Qualifying SOW Consultant Classificationblog.beeline.com/wp-content/uploads/2014/01/CWSC_QualifySOW.pdf · executive conferences provide a competitive edge to decision-makers who

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Confidential: Not for distribution© 2011 Crain Communications Inc

Qualifying SOW Consultant ClassificationMethod for Understanding Use, Misuse and How to Set Meaningful Guidelines

Confidential: Not for distribution | © 2011 Crain Communications Inc | www.staffingindustry.com

1 | Qualifying SOW Consultant Classification

About Staffing Industry Analysts Staffing Industry Analysts is the global advisor on contingent work. Known for its independent and objective insights, the company’s proprietary research, award winning content, data, support tools, publications, and executive conferences provide a competitive edge to decision-makers who supply and buy temporary staffing. In addition to temporary staffing, Staffing Industry Analysts also covers third-party placement and outplace-ment. Founded in 1989, acquired by Crain Communications Inc. in 2008, the company is headquartered in Mountain View, California, with offices in London, England.

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IntroductionCWS Council members continue to rank “integration of SOW consultants into CW program” among their top three issues of interest. In 2010, SOW spend through VMS technology plat-forms reached $12.6 billion, which was about 23% of total VMS spend — and a 71% increase over the previous year. Despite this surge in CW program ownership of SOW consulting activity, CW industry leaders agree that there is still significant room for improvement with respect to SOW transaction and supplier management.

Specifically, the SOW sector of CW spend suffers with respect to:

• Customer reticence in the form of maverick or disingenuous program participation

• Supplier pushback to process, technology, and fees

• Software flexibility sufficient to adapt to the breadth of scenarios covered within the realm of SOW services procurement

• Implementation false-starts resulting from the greater complexity and reduced conformity of SOW consulting relative to temp staffing

This last issue — implementation false-starts — is perhaps the root cause of most other sources of SOW-related frustration. Put simply, it stems from a lack of forethought. Analysis and planning are often, and inappropriately, devalued when a business process is being supported by new tech-nology. Many companies dangerously presume their VMS will solve it, just as it has for others.

Most companies use SOW consultants very differently, with a different balance of quality, speed, and cost values. And companies are turning to SOW engagements increasingly for specialized talent, generating high-value intellectual property and/or IT assets.

Similarly, companies also have specific behavior for how they misuse SOW consultants. And that can be costly. As managers turn to SOW consulting as an alternative source of talent to avoid headcount and tenure restrictions, costs for services increase. In essence, the creation and enforcement of policies whose aims were to curb human resource-related costs are actually costing companies more in corporate overhead as well as project talent.

Accordingly, building a solid foundation to your SOW integration efforts begins with well-defined worker classifications.



Defining Worker ClassificationsAt the highest level, worker classifications typically include: employees, temporary workers, independent contractors, consultants, and outsourced service workers. While good definitions at this level are helpful, it’s the next level of of detail that is further illuminating.

Take the sample relationship diagram in Figure 1. Along the left are the typical classifications . Branching to the right are attributes of these worker types that further differentiate their classi-fication. Some items have legal and tax implications, such as employee status or IC/1099 status; others have financial and supply-chain implications, such as payrolling.

Figure 1. Relationship of Primary Worker Classifications to Other Worker Classification Attributes

While one goal of such a definition effort is to articulate simple guidelines to delineate worker types, it is important not to overlook the detailed complexity of what your program is calling for in order to have neat and tidy definitions. Indeed, it’s the sticky stuff that needs clarification and guidelines the most, lest it become tomorrow’s loophole for crafty managers.

However complicated it may seem, it is important that each of these use cases are called out and specifically defined. Most important, be sure to identify and care for any negatives associated with a classification. For example, if your SOW consultants are actually recently sourced agency temps, you are likely paying for more than you’re getting (after all, if all you wanted was the resources, why didn’t you recruit from the temp labor market yourself?).

Applying qualification guidelines starts with good definitions, but consistent monitoring and enforcement is a must. Top-performing VMS applications have worker classification wizards — question and answer engines — to help end-users determine the most appropriate resource type to source and contract with.

