplier need to clearly understand the timing for the performance of the services whilst also recognising that delivering a project will have dependencies and is ultimately a joint endeavour. The type of services provided may mean that it is not possible to understand what the timetable for the delivery of services is until the services have commenced, and so in discussions and scoping of the services, dates will be provided for planning and estimating purposes only and will be refined in project initiation documents or progress meetings.

Where?

The location for the provision of services may impact commercial negotiations. Is there an expectation to work on the client’s site? If so:

  • What equipment will be provided?
  • What access is needed?
  • Will the supplier need to obtain security passes?
  • Will the supplier need a client email address?
  • Will the supplier need access to the client’s network?
     

If this is a global scope of services, is there an expectation for the supplier to travel to multiple client sites?

3. Don’t wait till you have all the data, but ensure you apply the right tools and levers

3. Don’t wait till you have all the data, but ensure you apply the right tools and levers

When organisations embark on a SOW management solution they need to collect a range of data to baseline their ‘as-is’ – especially pre-existing commitments, historical precedents and (occasionally) interdependent supply relationships. Since no organisation ever has all the information they need at its fingertips (or sometimes at all) some detective work will always be required to gather as many data points as possible and piece the as-is story together.

These are the data points which are most critical to try and assemble:

1. Total spend data by SOW service providers (ideally for the last complete financial year and spend to date in the current financial year)

2. Within this spend data the number and value of the SOWs awarded to each individual service providers by type of work/project (however the client organisation defines the types of SOW work performed today)

3. For those service providers who have been engaged more than once it would be useful to see a proportional sample of their contracted SOW’s

4. What, if any, long term contracts or spend commitments are in place with SOW service providers?

5. How do functional units budget for SOW resources today and/or if they do not have to budget what is the internal authorisation procedure before they can contract with a service provider?

6. Is there is an engagement value that determines when procurement professionals need to be involved? What is that? What does that involvement usually entail?

If none of this historical spend/volume or contractual data is readily accessible, then the solution will need to be designed around whatever good could, and should, look like within that organisation.

Use automation to propel

You can implement a SOW management initiative without a Vendor Management System (VMS) or other relevant technology. There are several things an organisation can do to improve its SOW related return on investment, for example reviewing how well they capture and articulate their business needs, structure their SOW documentation or negotiate the associated commercial arrangements.

However, if organisations want to maximise the potential business benefits of a SOW management initiative then a VMS tool will be essential. That said, organisations must always remember the expression ‘form follows function’. It is important to configure the technology around your preferred end to end processes, rather than the reverse.

This is particularly important when you are considering approval loops – it is critical that the people with the need and the budget for SOW services view the automated processes as enablers rather than constraints. The end to end process can be divided into six key areas and each can be automated:

1. Pre-Approval

2. SOW Creation

3. Sourcing and Selection

4. Milestone Tracking, Acceptance and Payment

5. Change Control

6. Post Engagement Performance Evaluation

The best MSP providers will be technology agnostic and will help guide their clients towards the solution that is most operationally appropriate – whilst also considering any other procurement technologies they may already be using.

Commercial considerations

There is also no ‘one size fits-all’ when it comes to commercial models. It is typical for the commercial fee types offered to vary according to the type of SOW services, the nature and business objectives of the project, the level of perceived risk and other specific circumstances.

This is a very important principle to appreciate because there are some organisations who perceive that an SOW service is not an SOW service if it is contracted using a time-based free structure. However, you can apply both time-based and fixed fee commercial models to a SOW based service, but the distinction is that any part or all the fee must be triggered by the achievement of a specific outcome or milestone, not purely the expending of time.

SOW based services like consultancy can vary significantly based on the client’s need – from the provision of syndicated research to high numbers of personnel, or highly specialised and targeted services and advice.

If a client is asking a supplier to provide a type of service which is not their usual niche or where there is no existing relationship and knowledge of the client business, then there is every possibility that the client may end up paying more for the privilege or receive a lower standard of output. Managing this successfully requires a good understanding of the market and then having an open engagement and discussion with suppliers early on to aid appropriate shortlisting and supplier selection.

The selection of an appropriate commercial model will be informed by a client’s business needs assessment. For example, if you run a competitive sourcing exercise then for evaluation purposes you may need to define a consistent pricing model for each supplier to follow; whereas procuring through a single tender may invite more innovative pricing models. It will of course vary according to the client’s service requirements, the circumstances surrounding a project and levels of perceived risk for both parties.

When a client conducts its business needs assessment, it will also need to consider if it requires a more flexible and open pricing model, a specific and fixed pricing model or more innovative pricing. As a general principle, the commercial arrangement which is put in place between the Supplier and the Client should ultimately be beneficial and appropriate for both parties.

Contractual considerations

Identifying the most suitable vehicle for contracting between a SOW supplier and client will save both parties precious time and money, so it is worthwhile taking the time to assess the various options available to you. Ultimately what is going to be the most appropriate and efficient vehicle? A framework agreement? Using the supplier’s terms? A commercial rate-card agreement alone? Using the client’s terms? If the client is looking for specialised services to be performed, it may be more appropriate to utilise the supplier’s terms, as they will have been tailored accordingly. However, if as a client your industry has very strict legal obligations, for example in Energy & Resources where you may have very strict health and safety requirements, it may be preferable to use the client’s terms.

