Statement of Work, IR35 and the People vs Task conundrum

How the shifting balance between people and task that's happening in the global workforce impacts people, HR and business culture

Posted by: ZivioReading time: 26 minutes


Hi, in this presentation we’re going to be looking at….

1) The growth and importance of SOW and how it can be best used in practice

2) The increased relevance of SoW in the UK due to the IR35 reforms

3) Why automating SoW is important and why the wider procurement of services needs dedicated technology 

4) How the shifting balance between people and task that's happening in the global workforce impacts people, HR and business culture.

I’ll start with a quick intro to Zivio and what we do, to give some context around our interest and expertise in this area

Zivio is a dedicated Services Spend  and SoW management platform, running in the cloud that allows organisations to capture all of their spend on professional services, consultancy and other outsourced services in one source of truth and enables them to significantly increase their ROI by automating the end-to end process and using our AI-powered insights to tell them who their best suppliers are and what they’re getting for their money.

As you can see from this graphic, Zivio covers the full source to pay process for anything delivered under a statement of work, from compliant supplier onboarding and risk assessment through the full RFP and selection process to contract management, delivery of the service with milestone approval and any change requests, right through invoicing, payment and detailed supplier performance management; and all of this is backed up by a full reporting suite and the ability to integrate into a client’s wider tech stack.

Some organisations look to totally outsource this problem to their MSP or recruitment services partner and we also enable this by operating as the system that powers the MSP service for everything from a full services procurement MSP to ad-hoc SoW management and project/consulting services. This could be with the system being deployed for a single end client as shown on the right or under the MSP brand through which they can service a range of clients via a multi-tenant deployment as you can see on the left.

In either case the problem needs the right tech to automate the process, capture clear governance and visibility on all spend and guide the end to end lifecycle of the work.

OK, that's a bit about what we do, let's get into the detail on SoW, starting with a definition of what it is.

A SoW engagement is where an organisation contracts with an external supplier company to deliver an outcome through a statement of work. The statement of work itself is a formal document, which defines the scope of the work involved for that specific engagement, including deliverables, costs, and the work's timeline. In simple terms an SOW is like an organisation saying to a supplier, "I’ll pay you x to deliver y".

However, SoW is a relatively complex topic due to its wide range of applications. In other words, every SoW is unique. The complexity arises because the SoW can define an almost infinite number of variables around the deliverables, costs or timings. For example, an SoW could equally be used to document the provision of top level strategic consultancy costing millions, or a long tail of small software testing projects. 

In the context of wider services procurement, SoW is the contractual and delivery process at the core of all professional services, consultancy and other outsourced services – when it comes to services it’s how you define what you’re buying and make sure that you got it. 

Right, taking into account the fact that SoW extends across the whole services procurement world, we're talking about an absolutely massive market

I tend to go with the estimates of around $1tn global annual spend, but in a recent report I saw this pegged at more like $20tn. So estimates vary but by any measure, global services procurement spend under SoW is huge.

-Now taking that huge spend into account, this is a highly significant problem when you consider the fact that in most cases this appears to be badly managed by organisations, particularly very large ones. We are constantly surprised by the lack of data or control that procurement departments and finance chiefs are dealing with and the manual processes involved. Why is it poorly managed? We'll come on to this later but ultimately it's complex, highly diverse and very nuanced which makes it a tricky problem to solve, particularly if the incumbent technology can't handle it effectively, and in times of economic growth companies have tended to take an approach of 'as long as it's to budget it's OK’.

This is also an area that experiences real problems around potential misuse such as rogue spend or hidden T&M headcount, both of which are really coming under the spotlight in the current market conditions. 

So what we're looking at here is a huge category of spend that is poorly managed, has a major lack of visibility and some serious compliance risks. It also has huge potential to become even more important and for these reasons addressing it is a massive opportunity both for end clients and their workforce services partners alike.

Now, we're starting off with a big problem but some major things have recently come into play that are forcing a significant global shift in the importance of and attention on services delivered under a statement of work. 

The first of these is Covid.

In some ways it's fair to say it has changed everything but in a particularly marked way it has changed people's working practices and how companies get things done, primarily due to the hugely accelerated acceptance of the outsourced and remote delivery of work. 

