As eight per cent of IT professionals prepare to move from permanent roles into contracting this year, understanding the different ways organisations engage talent becomes essential. One model gaining significant traction is the Statement of Work (SOW). 

If you’re starting out on this journey and looking for your first contract, understanding the different types of SOW can be confusing, especially when you’re still figuring out the best ways to work. 

I’ll explain two of the most common forms of SOW - Time & Materials (T&M) and Milestone-based (or Deliverable-based) - and the benefits that each can bring. 

What is a SOW and why are they becoming more common? 

A Statement of Work (SOW) is a document drawn up between a contractor and a client. Its purpose is to clearly define what work will be done, when it’s due and how much it will cost. 

Traditionally, contractors were either engaged on a time-and-materials basis or as temporary workers. However, organisations are increasingly turning to SOWs to manage risk, control spending and ensure accountability. This is because different SOWs allow organisations to focus on hours worked or deliverables, which offer organisations more flexibility in headcount and budget. 

SOWs explained 

What about for you as a contractor? My colleague Adam Shapley has previously explored the advantages of becoming a contractor. Depending on the agreement with the client, you’ll have the opportunity to enjoy different benefits. 

In my recent LinkedIn live event on contracting, I explored the below:  

1. Time & Materials (T&M) SOW 

In a T&M SOW, you’re paid for the actual hours worked and any materials used. It’s most similar to traditional contracting, where you invoice the client based on time tracked, except under a formal SOW agreement. 

Benefits for contractors: 

• Predictable income: You can estimate earnings based on your hourly rate and expected workload.
• Lower risk: You’re compensated for every hour worked, even if the project scope changes.
• Flexibility: It’s easier to adapt to evolving project needs without renegotiating the contract. 

Drawbacks: 

• Lower skills value: Your income is capped by your hours, regardless of the value you deliver.
• Perception of cost: Clients may scrutinise hours more closely, potentially leading to micromanagement. 

2. Milestone-based SOW 

With a Milestone-based (or Deliverable-based) SOW, payment is tied to the completion of specific deliverables or project phases. For example, you might receive a fixed fee upon delivering a completed software module, regardless of how long it takes. 

Benefits for contractors: 

• Focus on outcomes: This allows you greater control over how and when you work to deliver results.
• Faster results rewarded: If you complete the work efficiently, you can earn more in less time. 

Drawbacks: 

• Higher risk: If the work takes longer than expected, your effective hourly rate drops.
• Rigid scope: Changes often require formal contract amendments, which can slow progress. 

What’s right for you? 

Deciding the right type of SOW is key to building a sustainable career as a contractor. T&M SOWs offer stability and flexibility, while milestone-based SOWs reward efficiency and strategic delivery. Whichever model you pursue, ensure the scope, expectations and payment terms are clearly defined from the outset. 

As a next step, learn more from my Hays colleagues and myself on building relationships as a contractor.