Statement of work contracts are not a fix, dodge or ‘magic solution’ to IR35 but they are a hugely valuable option when dealing with the issues caused by it.
With April 2021 closer than you think, the private sector IR35 reforms remain a significant issue for organisations to address. Beyond the initial financial and tax implications, there are also questions to answer around who is going to get all the work done
In the search for a potential solution, the statement of work contract has emerged as a front runner, with many misinformed commentators touting it as some sort of silver bullet. However…
The idea of simply switching contractors onto a statement of work contract is a completely illegitimate concept that raises major risks and concerns when viewed as some sort of panacea that makes the need to comply with the IR35 reforms disappear in one clean sweep. A Statement of Work is simply a document that defines the scope, cost and deliverables of a piece of work. When work is truly packaged up with specific deliverables, timelines and costs, and fully outsourced to a company supplying services via a statement of work this can be a hugely valuable option for companies struck by IR35 productivity issues and skills shortages to get work done differently.
For this to happen, there needs to be a fundamental shift in how a business thinks about getting work done.
Supply of Labour vs Service Provision
A statement of work is a contract between a business and an external supplier for the provision of a service. The key difference here is the external supplier moves from supplying labour to managing and delivering a service.
Business A requires three software engineers to assist with the building of a new application. The supplier provides them with three workers, whose day-to-day activities will be managed by the business and paid on a day rate. This is a supply of labour.
Business B requires a new business application. It engages an external supplier, who for a fixed fee, assumes responsibility for the provision of the application by an agreed deadline. The external supplier is providing a service to the business.
Of course, this is a basic example highlighting the difference between supplying labour and providing a service. In practice, the services being outsourced could be wide ranging and could also include small modules of larger projects.
Roles vs Outcomes
Another clear distinction that needs to be made when working with statement of work contracts is between roles and outcomes.
Continuing the IT themed example from above – our theoretical Business now has its application, but it needs to run some security tests on it.
Business A wants a software security tester to work with their developers to identify any IT security risks. This suggests the business is hiring for a role – the software tester.
Business B wants a detailed security risk report for its developers to understand any potential IT security risks. This suggests the business is looking for an outcome – a risk report.
Outcomes are a core component of statement of work and understanding the differences between resourcing for roles or outcomes is critical before using statement of work contracts or engagements as a solution to IR35 issues.
A statement of work contract is a great tool for businesses to get work done in a controllable, agile manner but in itself, the statement of work is not a magical solution for IR35. Outcome-based projects delivered via outsourced statement of work engagements allow an organisation to avoid the need to worry about IR35 by changing how the work is scoped, delivered and paid for.
Statement of work contracts provide a solution for IR35 related productivity issues by focusing on service provision and outcome-based deliverables – in other words, they mitigate the risk of IR35 by removing the issue altogether.