Chloe Mumford - 8 min read

Why Statement of Work has become the most critical element of IT resourcing

Statement of Work (SOW) contracting has become increasingly popular in recent years.  Many companies, including giants like Microsoft, now see this relatively new approach to project resourcing as the way forward. Enterprises struggling to keep pace with digital transformation demand due to a low supply of skilled tech talent can greatly benefit from IT project resourcing by using SOW. But what makes it so effective?

IT resourcing has come a long way

Technology and IT services have seen significant advances in the past decade, and a lot has changed in the workforce because of it. Ten years ago, project managers were commonplace around the office, and external IT teams were almost always led by a project manager.

Project managers used to prescribe a waterfall system that emphasized a linear progression from the beginning to the end of a project, focusing on finishing one task before moving to the next. The problem with this project delivery model is that it is very slow. Activities become fragmented and disjointed. As a result, projects often fail to get delivered on time and on budget.

Scrums

Waterfall systems in IT are (mostly) a thing of the past. Businesses are choosing instead to adopt agile scrums as an alternative.

A scrum happens when the development team all meet first thing in the morning to share updates, challenges, etc. and agree priorities for the coming phase of work.

A scrum is about making sure everyone in the development team understands the goals and progress of the project.

A scrum master will lead scrum discussions that generally happen on a daily candence. With modern collaborative tooling to underpin the management of ‘who is doing what,’ everyone is able to keep on the same page.  Furthermore, any misunderstandings or project challenges are quickly highlighted and resolved.

Virtual

Global businesses employ outsourcing providers who most likely work remotely, meaning that the project teams will communicate online, instead of meeting at a work location.

One helpful advantage of this scrum approach powered by collaborative tech tools is that the scrum doesn’t necessarily need to be face to face. It can happen in a virtual workshop running on platforms like Zoom, Teams or Facebook Workplace.   

If, like many organizations around the world, you are struggling to find experienced and qualified tech experts in your location, adopting virtual scrums brings you within reach of a bigger and broader talent pool of diverse global candidates.

Project management technology software

Using purpose-built software can make scrum project management simpler.

One such example is Jira Software which has a scrum feature that helps teams break large, complex projects into manageable pieces of work. This allows teams to decrease the time involved in planning, and once the work begins, it allows everyone to see the progress they’re all making.

Using built for purpose tools like this can save a lot of time.  Instead of hand cranking your projects, you can save money by adopting a tool that does the heavy lifting for you.

What to do in the planning phases of a project

Structuring work packets into work-streams formed around competencies means you can split the workload across multiple individuals, and there is no reason why many of these cannot be freelancers or independent contractors with the specialist IT skills and tools you need.

The missing ingredient here is a contracting mechanism to assign work packets to contractors in a format that focuses their rewards on outcomes, not hours they’ve spent on tasks.

When running a project, you need to define the waypoints of the project: time frame, who is doing what, tools to be used etc.

This is where Statement of Work contracting comes in.

A Statement of Work is a formal document used to provide the details of a job to be done.  It protects the parties involved by documenting waypoints, outcomes, and formalizes the contract between the parties. SOW enables you to:

  • Clearly articulate project outcomes and rewards
  • Specify resources and tools needed to complete the task
  • Dictate accepted rules of behavior, conduct, monitoring and measurement
  • Ensure you have some legal protection should a contractor fail to complete the project in full

For these reasons, Statement of Work has become a critical contractual construct that keeps both parties accountable when companies work with external workers.

Tax Laws

The 1099 in USA and IR35 in the UK are government-imposed worker categorization mechanisms intended to expose tax avoidance behaviours.  Changes to the IR35 framework have been introduced as recently as April 2021.

In the case of IR35, this legislation applies to contractors that supply their services through a limited company, also known as a Personal Service Company (PSC).  IR35 sets an expectation that a limited company pays the same amount of employment tax for services purchased through a contractor as they would an employee.   

Ultimately, governments increasingly seek to thwart tax avoidance that occurs when a business hires a contractor and treats them as an employee, without the tax burden.

Where a service is genuinely being outsourced to a third party that acts like any supplier should (i.e., To specify work and serve multiple clients with a similar capability), there really shouldn’t be any issue with tax authorities.  

What governments aim to do is crack down on organizations that knowingly employ individuals who adopt a work behavior characteristic of an employee.  In the case of the IR35 legislation, recent changes imposed three qualifying checks. These are:

1. Right of Substitution – Whether the hirer firm will accept an alternative individual to the hired person.

2. Control – To ensure the hirer firm manages the relationship with the hired person in a way that would not suggest an employer-employee relationship

3. Mutuality of Obligations – Making sure the hired person operates against a pre-qualified list of outcomes/objectives, and doesn’t simply arrive to the office every day to receive instructions on what work to do next (suggestive of an employer-employee relationship).

SOW can add to safeguarding methods organizations adopt to prevent falling foul of tax legislation by formalizing the way relationships with contractors are managed. Whilst this is a step in the right direction, it isn’t the only safeguarding measure organizations should adopt as a SOW can only go so far to ensure hiring managers and contractors aren’t misrepresenting their relationship.

Final Thoughts

IT projects can be broken down into work packages for simpler assignment to contractors and employees. 

The shift from waterfall IT project management to agile software development methods means that projects are easier to keep on track.  Additionally, the agile scrum ‘fail fast’ daily management approach brings with it the further advantages of enabling to involve contractors to perform specific work packages without running the risk of getting disconnected.

Today, Statement of Work contractual documents underpin project management.  SOW has become a critical element of project resourcing, because it ensures that the interests of both parties are protected.

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