While most contingent workforce management professionals might acknowledge the existence of time-and-materials engagements within statement-of-work spend activity, few would approve of the use of them in their contingent workforce programs. In fact, it is not very difficult to solicit a general response of disapproval from CW program management professionals when mentioning the phrase SOW T&M.
Yet, my colleagues and I still hear of such engagements on a constant basis.
SIA does not promote an official definition for this type of CW engagement in its public Lexicon of Global Workforce-Related Terms nor its CCWP Statement of Work Management Expert content. The two core SOW engagement types as defined by SIA are SOW projects and SOW services. Both embrace the management concept of creating an engagement that delivers a planned deliverable/result. The main difference between the two is that a project has a beginning and end, whereas a service is an ongoing engagement. When one considers the execution features of these two definitions, it’s difficult to see where a time-and-materials engagement logically fits.
Conceptually, an SOW T&M engagement has no defined deliverable and as a potential consequence is missing the No. 1 engagement management feature of an SOW solution: the risk-shifting element of engagement deliverable/result completion management. Specifically, the core risk management of the SOW engagement is that the SOW solution provider can and will deliver the result as planned and paid for. Whether as a volume purchase of labor/skills or a not-to-exceed labor contract term, a time-and-materials engagement theoretically does not include the deliverable/result completion component, making it difficult to fit this type of engagement into established SOW solution marketplace definitions.
Another challenge is that perhaps an SOW T&M engagement is actually staff augmentation, a CW marketplace engagement type that already exists and is well-defined. SIA has a definition for this type of CW engagement: traditional temporary staffing. Some engagement managers may wrap an SOW contract around a staff augmentation engagement to bypass restrictive staff augmentation tenure policies, disagreement with engagement rate policies and/or speed-to-solution needs that can’t be met or a perhaps a general unsupportive view of the CW program’s services and value. There are many more we could list here that cause engagement managers to inappropriately take on an SOW T&M engagement.
At the end of the day, one could argue that SOW T&M engagements are just wolfish rogue spend in SOW sheep’s clothing.
Noncompliance. A number of approaches can be taken to address noncompliant SOW T&M engagement activity, the very first of which is trying to understand why some engagement managers do not value currently available CW program engagement solutions and services. Addressing several of these factors may motivate these managers to stop noncompliant, rogue SOW engagement spend, such as making informed enhancements to current staff augmentation or SOW engagement service solutions or even creating new service solutions to meet noncompliant engagement manager wants, needs and business requirements. A second approach is to establish a trusted pool of SOW solution partners who do not and will not engage in any noncompliant SOW solution practices. Overall, there are a number of steps a CW program can take to enhance the satisfaction levels of engagement managers of its staff augmentation and SOW engagements services, limiting noncompliant rogue spend behavior. CW program managers need to step up and discover how they are not currently meeting the needs of some engagement managers and make changes to do so.
Risks. Finally, there are multiple types of risk associated with SOW T&M engagements that range from legal to business depending on their framework and execution. The biggest risk of any SOW engagement is completion risk — and SOW T&M engagements are poorly structured to mitigate this risk. Other business risks can include high, unmanaged costs of labor rates, unplanned engagement scope creep and limited to no management of quality execution standards. Legal risks can arise from engagement misclassification if independent contractor talent is involved and other misunderstood legal statures/risks that might apply to the use of an SOW T&M engagement.
Some industry arguments identify key advantages of SOW T&M such as flexibility on engagements with an undefined scope, unknown design/work requirements and/or non-specific timelines. This might be applicable in engagements that employ very complex, agile process management methods because of the nature of the development work being engaged. However, there are traditional SOW frameworks and solutions that can manage iterative milestones and multiple deliverables to avoid using a loosely framed, non-compliant SOW T&M engagement.