The huge cost pressures companies are facing due to the pandemic have also created an urgent need get in control of this very large category of spend, and also to understand more about it's value.

Hitting budget is no longer good enough and companies need to know what they're getting for their money and who their best suppliers are so that they can focus on the services and service partners that are actually driving the greatest returns in their business. There are also pressing needs to increase innovation, maximise the use of smaller, cheaper and more agile suppliers rather than just defaulting to the biggest global consulting firms (usual suspects) and also to ensure a company's supply chain reflects the diversity and sustainability goals that they have as an organisation.

Now switching our attention to a more local UK outlook we come to factor #2. Brexit.

Covid has definitely knocked it off the top spot when it comes to heated twitter debate but it still has major impacts and with everything else going on I feel like some of the non import/export related implications of this change could be slipping under the radar somewhat within many organisations.

The impacts I'm specifically referring to are the implications when it comes to access to talent. The free movement of people as part of the EU has ended and expectations are that there will be an increase in the use of oursourced services as a means for UK companies to access EU talent via the tier 2 visa system rather than previous methods that are no longer viable. 

Staying on a UK level, let's take a look at factor #3. Everyone's favourite – IR35.

So, companies need to make sure that their use of contract and temporary workers is compliant. However, it would appear that lots of companies still aren't ready, and lots of people seem to be misinformed.

So what's going to happen and what will this mean? 

Well, companies will be forced to get their act together and there will be a huge amount of activity and change in this area in the next 6-12 months.

Some contractors will agree to go perm, some will agree to go PAYE and some will want to maintain their current tax status.

And some companies will introduce sweeping safety first policies banning the use of PSC contractors entirely.

The net result of this will be that where companies ban the use of PSCs or lose contractors who don't want to work inside IR35 they'll need to get the work done in a different way – or it just won't get done, and that's what I want to come on to next.

So companies can utilise their perm workforce channels and any inside IR35 compliant contractors & temps but where work sits outside of this capacity and these capabilities, the obvious option is to outsource it to a company to be delivered under a statement of work.

Now there's very clearly a right and wrong way to go about this and significant potential problems if people take the wrong approach:

There's definitely quite a lot of misinfromation in the market when it comes to SoW, with some people even talking about it as being a 'solution' to IR35 or some sort of panacea where all of your issues suddenly disappear... clearly this is not true on either count. SoW is simply another way of getting work done.

Uninformed companies who think they can just re-badge contractors as statement of work are going to end up very much in a “Statement doesn’t work" scenario (thanks for that one Mel) and are likely to fall foul of HMRC with some serious financial and reputational consequences.

IR35 risks in existing services procurement tailspend also need to be thoroughly addresses as this is likely to contain hidden headcount, bodyshopping and a multitude of misclassification sins going under the guise of SoW that may not at first appear to be obvious in the focus of IR35 compliance.

Also, work supplied under an SOW needs to be delivered in a manner consistent with how is has been contracted and therefore needs close governance and clear auditability.

Lastly, and this is taking a wider view - this is important work and companies need to make sure it's managed properly to ensure they're getting value and not wasting money – particularly in the current economic climate.

Where it's used correctly, Statement of work can be an extremely useful work delivery channel and in the light of the challenges created by IR35 it could not only be a lifesaver in terms of being able to get business critical work done in a compliant manner but also, where it's utilised correctly, it can become a massively valuable long-term resource option within the wider workforce mix.

So, in the context of IR35, how should companies go about this?

Firstly – take IR35 seriously and take expert advice to make sure that either directly or through recruitment service partners they are addressing the core issues. This means auditing their existing contractor and temp workforce to understand the problem – not forgetting to do the same with their existing services tailspend! Then they can utilise the correct process and effective status determinations to ensure that all workers are compliant

Secondly they need to have an effective, structured buying and delivery process for resourcing projects under an SoW where this is appropriate

Lastly they need to have a clear understanding of and clear guidelines for where the use of SoW is the best way to get a piece of work done.

Now the last point I made there about "the best way to get a piece of work done" is a very important one. It's a fundamental business question that encourages a pragmatic and strategic approach to aligning resourcing models, effort and most importantly outputs with a business' overall strategic goals.

