Why Your Vendor Management System Can’t Manage SOW-Based Projects | DCR Workforce Blog

Why Your Vendor Management System Can’t Manage SOW-Based Projects

You may be among the many companies struggling to understand why you haven’t seen the anticipated double-digit cost savings when using your vendor management system (VMS) to manage your SOW projects. After all, that is what you experienced when you first implemented the VMS to manage your agency-supplied contingent workers. The reason is simple – it wasn’t designed to.

We all know that it is possible to pound a nail into a piece of wood using a rock, but a hammer is more efficient, and a pneumatic nail gun is even faster and more accurate. When it comes to managing the third-party project services firms that you engaged to deliver SOW-based services, your hammer turns into a rock!

Traditional vendor management systems are based on the notion that the business relationship between a company and each supplier (i.e. staffing agency) is fairly standard – the supplier delivers temporary workers at a specified hourly rate for a specified period of time. There is a single “buyer” who requests and utilizes the supplied resource. The terms and conditions are fairly consistent across all suppliers that the company engages. Many companies hire a Managed Services Provider whose role is to act as intermediary between the company in need of resources and the suppliers of those resources. Regardless of the number of temporary workers used, skill sets employed, or hiring locations, the overall business arrangement remains the same.

Project services are far more complex. Every project is unique in its requirements, and most are dynamic and unpredictable, requiring an agile management structure that can continuously anticipate and adjust. Dimensions of complexity that must be managed through the VMS include:

  • Scope of work – most projects consist of numerous smaller “sub-projects”, each of which may require specific skill sets. Specialty vendors are selected for each “sub-project” and a unique Statement of Work specifying work details, schedules, and deliverables must be established with each vendor. At all times, the project owner must have complete visibility and control over all sub-projects as well as the project as a whole.
  • Service Provider responsibilities – In traditional staff augmentation relationships, the supplier is responsible only for providing a qualified temporary resource who fulfills his obligation to work for the specified amount of time. The staffing agency is not responsible for the quality of the work produced by that individual. In SOW-based projects, vendors assume the responsibility and risk for delivering the desired product or service. The VMS must be able to track each vendor’s activities, progress against the SOW, and deliverables.
  • Social structure – Suppliers are expected to play a greater role than in a traditional contingent workforce environment, and direct, continuous communication between the client and the suppliers is critical. For large projects, clients often engage a relatively small number of strategic suppliers – maybe 5 to 10 – and each supplier may establish a program management office with resources onsite and offsite. The Managed Services Provider takes on a different role than in a traditional contingent workforce management program. Typically, companies prefer to implement a shared services model in which they use the VMS to manage the overall project, and look to the Managed Services Provider to take responsibility for onboarding and off-boarding suppliers, while the company retains direct responsibility for contracts and payments.
  • Uncertainty and ambiguity – Many projects start with a discovery phase intended to evaluate the current state, define the desired state, and generate a project plan that will move the project forward. This is followed by an execution phase. This usually requires the participation of different internal personnel and external vendors at each point in the project, and requires the ability to rapidly redefine sub-projects. It must include a change order workflow that can be triggered by vendor- or buyer-initiated requests for changes.
  • Interrelationships – Complex projects involve multiple suppliers and the participation of numerous internal groups that play various roles in each sub-project. To accommodate this, the VMS must be capable of simultaneously handling the required approval cycles and levels needed for multiple “buyers” and project “owners”. The VMS must facilitate communication and information sharing between these groups.
  • Numerous financial models – The pricing model applied to each vendor agreement depends on the type of work being done or service being performed. The VMS must, within a single project, manage time-and-materials, fixed price, and/or fixed deliverables arrangements where payment is authorized when milestones are met. The VMS must be able to tie payment authorizations to approval of deliverables or achievement of milestones.
  • Geographically distributed project resources –Projects may involve onshore and offshore suppliers. In some cases, the supplier may work both onshore and offshore. This involves tracking different rates, engagement structures, and compliance requirements based on where the supplier is working at any given time.
  • Tracking non-billable resources – Most project teams include internal employees and/or others not paid through the system. In these cases, the project owner still needs to understand the full picture, accounting for all efforts. This means tracking non-billable and billable resources and hours.
  • Complex financial tracking – In many cases, payment is tied into multiple systems, providing fragmented views of the project. Clients need these systems integrated together, delivering a holistic view and overall control.
  • Managing suppliers across more than one project – It’s quite common to simultaneously engage a vendor to work on more than one project. Each project has different requirements, rates, levels of effort and contractual terms, all of which have to be managed individually while the company also manages the vendor’s overall performance across all projects. If time and effort is not accurately and properly charged to the right project and the right cost codes, the company is at risk of supplier double-dipping.

Project complexity is not going away. In fact, it will most likely continue to increase as companies outsource more non-core activities. The inability to manage project resources and spend can be catastrophic, as large budgets are at stake. The right Vendor Management System – designed explicitly for SOW-based project management – will provide the foundation and controls needed by project owners to keep projects on track. When considering the use of a VMS, do your homework. Ask to see a demonstration of how the VMS will handle multiple projects, suppliers simultaneously working on different projects, onshore and offshore resources, and the efforts of billable and non-billable resources.

Tell us about your SOW management experiences, and forward this blog to colleagues considering or engaged in SOW management. Tell us what works, and what doesn’t.   Through this blog, we’ll continue to share our readers’ experiences and suggestions.

The content on this blog is for informational purposes only and cannot be construed as specific legal advice or as a substitute for competent legal advice. They reflect the opinions of DCR Workforce and may not reflect the opinions of any individual attorney. Do contact an attorney for advice specific to your issue or problem.
Lalita is a people/project manager with extensive experience in operations, HCM and training and development across industries like banking, education, business consulting, BPO and information technology. She believes in a dynamic approach to life and learning as change is the only constant.