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The favorite hiding place for CW spend: Reclassifying SOW

During the last few months, SIA’s contingent workforce strategies analyst team has conducted a number of program maturity assessments (PMAs) for its subscription-based CWS Council members. An emerging theme in these assessments has been that of statement-of-work (SOW) misclassification.

A PMA reviews an organization’s CW program management capabilities and drills down into the status of key program components such as policy, process, organizational alignment, technology infrastructure, program strategy and worker classifications. A lot of attention is now being focused on the SOW category. It has become one of the favored hiding places for non-compliant, contingent worker (CW) spend. Certain spend levels of SOW activity are competently and aggressively managed by professional procurement. But we’ve noticed there’s a threshold below which they are not. Say SOW engagements of below a half a million dollars are left to others with few mitigation and cost-effectiveness rules/policy, let alone expert CW management support. These engagements can add up quickly.

Visibility. The first vital step along the reclassification journey is visibility. How big is the SOW worker classification challenge, or from another perspective, the savings opportunity. For years, there’s been little to no organizational management of this category. And issues stemming from these engagements range from extreme “market expert rate” billing practices to incomplete offboarding of company access to buildings and the firm’s intranet, systems and data.

So visibility means more than who the workers are and what they are doing. SOW category visibility needs to capture initial assessment of organizational access status, length of service and identify initial risk management levels with IP protection and other engagement risk exposure.

Obviously, engagement cost will also need to be captured, because misclassification can typically lead to over-payment for the skill set/service being provided. Also, a “look-back visibility” of past SOW worker engagement activity is required, at the very least to conduct audits for proper offboarding.

The good news is acquiring this visibility and moving forward with tracking SOW classification activity can be facilitated by current market technology. And many business unit managers are not opposed to benefiting from the insight this visibility can offer them.

One last critical part of visibility is the why: Why have engagement managers decided to classify these workers as SOW engagement classifications? Is there a business need that is not being met by the current CW program? For example, maybe there is a tenure policy they are trying to avoid. This reasoning will be important to understand as you move forward with a SOW reclassification initiative.

Objectives. Gaining that visibility and seeing the challenge and opportunity will help you to identify the core objectives and goals in your SOW reclassification initiative. Is it cost-effectiveness, mitigation of risk, establishing organizational governance, implementing a competent on/offboarding process and/or strategically establishing a talent pool of vetted marketplace expertise?

Setting a clear focus for your classification transition goals will inform how aggressive you want be in implementing a reclassification initiative and what kind of transition time frame it will take to complete it.

If, for example, a key objective is to not lose any talent while transitioning from currently engagements, the transition period might take place over a longer period of time (potentially nine months to two years). Additionally, some “temporary, grandfather terms” might need to be negotiated in order to transition all of the targeted talent reclassifications.

Talent. Finally, the biggest resistance to reclassifying, misclassified SOW engagements is from the talent itself. Self-branded consultants will demand higher rates for services that could be provided by lower-rate staff-augmentation categories that can produce equal quality services. A solid review point is evaluating identical or similar job descriptions and justifying different rate structures for the same work.

Surprisingly, hiring managers are not the biggest road block to rationalizing the classification. They will support SOW reclassification efforts if they are educated in the issues and shown reasonable approach is taken during the transition, no incumbent talent will be lost before projects are completed, access to future required talent is assured, and ultimately, their business needs and requirements are known and being served.

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