It's horses for courses. Companies should use the right work delivery model for the specific thing that needs to be done, rather than tying to make an engagement type fit to avoid legislation. Just because IR35 has come along that doesn't mean contractors are no longer viable or that all work should be done by perm employees and just because SoW has come to the fore in these conversations it doesn't mean that's the be-all and end-all. The fact remains that if they do things properly, organisations have several highly effective work delivery models to choose from and can leverage this to ensure that they are as efficient, effective and compliant as they need to be to compete effectively in this hugely challenging market.

Some work is always going to be best delivered by your trusted core of perm employees, contractors are going to be the best option in other areas and where it makes most sense to get something done under an SoW there's a clear process to follow and obvious benefits to be had.

Ultimately this is a chance for companies to come out of this with a far more effective resourcing strategy which will make them significantly more robust and adaptable in a business environment where change is happening at an ever increasing pace. 

OK, let's quickly take a look at some feedback from customers and the market:

There are definitely some risk averse companies our there for whom the idea of blanket bans is the best route forward, and they can be very firm on this view, regardless of the downstream productivity consequences it may cause. 

Problems being unearthed in the services procurement tailspend is something that comes up a lot, often much to the surprise of some companies although it's certainly no surprise to me when you consider how people use it to get around headcount freezes and budget constraints to get things done the way they want to, and that's something people have been doing for a long time.

Another thing we hear, particularly from HR stakeholders is the concern that they're being asked to address a delivery model in SoW that they have very little experience of and no easy way to manage.

OK, now moving on to another topic, software automation in the SoW lifecycle – that's what we do but why is it important? Well, the same reasons it's used extensively in other resourcing models, if you don't automate it's just not scalable and it's also very hard to see what's going on..

Manual processes wont work if organisations want to take this work delivery channel seriously, and they need to take it seriously because not only is it more important than ever but they're probably already spending a great deal of money this way. Lean procurement and HR teams need to focus on the wider strategic picture and without automation they can just end up held hostage to the prospect unmanageable amounts of totally inefficient manual admin which typically then leads to the option of just having to let stakeholders just do things however they want.

Automation also allows companies the chance to standardise their process with clear governance and ensure the correct procedures, contracts and authorisations are observed, something that is vitally important in the context of IR35.

Lastly, the process of automation naturally captures the necessary data to give organisations clear visibility on what they're spending, with whom, what they're getting for it and it ensures a full audit trail on all activities. 

So automating the buying, management and measurement of services delivered under SoW requires technology, why not just use current technology, maybe generalist procurement platforms designed to operate across goods and services or perhaps contingent workforce tech? 

But services are different, and they're important – 4x the size of contingent workforce spend in most large organisations according to spend matters.

When you compare goods vs services for example, you’re clearly dealing with simple, more binary transactions many of which you might buy via a catalogue with goods;  vs. complex and nuanced outcomes (where every project is different and success is much harder to measure) with services. And when you look at T&M vs. services delivered under SoW, this is a line that companies need to be very careful that they aren’t crossing. But perhaps the most pertinent question is WHY AREN’T companies managing SoW spend effectively with existing technology (– because from what we see they really aren’t)? 

In many cases we see companies using “low-tech or no-tech” e.g. excel spreadsheets and where organisations have taken the approach of trying to heavily customize or ‘hack’ existing software for this purpose they tend to get very low user uptake with people choosing to circumvent the systems and then you get chaos.

Our market feedback would also suggest that where systems are not specialized enough to cope with complexity of services you simply don’t get the granularity of data to be able to make meaningful decisions. Measuring what you’re getting for your money in services is very tricky – it needs the right levels of useability to get adoption, data to make clear inferences and automation to manage scale across large organisations. 

Ultimately services needs the right tech because it's business critical activity – and for this resource channel to be used strategically, companies need to be able to see, control and manage everything that's going in in this massive area of spend.

Bit more feedback:

Something we often hear from procurement is frustration at the fact they can't deliver strategic value to the business on services spend because they have all their time taken up trying to manage the process and don't have sufficient data.

Another thing is people highlighting the fact that, from a tech perspective if you compare it with contingent workforce for example, services has been totally left behind.

