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Contracted Out Services, more commonly known as a ‘Statement of Work’ (SOW), offers an alternative to standard compliance processes & is specifically for project-based work if it is deemed legitimate and not a ‘structured avoidance’ model.
Instead of supplying labour, SOW is the provision of a service, based on a fixed price subject to the achievement of deliverables monitored against agreed milestones.
Using SOW Correctly
This model provides end clients with more certainty on project price and shifts most of the financial risk onto the consultancy or agency.
A legitimate and compliant SOW is exempt from the off-payroll legislation which means that the consultancy or agency, rather than the Engager (end client) is responsible for issuing the status determination statements for any contractors it engages (unless exemptions apply).
SOWs are clearly only appropriate for certain types of projects, commonly found in engineering/aerospace and IT sectors. If some of your assignments are project-based and can easily be structured as an outcome-based piece of work, why not manage them under a SOW?
You need to be aware of the 4 key components of an SoW arrangement.
Record and define ALL the specific services to be performed by detailing the key activities and deliverables
Why is a risk assessment so important in an SoW arrangement?
In order for a SOW to work as a genuine outsourced arrangement, the end client must surrender absolute control of the project to the agency or consultancy and should accept anyone (subject to such personnel having the required skills and qualifications) to deliver the services.
If the engagement is not deemed to be a genuine contracted out service, as outlined by HMRC is its ESM 10010 – this may result in a consequent tax risk for the end client, due to the artificial nature of the arrangement to by pass its IR35 obligations and responsibilities.
SOWs usually sit underneath a framework legal agreement called a Master Services Agreement (MSA) which sets out the legal provisions governing the arrangement.
When assessing the engagement, it is key to not only ensure that the MSA and the SOW are in line with an outsourced services but also that working practices reflect the contractual position.
How We Can Help
For end clients and recruitment agencies, deploying a SOW model can provide compelling benefits for project-based services.
If you are considering structuring your projects on a SoW basis for reasons specific to your business, we can assist you in creating, deploying and managing a genuine and compliant SoW solution, key elements are outlined below.
- SOW Risk Assessment to ensure that a ‘Contracted Out’ provision is appropriate
- SOW drafting/negotiation
- Creation and deployment of SoW framework across the labour supply chain
- Labour supply chain due diligence
- Audit of SOW framework implemented to also include working practices
- Create and implement training programmes across internal stakeholders
- IR35 assessments for contractors – issue of ‘Status Determination Statement’