Overcoming the challenges of tail spend statements of work

As described in our guide to smaller statements of work, a statement of work (SOW) engagement is where an organisation engages an external supplier through a formal document, which defines the scope of the work, details, deliverable, costs and timelines involved for a supplier for any given engagement.

 

In this guide, we'll look deeper at 'tail spend' statements of work, including:

What is a tail spend statement of work engagement?

Tail spend statement of work engagements include projects that typically fall outside the larger, more strategically managed projects. These projects are also normally below the spend threshold where a detailed procurement process is involved and can be awarded to a long list of suppliers.

The tried-and-tested 80/20 rule suggests tail spend SOW engagements should represent around 80% of suppliers and 20% of spend. However, according to SpendMatters, SOW tail spend can account for up to 40% of an organisations spend and can be grouped into two main categories:

 

Regular projects awarded to suppliers outside of the strategically managed vendors for a specific requirement outside of the normal day-to-day

 

For a specific, one-off, requirement not available from the strategically managed vendors

 

According to SIA, the global SOW market is worth over $1.1 trillion. Whilst there is no published data on global SOW tail spend, applying a bell curve shows it could be as much as $160 billion each year.

The benefits of tail spend SOW engagements

The benefits for moving to SOW engagements as a work delivery modal are:

 

Using SOWs forces project teams to be very clear on their vision for a successful project, along with clear timelines, deliverables and costs. This vision ensures projects have a very clear outcome before being approved and resourced.

 

The defined nature of an SOW engagement gives clarity on total cost, cost timelines/milestones and removes the associated unpredictability of an ongoing time + materials contracts.

 

In addition to these longer term, strategic benefits, SOW engagements provide a short-term productivity solution to resourcing projects for businesses who are struggling to find the skills they need through other recruitment channels.

The problems SOW tail spend creates for businesses

As many tail spend statements of work are below the spend threshold that usually mandates procurement oversight, there are some common problems SOW tail spend create for businesses:

 

Hidden spend: Without centralised control, spend can be unseen and, as a result, unmanaged.

 

Supply chain management problems: The list of suppliers in the tail spend can become impractical, with inconsistency in contracts, rates and payment terms.

 

Decentralised policies, processes and systems: In many cases, ad-hoc short-term solutions are implemented to award and manage tail spend statements of work, and this creates duplication in administration and unnecessary overhead costs.

Benefits of using a dedicated tail spend SOW platform

There are a number of reasons why a business should use a dedicated tail spend SOW management platform to reclaim control over what could be a significant portion of their spend.

 

Managing all tail spend SOW projects through a single platform creates visibility. An organisation can then identify areas or categories of spend that can be transitioned to strategically managed suppliers where there are opportunities to leverage preferential commercial terms.

 

In addition to improved cost control, project delivery reports can be used to review and manage suppliers based on their performance delivering projects on time and on budget through project milestones.

 

In addition to better cost control and supplier management, consolidating tail spend SOW into a single platform simplifies administration and reduces the overhead costs of managing multiple systems or using low-tech/no-tech solutions.

Summary

Whilst a hugely important work delivery mode, with many benefits around short-term productivity as well as long-term agility, tail spend statement of work engagements can represent a significant, difficult to manage, cost for businesses. Consolidating and managing this long tail of engagements through a robust, dedicated platform gives control back to procurement and enables better end-to-end resourcing decisions.