Workforce management has grown far more complicated than it was in the early days when there were only two types of human resources: full-time workers and contingents (temps). Over the past two decades, numerous classifications of workers and specialized work arrangements have emerged to address a wider range of business needs (e.g. independent contractors, FTEs, salaried employees, executive/professional services, payrolled employees, and others). The Statement of Work (SOW) arrangement is among the more misunderstood additions to an HR practitioner’s array of labor classifications. Yet, it offers significant utility to organizations seeking to purchase commercial services specifically for project-based work. So what is a SOW and how do you tell when is it appropriate/advantageous to engage an SOW? Let’s find out.
The “What” Behind What Is a SOW
While we in the HR community tend to refer to the SOW as a category of worker, the SOW is actually the contract document produced to engage a contractor to perform a specific project from start to finish. The SOW can govern the work of a single contractor but, frequently, it is applied to a provider of services who may assign a number of his or her own employees to the project. Think of the SOW document as a services procurement contract, designed to clearly enunciate the scope of the project and all the detailed parameters for deliverables, budget, timelines, and requirements. Once signed and engaged, the project commences until completion as scheduled in the SOW document. At the conclusion of the engagement, the worker or workers executing the SOW are no longer involved with the hiring organization.
According to Project Management Tips, the SOW document must include:
- General statement of the project purpose or need
- Description of the major project deliverables
- Definition of the project milestones
- Estimation of the project effort
- Estimation of the project timeline
- Estimation of the project budget (this actually may be specific as it may be set in stone from Sales)
- High-level description of the project team roles and responsibilities for both sides
- Assumptions for the project
A more detailed breakdown of the individual pieces of language to be included in an SOW agreement is available in this document from fdgc.gov. The well-drafted SOW should lead to more cost-effective services acquisitions and improved value by holding contractors accountable for delivery of results. It also ensures control over the project is firmly seated with the contractor, effectively minimizing the customers’ exposure to classification challenges.
The “Why and When”
An SOW arrangement is often the best option for an organization that has a larger scale, yet finite, task to accomplish. For instance, installing a new telephone system for an entire corporate campus, the development of a new online app for financial transactions at a retail bank chain, or the construction of kiosks across a retail chain with dozens of locations are just a few examples among countless potential projects. Generally, these are all projects requiring specialized skill sets but are not, by definition, likely to last indefinitely.
For many organizations, hiring full-time employees to handle this type of work leads to overstaffing when the project concludes. Hiring individual time and materials workers and managing projects internally means expending significant management resources and allocating valuable time to planning and monitoring progress of the project. Conversely, the SOW enables the hiring organization to leverage the manpower and management structure of the services firm engaged on a project basis to perform the tasks through to satisfactory completion without having to be responsible for the day-to-day management of operations.