There is no hard and fast rule; the most suitable vehicle for contracting between a supplier and client will be informed by the nature of the relationship, the type of project (including any specialist services or regulatory requirements) and a thorough assessment and definition of the client’s needs.

Utilising a Third-Party Managed Service Provider

It is very important to remember that in a SOW context the most important relationship is always between the client engagement manager i.e. the person with the need and the budget, and the SOW supplier who is accountable for the outcome. If an organisation is considering using an MSP to administer their SOW engagement processes, then a triangular relationship would need to be established to ensure that the direct contractual relationship is maintained for the provision of the work, but the MSP would be appointed to act as a work-flow and possibly also a billing intermediary.

It should be emphasised that this triangular structure would only be appropriate for authentic SOW based services. If an organisation is using SOW as a mechanism to bypass internal hiring rules, then this should be addressed in a different way.

4. Become the client that every service provider wants in their portfolio

4. Become the client that every service provider wants in their portfolio

The value of a truly successful services procurement process does not stop at purchase stage. A service provider is only as good as their last engagement. They need to deliver and build a positive platform for future work, and so post engagement reviews should be part of your standard practice. But to be effective they need to be bi-directional to give the service provider a chance to say what is and isn’t working for them also.

Applying the right performance indicators

There are two sides to the KPI equation.

The first is to select the micro level measures, which are specific to the project and/or engagement deliverables and these will typically fit within three main headings:

1. Timeliness: Is the project on track to deliver when it is supposed to or do milestones need to be reviewed?

2. Budget: Are project costs going to stay under the budget you’ve allocated, or will more money need to be found?

3. Quality: Is the project going to deliver what it is supposed to and to the level of quality defined within the SOW?

The measures within these three headings should be different depending on the type of service being purchased, for example KPI’s relating to the provision of tax or accountancy advice will be different to KPI’s that relate to a marketing campaign. These will be quantitative measures.

The second side of the KPI equation relates to macro level measures that will indicate the overall strength of the SOW service provider. For example, the amount of change control required or their speed to productivity relative to previous projects they (or other similar service providers) may have done for your organisation. These will be qualitative measures.

There are some key factors which will determine how useful KPI’s will be:

  • Performance should be evaluated at different stages of the project/engagement
  • The performance of the client organisation as well as the SOW service provider should be evaluated
  • There should be a standard list of questions used to evaluate performance
  • The learning must be subsequently applied to all other areas of the buying process, especially when considering whether to use an SOW service provider for additional projects
     

Involve the right stakeholders

Before you introduce an evaluation process it is important to clarify the different roles required and the purpose of the evaluation itself.

Are you clear who the stakeholders are and their roles? Clearly the SOW project owner but how about the finance function, procurement and ideally the SOW service provider too?

Consider to what extent will the stakeholders (all or only a selection) be involved in the evaluation process? How involved should they be to get good insight? How do you balance this against their time commitments and availability?

To this you need to be clear on the purpose of the evaluation. Is it:

  • To evaluate only
  • To improve
  • To find out what went wrong
  • To increase competition
  • To drive down price next time
  • To improve specifying/commissioning
  • To improve selection; to make the buying organisation a “smarter client”
     

Be a genuine partner

There are many ways a buying organisation can demonstrate their worth as a valued business partner. Here are just some of them:

  • Always pay on time - You can negotiate for favourable payment terms but once the SOW has been executed don't renege or attempt to change the rules. If your organisation encounters a payment problem, then provide notice to your suppliers and confirm when you will be able to pay. If you don't play games with your suppliers' cashflow then you will be surprised at the goodwill and benefits you will generate
  • Provide realistic timelines - There is nothing wrong with a stretching timeline, but it must be practically achievable. Buying organisations can also be the root cause of a delay and when this happens it is important to be reasonable about the knock-on impact on overall milestones
  • Share information - Keep your SOW suppliers aware of what's going on in your company. Tell them about any changes in key personnel, new executive strategies and any financial challenges, particularly if these changes will impact their ability to deliver a quality work product
     

Developing good relationships with suppliers means being forthright, treating them fairly and paying on time.

Driving the best outcomes and most value from services

Driving the best outcomes and most value from services

With effective services procurement you can increase your organisational competitiveness. In parallel, those Procurement functions that seek to enable rather than control the SOW buying process will be welcomed with open arms by both project owners and suppliers!

Every organisation will start from a different place on the services procurement maturity curve, but their overall journey will be fundamentally the same. A successful SOW management solution can help an organisation thrive. But it is easy to be unsuccessful. Don’t let your programme be doomed from the outset by not having an outcome focus. If you have an MSP, then co-create the problem statement with them. Expect the programme to evolve and that there will be bumps in the road. Finally, treat your SOW service providers as a valuable business asset.

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