EmployeesFull-time Open-ended

Part-time Fixed-term

Agency TempsFull-time Payroller Hourly

Professional Day-rate

IC/1099Part-time Recruited

SOW Consultants

Outsource Workers

Independent Contractors

On-site Internal/Bench

Agency Temp

IC/1099Off-site



While these classification wizards are highly configurable, allowing for virtually any text for any number of qualifying questions, there are some common elements. Here are some examples:

• Isthemanagerlookingforasingleresource,multiple,ordoesitnotmatter,solongastheoutcome is of sufficient quality and value?

• Willtheresourcebeindividuallyselectedbythemanager?

• Willcompensationtothesupplierfortheresourcebebasedontimeorworkproductoutput(i.e. deliverable such as a document or tested software solution)?

As you can surmise from these examples, some questions may spawn other questions. Further, some answers are likely to take the requesting manager down one path over another.

However, if possible, it is best to have qualified MSP resources (internal or external) vet SOW resource requests. Many questions are easy to manipulate, meaning the manager is likely to infer how to answer in order to go down a preferred resource path. Review by qualified personnel greatly reduces the chances of someone being able to input disingenuous answers.

Parsing Existing Workers Into ClassificationsOnce your definitions have been established, you should also use the tools to vet your current SOW pool. The vast majority of CW programs suffer some degree of classification noncompli-ance — both due to confusion as well as managers purposefully going against policy. Accordingly, when applying newly defined classification guidelines to existing worker populations, you can expect to run into contradictions — managers sourcing CW resources of one type while antici-pating the benefits afforded by another.

Suppliers are another issue. Nobody likes to revisit contracts — it can be time consuming and expensive. Nobody likes to make less money — which is often expected of suppliers when SOW consultants are reclassified as agency temps. As such, it is important to have these conversa-tions within the context of overall business opportunity with your program, and how compliance rewards all stakeholders. Managers appreciate quality talent, at a good value. Suppliers appre-ciate fairness, consistency, exposure to opportunity, quick and timely payments, and a lower cost of doing business.

It is common to see about 20% misclassification of SOW consultants, i.e. workers who are being provided by consulting firms on an SOW contract but who are really being used as temps. There are certain attributes one expects to see associated with SOW consultants vs temps, and vice versa. For example, offsite workers who were never interviewed are more likely to be SOW consultants than temps. Meanwhile, contingent workers who work onsite, are paid hourly, whose supplier also supplies temps to the company, are more likely to be temps, regardless of what the PO says.



Why address SOW misclassification?

•Commonly See Approx 20% of Misclassification, or Greater

– Typically the result of creative managers circumventing headcount or tenure restrictions, or vendor preferences

•SOW Consultants Cost More: getting temps at consultant rates

– Different value proposition with a different cost model

– Bill rate inflation typically in the 20% to 70% range, 0-300% observed

•Uncontrolled Independent Contractor Spend

– Exposure to tax & regulatory risks if IC worker is found to be unqualified

– IC workers often bypass cost/rate controls

– IC workers sometimes bypass proper onboarding procedures, including drug/ background checks, standard contracting terms, and prudent provisioning of systems and facilities accesses

•Weakened Legal Position

– Intellectual property, indemnity, work-product warranty, resource-related risk

•Policy Noncompliance

– Breeds contempt for corporate policies aimed at greater good

•Agency Worker Directive Implications

– Important for EU worksites

– Relevant for positions where client has employees in equivalent role



Estimating Workforce Compliance There are a series of litmus-like attributes and assessments that can be conducted to determine degree of misclassification and corresponding savings potential. For example, are job titles used for SOW worker assignments? If so, are there agency temps with the same job title? The Venn diagram below shows a sample relationship:

These attributes vary by type and importance from company to company, however, the following are commonly relevant:

•Time vs Output: Is the nature of service compensation based on elapsed time, an achieved milestone, or a completed work product? Is the vendor taking the risk for completing work on time?