We definitely see people struggling to get to the detail on projects, commonly there may be an SoW in a dusty shared file somewhere, and it may or may not have milestones (which may or may not have changed)  but that's about as good as it gets.

And lastly the good old lack of any kind of competitive process with the approach of ‘we use x supplier for y service “because we always have”.

OK, to round things off I'd like to come on to an area that I find absolutely fascinating and I'm probably going to pose more questions than answers but hopefully you'll find it thought provoking – and that is looking at the balance between solving resourcing problems through a people or task focus.

SoW in the context of IR35 is a good example – with a contractor you're buying a person's time and with SoW you’re paying a company to deliver an outcome.

Comes back to what I was saying about how best to get the work done – companies need to assess what needs to be done and how best to do it. But this does require a significant culture shift in many cases.

But also we don't want to forget about people, they're the lifeblood of companies and still need looking after in a very human way. So how do we balance all of this?

Covid has thrown up plenty of new challenges, including remote working – something that's popped up multiple times over the last few months is the question of how companies know what's being done when people are at home – are they logged on to teams but just watching netflix? I've even heard people talking about screen tracking and stuff like that but equally this raises the point of – does it matter when someone does something, or even how they do it, as long as they do it well and it gets done on time? The question then commonly follows of "what about if you just measured them on outcomes?" But traditionally HR are set up to manage people whereas you could argue Procurement are better positioned for task – and so with all these factors together we have this people vs. task conundrum. So let's have a look at how it impacts people, HR and business culture. 

Well firstly, whose problem is it?

I always feel that there's enough confusion when you just look at contingent vs, perm! Perm belongs to HR but should contingent be procurement's problem? In some companies this comes under HR and ultimately it's still people doing work for the company and in all cases you're effectively buying their time. 

Then when you extend this out to gig workers, SoW and procured services that work on the basis of deliverable outcomes you get more questions – how does this cross over into strategic workforce planning and who owns that?

In my opinion we'll end up with more and more grey areas as we continue to move away from the perm-centric business models of the past and it's likely to take a significant evolution of the HR function, procurement or the creation of a whole new category to really get on top of this.

Next we need to consider the value of brand purpose – this is one of the most important considerations for people coming into the work market, particularly around topics like Sustainability and diversity. Ultimately what the company stands for in the world is more important than ever and people are looking for alignment with their own ethics.

Now add in an increasing reliance on companies that supply services in to organisations as part of the resource mix – this also needs to be considered and works both ways – are supplier and client aligned on key social, ecological and morality issues?

Companies use their brand to attract the right talent but also need to be able to attract the right suppliers, this is a more recent evolution that has been shown to be very real through some of the major social issues that have come up over the last year or so and I think it's an absolutely fascinating development.

So more and more companies have to mean it and live it and I personally think that's a really good thing. But again where does this sit? Should HR be responsible for EVP and procurement deal with suppliers? Should there be a convergence on this or perhaps it is the responsibility of all?

So I guess in bringing it all together that's what the strategic workforce plan is for, what is the best use of all resources available to a company and how can they best adapt to this new environment we find ourselves in.

For me, this comes down to clearly linking all resourcing activity up with the overall business strategy – not an easy thing to do.

How many perm employees truly know how what they're doing on a day to day basis is helping the company and what the company is even trying to achieve? 

And how many businesses have a crystal clear view of everything they're spending on getting work done, what work that is and how it helps them achieve their objectives?

If HR and procurement don't have clarity on operational requirements, how can they translate that into a targeted skills agenda to apply to training, hiring and supplier relationships?

Clear strategic direction, strong business culture and purpose and effective access to all relevant workforce channels in my opinion is the key to long term success in this rapidly changing world. Let's face it, theres a lot of hard work in that but huge benefits to be reaped. Who knows, maybe after all these years of many companies talking about it but few achieving it, the chaos and uncertainty caused by this pandemic could be a useful catalyst to galvanise companies with a clear sense of urgency to make true strategic workforce planning a reality.

Anyway, plenty to ponder there and that’s all for this presentation – if you’d like to find out more about what we’re doing at Zivio just get in touch at, thanks very much for listening!


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