Minimizing 'Scope Creep' Keeps Profitability and Reputation Intact

Remember the movie, “The Blob?” The Blog inched along, sucking up everything in its path, getting bigger and more dangerous by the minute. The construction industry has its own version – called “scope creep,” and it too can inch along, gobbling up a construction firm’s reputation and profitability if not held at bay.

A term coined by project managers, scope creep is the continuous growth or change in the scope of a particular project beyond its original stated intent. Managers at just about any kind of construction-related firm encounter this problem every time a client incrementally expands on or changes the original scheme. And as firms begin to accept changes to the original scope of work without taking the proper measures to control scope creep, workload may double or triple, liability will increase and profitability will usually decrease.

Scope creep is created from several factors:

  • A lack of communication between the construction firm and client, as well as any subcontractors involved in the project
  • Construction firms’ failure to utilize proper contract procedures
  • The construction firm manager’s ego or desire to increase revenue
  • Improper analysis of the original scope of work
  • Failure to establish and comply with internal procedures for dealing with change orders
  • Clients who intentionally seek to get more work out of the construction firm for free

Several real world examples recently in the news involved a concrete firm that sued an international engineering firm over design changes; a plumbing contractor which sued a school district over a change order costing an additional $300,000 as part of a $4M renovation plan; and a contractor which filed suit against a city for more than $500,000 over work it claims was tacked onto the original project.

These cases are in the news because the amounts at stake warranted legal action. Just about every day, construction firms of all shapes and sizes are writing off these types of overages rather than alienate a client and run up legal costs.

Risks can range from minor to devastating

Generally, the risks are proportionate to the level of creep that exists on a particular project or job. For example, if a client asks a construction firm to oversee a small portion of another contractor’s work, the potential risk is relatively minor. On a larger project where the potential for creep is greater, however, the risks can be devastating.

Scope creep be minimized

The good news is that the damaging effects of scope creep can be managed or limited by following a few simple guidelines.

While many would like to believe that scope creep is something that can be prevented, in reality, it cannot. Changes to the scope of work are inherent to almost every project. To suggest that it can be avoided or eliminated is wishful thinking.

That being said, every job is going to require some tweaks to the original scope of work. These adjustments to the original scope are not necessarily damaging if the increase in scope of work is handled and documented properly. In other words, you cannot eliminate changes to the project scope, but you can manage its effect.

The two best ways to manage changes to the scope of the project are through proper communication and contract procedures.

Proper communication

It is imperative that construction firms clearly explain their services and expertise as well as explain what types of work are included - and excluded - in the project agreement. This should be outlined at the initial meeting and also referred to in their contracts. If any subcontractors are required to sign the client’s contract, their work should clearly be established as well.

Changes to the project’s scope should be treated as entirely new agreements with the client. This means construction firms should fully understand the scope of the new assignment, confirm it with the client and put it in writing. Had the construction firms now facing legal battles with their clients taken the time to better discuss the nature and extent of their responsibilities with their clients, they may have been able to avoid losses in the hundreds of thousands of dollars.

There’s an overlooked and often underutilized word used to combat the expanding scope of a project: “No.” Construction firms should not be afraid to tell their clients that they cannot or do not want to expand the scope of their duties.

Proper contract procedures

It is the construction firm’s obligation – not the client’s -- to ensure that the scope of work is adequately defined in any contract. Far too often, general terminology is used when defining the scope of work. Specific language explaining the job and its limitations should be included in the scope of work section.

Scope creep is often the result of undocumented verbal communications. In order to be protected, any conversations concerning the scope of duties or responsibilities should be put in writing. That way, if a dispute arises, construction firms have proof of the agreement. As a quick review of industry lawsuits illustrates, it is not uncommon for construction firms to be tied up for years in litigation arguing over non-payment of work done in connection with scope-of-work changes.

It is very difficult for firms to claim they are entitled to payment for additional work if the request for the work was not documented.

Protocols need to be established to deal with expanding work scopes. Before the project outline begins to change, have a standard protocol set up for which to accept, confirm and memorialize changes to the scope of work. One of the easiest ways to deal with an expansion of work is to make a habit of creating addendums to your existing contracts. The addendum should clearly spell out the expanded scope of work as well as payment terms and conditions. It should be signed by both parties and should clearly establish your rights and remedies. While the damaging effects of scope creep cannot be eliminated, they can be managed and controlled through effective communication and proper contract procedures.

Peter J. Lamont is a business and commercial litigation attorney nationally recognized in a wide variety of highly specialized areas within the construction industry. He routinely represents various national and regional companies within the construction sector and has achieved the highest rating in both legal ability and ethical standards as awarded by AVVO (avvo.com).He can be reached at 973-949-3770, or plamont@peterlamontesq.com

 

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