– In SOW relationships, vendors are more apt to assume the risk for definitively scoped services.

•Employment Relationship: Is the relationship between the resource and the supplying vendor as employer/employee without a planned end date or is the resource contingent to the supplier?

– In SOW relationships, it is preferable for vendors to staff their teams with genuine employees.

– If the resource is contingent to vendor, all legal, contract and policy provisions should flow down.

– If the resource is CW to vendor, temp-style pricing should be afforded and visible.

•Talent Source: Has the resource been identified and selected by the client or by the vendor?

– In SOW relationships, the vendor identifies and assigns the talent to the project independent of client guidance.

•Supervision: Is client providing day-to-day task direction and supervision of resource?

– In SOW relationships, guidance is on end result of deliverable or work product, or SLA metric.

SOWJob Titles

tempJob Titles



These factors can be answered based on a combination of existing PO- and SOW-related data, and customer survey data. Given the abstract nature of some of the factors, collecting the survey data via live interview gets best results. Once you’ve collected the data, store it in a manner that permits querying across multiple factors. And if you’re working in Excel, make sure you have all your data in a single worksheet and then you can run PivotTables from there. Otherwise, ask a database administrator to merge your data types and write your queries for you.

Figure 2. High level steps for building a Misclassification Audit

Hypothesize

Conjecture why misclassifications could be occurring

• Initial signs of misclassification

• Known or past examples

• Policy or cultural shift

• Potential ROI of investigating

Evaluate Existing Data

Collect & evaluate all available Contingent Workforce data

• Policies & definitions

• POs & invoices

• SOWs & contracts

• ERP Data

Define Scope

Use existing data & suspicions to define scope of initial evaluation

• Suppliers & managers

• Business units & departments

• Time frame & location

• Key suspects & past suspects

Build Tools

Create standard templates for repeatable processes & exportable results

• Manager questionnaires

• Supplier data templates

• Email templates

• Data models

Notify Participants

Communicate purpose & timelines to all participants

• Prospective interviewees

• Interviewee managers

• Supporting functions

• Suppliers

Collect Data

Interview & begin to build out data models

• Schedule manager interviews

• Conduct manager interviews

• Receive supplier data

• Note observational similarities

Analyze Results

Use data models to understand results, queries and observations

• Analyze qualitative findings

• Analyze quantitative findings

• Test conjectures

• Highlight patterns & anomalies

Recommend

Conclude with method, findings, ROI & next steps

• Summary of method & scope

• Hard & soft findings

• Resolution Strategy

• Phase 2 Plan



Once you have stats on each of your factors, you can cross factors to see to what degree they overlap. For example, consider the following Venn diagram . The degree to which all four factors overlap is 20%; in this case, we can approximate 20% of the worker population is misclassified.

Figure 3.

Similarly, the four factors in the next Venn diagram intersect with a resulting 20% overlap. When approximating the degree of misclassification for your company, it is helpful to look at multiple vantage points, or groupings of factors.

Figure 4.

Work evaluated/paid hourly or monthly

40%

Manager generally selects the

individual worker35%

Provides one-on-one

guidance25%

Worker works onsite45%

20%

Client continues to pay for

unsatisfactory work25%

Worker works onsite45%

20%Only 1 worker

on a SOW30%

Only 1 worker on a single PO

30%



ConclusionConsidering the level of bill rate inflation typically found when comparing SOW consulting rates against analogous temp worker rates, it isn’t surprising that procurement and finance executives are looking to address their worker misclassification issues. For example, a $100 million dollar program with 20% misclassification could conservatively save $5 million, and potentially twice as much.

However, when reclassifying workers, whether in immediate or on an ongoing basis, you are attempting to change the way people customarily do things. Beyond the classic cultural and iner-tial issues associated with change management, this issue impacts money, and compensation money at that. To hurdle these obstacles, definitions and guidelines have to be watertight and consistently enforced.

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Qualifying SOW Consultant Classificationblog.beeline.com/wp-content/uploads/2014/01/CWSC_QualifySOW.pdf · executive conferences provide a competitive edge to decision-makers who