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The Good, the Bad and the Ugly of SOWs (Part 3): The Ugly

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Spend Matters welcomes this sponsored article from Joseph LaRussa, procurement advisor, SOW, at KellyOCG.

In Part 1 and Part 2 of this series, we discussed the value and elements of a good SOW, as well as commonly encountered issues with bad SOWs. Yet no matter how disturbed you might be by the potential issues with poorly constructed SOWs, the bad news doesn’t stop there.

Sometimes, when the supplier isn’t aligned with the goals set forth in the SOWs, SOWs can get downright ugly. And that inevitably leads to worst-case scenarios. In some cases, it can be because the supplier is going outside of its core competency or applying the wrong level of talent in order to win the business. In most cases, however, the misalignment is due to a poorly defined and constructed SOW, resulting in miscommunication and lack of clarity in what is to be delivered. The consequences of this include:

  • A significant amount of time necessary to redefine and restate the project objectives. In some cases, a project objective isn’t even included in the original SOW. This can be due to confidence in the supplier’s ability to execute the order without further explanation, but it can also be due to an inexperienced stakeholder. Considering the fact that the original SOW wasn’t clear enough and you need to properly communicate what your objective is, why it’s important and what you need the supplier to do, this can mean reassessing the SOW in-house before taking it up again with the supplier.
  • An omission of the start date or, more frequently, the end date. This can result in excessive “nickel and diming” of the project costs and expenses and more importantly missed project deadlines.
  • A focus on time and materials without including a timeline demanding milestone/deliverable compliance. This can leave the allotted timing and nature of the deliverables open to interpretation and delays. The supplier still gets paid even if there are delays because they are not bound to deliverables; there is limited risk and incentive for the supplier to meet the requirements to mitigate their costs.   
  • Expenses that are not set as pass through. In order for a SOW to be effective, expenses must be founded in fact. Therefore, clearly stating what expenses are in scope and that all expenses will be billed as a pass through provides better guidance and visibility on how to allocate funds.
  • A list of resources that’s either concentrated on administrative functions; lists excessive or irrelevant resources; or contains titles that are vague or not industry-standard. Additionally, these resources may be listed in the manner of job descriptions rather than by stating what services need to be provided adding excess costs or delays in delivery.
  • Increased risk due to lack of compliance that may result in litigation, punitive damages and reputation. This could also have an adverse effect on your company and employer brand.

When a worst-case scenario is the result of a bad SOW, it can have a severe impact on your operations – making it ugly. In some cases, performing a triage of the SOW after the fact can remedy the situation somewhat and even result in you meeting your objectives — albeit likely at a considerable time and financial cost. That’s why learning how to construct an effective SOW that ensures supplier compliance and risk mitigation is critical to establishing and maintaining a supplier relationship that benefits all involved.

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