Where statement of work meets the independent contractor

The opportunity in the long tail of SOW


The long tail of smaller statement of work engagements is worth an estimated $160 billion a year. It's also where you'll find organisations engaging with a growing liquid workforce of independent contractors to get work done quickly and efficiently.

In this guide, learn about the growth of the long tail of SOW engagements and how software platforms are key to maximising their potential:

What is an independent contractor?

According to HMRC 'an independent contractor works for a client organisation under a contract for services'.

Independent contractors can operate as either sole-trader or via a limited company, but are usually an individual or small number of collaborators providing professional skills and experiences as a service.

For more information about understanding employment types, please see our guide to understanding employment types or ContractorCalculator's guide to independent contractors.

Independent Contracting worth as much as £109bn to UK economy

There are various sources of data estimating the number of independent contractors in the UK, with some sources stating that independent contracting could be worth as much as 15% of the UK workforce. However, they all agree independent contracting is an important and growing part of the UK workforce.

"A more recent study by John Kitching - ‘Exploring the UK Freelance Workforce in 2015’ - cites Labour Force Survey (LFS) data which suggests that there are currently an estimated 1.91m contractors in the UK, 1.65m of whom contract as their primary source of income."

"Kitching estimates that contractors delivered a boost worth approximately £109bn to the UK economy in 2015. This figure was reached based on the overall turnover by businesses without employees in 2015 (£237bn) and the portion of those businesses that were freelancer-owned (46%). However, due to the “more valuable knowledge and skills exercised”, it stands to reason that the contribution made by contractors was even higher."

For more information about the size of independent contacting in the UK, read this article.

What is a Statement of Work engagement?

A SOW engagement is where an organisation engages an external supplier through a statement of work. A statement of work is a formal document, which defines the scope of the work involved for a supplier for any given engagement. The statement of work (SOW) document details and clarifies deliverables, costs, and the work's timeline.

Expressed in simple terms an SOW is like an organisation saying to a supplier, "In exchange for delivering X, you will be paid Y".

For more information about Statement of Work Engagements, read our guide.

SOW: Short head vs the long tail

According to SIA, the global SOW market is worth around $1.1trillion. In comparison to other outsourced resourcing models, it's huge – roughly worth three times the size of the traditional agency temporary workers market, for example.

Finding the distribution of the value of SOWs is understandably difficult, with the detailed data being contained in individual contracts being impossible to access. Whilst there is a huge in sizes/value of SOW, it is possible to create two broad, general classes of SOW to get a simplistic view of how SOW spend is distributed:

Short Head

Medium to large, high-value, and complex statements of work.

Often include master and sub-vendor relationships.

Procurement processes are heavily involved.

Requires RFx process to short list and select chosen supplier.

Long Tail

Smaller, with value typically being under £100,000.

Mainly single suppliers or independent contractors.

Unlikely to go through procurement processes.

A brief and proposal typically replace a full RFx process.

With the two types of SOW defined, applying a bell curve to the total SOW market values shows the tail of smaller SOWs to be worth up to $160 billion each year.

smaller sow value bell curve

Smaller SOWs have different requirements

As smaller SOW engagements are fundamentally different to the short head of large, complex SOW engagements, each have different requirements from a management system/platform.

Short head of large SOWs: Structure and process management are key drivers when managing slower, more complex, multi-supplier SOWs.

Long tail of smaller SOWs: Adoption and ease-of-use are are the most important drivers when managing smaller SOWs. The fast and direct nature of the engagement with suppliers and independent contractors requires a different, simpler approach.

Factors driving the growth of the tail of SOW

As previously mentioned, independent contractors are estimated to represent 15% of today's workforce, but Accenture and Deloitte are predicting this on-demand economy will grow to represent 30% of the UK workforce by 2020.

Fuelled by the rapid growth independent contracting, there are many other factors driving the growth in smaller, tail statement of work engagements:

The liquid workforce

The four factors of corporate, social, technology and regulatory change are pushing more and more skilled professionals into on-demand, off-payroll contracting.

Organisations are now taking advantage of this liquid workforce and adopting elastic resourcing models to quickly adapt to the ever-changing type/number of projects they need to deliver. In some instances, smaller SOWs can even be used to maintain productivity and negate the impact of permanent recruitment constraints like headcount freezes.

More control

The structured nature of the SOW provides organisations more control over project costs and delivery. Agreeing to "pay X when you deliver Y" is also makes it much easier to manage budget planning and financial forecasting than traditional time plus materials agreements.

IR35 Reforms

The potential rollout of HMRC’s IR35 reforms into the private sector is another factor pushing organisations to seek greater structure and visibility for their off-payroll engagements.

Integration with your other systems

The key to maximising the opportunity when engaging independent contractors via SOW engagements is technology. There are some very well established technology solutions to help procurement teams manage the larger statement of work engagements. However these systems do not suit the decentralised, direct models typically found in the tail of smaller SOW engagements.

For smaller statement of work projects where there is a direct engagement with the buying manager, modern, cloud-based, extended workforce management systems like TalonFMS can provide an effective, integrated, solution.

Manage a single end-to-end view of your off-payroll workforce

Being able to maximise the opportunity of smaller SOWs starts with being able to manage and resource them alongside other off-payroll resources, like freelancers and consultants.

Integrate your vendor management and HR systems

By integrating your extended workforce management system with your existing vendor management systems and HR systems, it is possible to see where smaller SOW fits into your total talent strategy, alongside larger SOWs and permanent employees.

Build a system that's user-friendly and intuitive

Adoption and ease of use is vital for any system used to manage the pace and diversity of smaller SOWs. Large procurement systems designed to manage the complexity and processes of the larger SOWs are, in most cases, are too cumbersome for the smaller SOWs.

Ensure adoption by replacing legacy (or even manual) systems with modern FMS software offering customisable onboarding, intelligent project matching, configurable project milestones and bespoke reporting.

Summary

The growth of the on-demand workforce is a very important part of the future of work and utilisation of smaller SoW spend is likely to be a critical part of it. Using the right software to manage this spend as part of a complete on-demand workforce solution means the full advantages of this engagement type can be utilised whilst controlling costs, reducing risks and making this a fundamental part of a wider workforce strategy.

 

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