Unlocking Higher Profits: The Power of Scopes of Work in Construction

I had built hundreds of apartments and never worried about who supplied the electrical disconnect for the HVAC condensing units. That was until I hired a new electrician. Midway through the project, I discovered that the new contractor didn’t include them in their bid. I had assumed they would, just as my other electrician always did. At the time, a disconnect was only $50 with installation, which is not a lot of money until you add that up over 200 apartments, where every single unit needed a disconnect. This turned out to be a costly mistake that a well-written scope of work could have helped avoid.

Key Takeaways

• Scopes of work identify who is responsible for each portion of the work required to complete a construction project. They must be carefully written so that they cover all the work required by the project without any double coverage.
• Carefully written scopes of work are essential to winning more work and increasing your profit.
• The scopes of work should be specific to each project, as each project has different requirements.

The Role of Scopes of Work in Construction

The construction industry relies heavily on subcontractors to build projects. When you use subcontractors to complete any part of a project’s requirements, you should prepare a written scope of work that clearly identifies the portion of the construction project the subcontractor is responsible for building.

Well-written scopes of work are among your most important documents. They are used to obtain subcontractor bids and become the basis of your general contractor-subcontractor agreements (subcontracts). They identify the project deliverables the subcontractor must complete to meet the legal requirements in the subcontract. These requirements may only be modified by change orders. Well-written scopes of work set clear expectations of what you expect from the subcontractor and prevent miscommunication between your team and the sub.

Scopes of work are sometimes referred to as a statement of work; however, they are different. A statement of work is a high-level document prepared early in the project’s life cycle to guide the project's design and is often included in the owner-designer agreement. A statement of work includes a project overview and identifies the project’s objectives. It includes a summary of the project, the project goals, the deliverables, the timeline, the acceptance criteria for the project signoff, measurable performance standards, stakeholders’ roles and responsibilities, assumptions, constraints, etc.

Preparing Scopes of Work

When preparing scopes of work, you should tailor them to the specific requirements of the project. Because no two projects have the same requirements, their scopes of work should not be the same.

When preparing scopes of work, developing and using standard construction scope of work templates saves you time and helps ensure that you don’t forget to include the provisions that are common to many projects. There are two risks of using construction templates. The first risk is using the template without modifying it to meet the specific project. The second risk is getting in a hurry and either leaving out items that need to be added to the template or not removing an item that does not apply to the project. It is very easy to cut and paste a requirement and then fail to make the minor but needed changes. Both of these result in scopes of work that do not adequately cover the project's specific requirements.

Steps to Prepare Scopes of Work for a Project

1. Prepare the Full Scope of Work

First, during the project planning process, your construction project management team prepares a scope of work document that identifies how the construction project will be built. In this document, your team members break down the project scope of work into smaller scopes of work. This is done by dividing the owner’s scope of work found in the construction contract with the owner and the construction documents (plans and specifications) among the various in-house crews and subcontractors so that everything in the contract, plans, and specifications is covered. These scopes of work are usually organized around your cost codes. Each of these scopes of work should be performed by one, and only one, crew or subcontractor.

When dividing the project up, you must make sure that these scopes of work cover the entire project without any overlap. This process is like dividing up a pie at the dinner table. When done, you want the pie to be gone (including all the crumbs), and you can’t give the same piece to two people.

When required items are not included in any of the scopes of work, the missing items are not included in your bid. If you are the successful bidder, you must cover the cost of these items out of the project’s profit markup. You will lose money on the job if you miss enough of them. Leaving out items increases your chances of winning a job that you can’t make money on.

When you include the same work in two or more scopes of work, the work will be included in your bid multiple times. This increases your bid and the likelihood of losing it to a lower-priced contractor. When you lose a bid that you should have won, you miss out on the profit from the project.

2. Determine Who Will Complete Each Portion of Work

The second step is for your project team to determine which of the scopes of work will be performed by in-house construction teams and which will be subcontracted. At this stage, they should identify potential subcontractors for each of the scopes of work and begin the prequalification process.

3. Prepare Scopes to Be Included in Bid Packages

The third step is for your team to prepare written scopes of work to be included in the bid packages they will send to the prequalified subcontractors. The bid packages are used to procure the subcontractors for the bid, and if you win the bid, they will be included in the subcontract with the selected subs.

What to Include in a Scope of Work

Here are some things that should be included in a scope of work:

• A project description such as the project name, contract number, location, owners, and designers.
• The sections of the technical specifications that the subcontractor is responsible for building. You should specify anything that you need to have included in the bid that is not covered by these sections. Additionally, you should specify anything that is included in the technical specifications that you do not want to include in the bid. These specific inclusions and exclusions are important when a section is divided among several trades or when several trades work on the same piece of equipment. For example, when dealing with HVAC equipment that is tied to the plumbing and electrical, you need to clearly identify where one trade’s work ends and the other’s begins.
• Any requirements from Division 1 General Requirements that apply to the subcontractor, such as insurance and licensing requirements.
• Any special pricing requirements, such as bidding on alternatives.
• Use of equipment provided by the general contractor, such as cranes
• Information regarding the project schedule, such as the project timeline and key project milestones.
• The requirements for unloading, handling, and storing materials on the job site, including the location and usage of an area to store the materials.
• The subcontractor’s responsibility for cleaning up after themselves and disposing of their construction debris.
• Any other relevant information.