Why Scope of Work?
Scope of Work is (or should be) the basis for most claims and disputes. As we previously discussed, claims and disputes regarding scope of work are a widespread problem and represent the most common issue. Perhaps 75 to 90% of all engineering and construction claims and disputes involve contract scope of work. But the issue goes further. Scope of work influences and is a foundation for delay, acceleration, disruption, payment and many other types of disputes. Consequently, virtually all claims (should) start with scope of work.
Scope of work is a huge factor in capital investments. In the engineering and construction market, investments total in the hundreds of billions of dollars (USD). These investments are increasing, particularly in areas such as the US Gulf Coast. Typical budgets for changed work are targeted for 10% which makes this market of tens of billions of dollars (USD). However, this is merely the budget, not the reality.
Most of these investments involve contracting for goods and services. Each of these transactions must consider scope of work (services, facilities, supply) as primary to the transaction. Consequently, each transaction has risk of claims and disputes regarding the related scope of work. Stakeholders include: owners, prime contractors, subcontractors, engineers, architects, lawyers, consultants, investors, lenders, sureties, governments and others.
Recognition, entitlement, pricing and proving (if necessary) claims for additional compensation related to scope of work is a huge challenge with large amounts of money at risk. Largely, this is not legal work. However, it requires expertise. If the project team lacks this expertise, a subject matter expert (SME) is needed. The SME must possess the expertise in recognition, entitlement, pricing, evidence and related impacts to the project’s performance (time, cost, and other considerations).
Project Scope of Work is the most fundamental building block for effective and professional project development and execution. Key sources of professional advice agree that project delivery as well as project management have a basis in and must be derived from scope of work. Project Management Institute (PMI) is a prime example. Scope of work can be using many means and methods. Regardless, baselines definitions rely on rely on scope of work. Costs, budgets, schedules, resource requirements all have their origins in scope of work. With scope of work being such a fundamental, management of this parameter must be a primary focus in professional project management.
Scope of work definition and management is a huge proposition. Planned capital project investments worldwide over the next several years total many, many hundreds of billions of dollars (USD). Several limited examples of public domain (Google sources) forecasts include:
• Canadian Oil Sands $200 billion (2013-2022)
• Hydrocarbon Processing $ 60 billion (2013)
• Oil & Gas Infrastructure $ 90 billion (2014)
• Liquefied Natural Gas $500 billion (2014-2020)
• Chemical Makers $ 72 billion (per year)
• And so many others.
These forecasts of massive investment give insight into the need for legitimate definition of project scope of work. In addition, there is the need to implement scope management. A key aspect of scope management resides in management of change. Changes to scope (sometimes referred to as scope growth) are a reality of project work. Typical planning factors used are changed work of 10% (for well-defined scope). Using this factor, changed work can amount to may tens of billions (20-80+ billion USD) of dollars. Thus, management of change represents a huge managerial challenge in and of itself.
How well developed / defined is the project scope of work? This is a fundamental project management question that is central to successful project planning and execution. Lack of adequate development of scope of work is a major reason for project failures.
There are at least several key sources of advice and expertise. These include:
- IPA – this organization popularized the stage gate process that is used by so many project organizations today. The concept that the scope of work development and degree of definition must achieve a suitable level that is consistent with other managerial aspects of the project. IPA uses an evaluation concept called Front End Loading, or FEL.
- CII – this organization offers a tool that is similar in concept to the IPA FEL. This tool allows the project team to evaluate the status of scope of work development. This evaluation is called Project Definition Rating Index (PDRI).
- AIA – this organization offers extensive advice and several tools that are helpful in evaluating scope of work development status and adequacy (fit for purpose).
Project Management Institute (PMI) is the world’s largest and most prominent professional organization that specializes in project management. PMI’s A Guide to the Project Management Body of Knowledge (PMBOK® Guide) presents the managerial process widely recognized as the standard for the industry. In this process, once the project is initiated and Project Integration Management is established, Project Scope Management is the beginning of this project management process. PMI’s process steps include:
- Plan Scope Management
- Collect Requirements
- Define Scope
- Create Work Breakdown Structure
- Validate Scope
- Control Scope (PMBOK, Chapter 5)
Scope of Work can be defined or established in many ways, manners, means, methods, techniques or otherwise.
Most of the discussion above relates to project scope of work. Implicit in this is the notion that the perspective is that of the owner, not the contractor, vendor, supplier or other such stakeholders. Most of these project or investments involve contracting for goods and services. Each of these transactions must consider scope of work (services, facilities, supply) as primary to the transaction. Consequently, each transaction has risk of claims and disputes regarding the related scope of work.
All parties to contracts have a strong interest in the definition of the scope of work. While all parties want the scope of work definition to be accurate, the perspectives can be different. The owner wants all scope of work fully covered without gaps or omissions. The prime contractor wants to supply only the narrowest definition of the contract scope.
From the contractor’s perspective, gaps in scope coverage are optimally the owner’s responsibility. Subcontractor perspective is to narrowly define the scope of work, leaving gaps for the prime contractor’s account. Likely, the prime contractor would adopt the opposing position.
Scope of work portions of the contract (imperative that you have all of the documents, not excerpts, lists or opinions by others) include:
- List of all contract documents
- Entirety of the agreement provisions
- Order of precedence
- Governing or Applicable law
- Industry practices (local normal and customary practices)
- Description of the scope of work, services, facilities, deliverables, supply and other
- Specifications and drawings
In this area, seek advice from competent and experienced advisor. Types of advisors include: contract administrator, contract manager, contract attorney, project controls manager, technical manager, business manager, commercial project manager and any other subject matter expert that is comfortable with the form of contract in question. The focus is on understanding the contract baseline scope of work.
Look for scope of work, scope of facilities, scope of services, scope of supply and other allocations of required efforts to complete the project. Consider what party will provide design, equipment, materials, construction support, site infrastructure, completion and other aspects of a completed project.
M&M recommends the preparation and use of a Claims Management Plan (CMP). In formulating the CMP, prepare a matrix of contract scope of work items compared to (verse) parties to the contract and stakeholders. Use this effort to identify gaps and interfaces. The gaps and interfaces should be used to prepare and focus the strategy and plan for the scope of work portion of the CMP.
M&M has previously posted many writings regarding Scope of Work. These posts are contained in Subject Series that include:
- Project Planning
- Managing Risk of Delay
- Contract Notice and Recognition
- Staffing Your Project Management Team
- Project Management Challenges
We wish you good luck in your construction claims and disputes regarding scope of work.
It is important to note that McLaughlin and McLaughlin [M&M] is not a law firm and is not intending to provide legal advice. M&M is a consulting firm providing (among other services) non-legal expertise in construction claims, dispute resolution and litigation support. The Resource Center is for the convenience of blog visitors and M&M does not offer this for commercial purposes. For further information on M&M services, please see www.McLaughlinandMcLaughlin.com.