The potential for “scope gaps” is present on every construction project. The term generally refers to those situations where an item of work specified in the plans and specifications is not included in any trade contractor’s scope of work.
Scope gaps that are discovered late typically result in additional costs and delays, as someone ultimately must be paid to fill those gaps and perform the omitted work.
Owners delivering a project with multiple prime contractors will likely bear responsibility for the consequences of scope gaps. However, when owners hire a general contractor to complete the construction in accordance with the plans and specifications, they largely shift this risk.
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Simply stated, it is incumbent upon the general contractor to package the plans and specifications among its trade subcontractors to avoid (or at least minimize) scope gaps.
While scope gaps can come in a variety of forms, one of the most common occurs when a trade subcontractor’s work interfaces with work that is the subject of a different trade.
A classic example is when a mechanical contractor has responsibility to procure and install a piece of equipment that is seated on a concrete pad. Between the concrete subcontractor and the mechanical subcontractor, who is responsible for constructing this pad? What if the pad was shown on the mechanical drawings but only addressed in the concrete specifications? What if the pad was shown in the concrete and mechanical plans and specifications? Under all of these circumstances, each subcontractor has a legitimate basis to argue that the pad’s construction was the responsibility of the other trade subcontractor. The general contractor would likely bear the risk of this ambiguity and have to pay for this work out of its contingency.
Disputes can arise even when scope gaps have been addressed before subcontract award. This situation was illustrated in the recent Massachusetts case of AMP Electrical Inc. v. W.M. Schultz Construction Inc., as an electrical subcontractor sought payment for excavation and backfilling work that it alleged was outside the scope of its subcontract. Because this potential scope gap was actually addressed in multiple prebid addenda, the subcontractor was unsuccessful.
The case
The project at issue involved wastewater pumping station improvements by the town of West Springfield, Massachusetts (owner). The town awarded a general construction contract to W.M. Schultz Construction Inc.
In accordance with a Massachusetts procurement statute, the owner was involved in the bidding process for Schultz’s subcontractors. The owner’s project engineer held electrical subcontractor bid meetings and distributed the project’s specifications and drawings to the prospective electrical subcontractors. AMP Electrical Inc. attended those meetings prior to filing its bid.
The owner informed prospective subcontractors of project updates by releasing addenda to them during the prebidding process, some of which were in response to questions raised by the prospective subcontractors. Addendum No. 2 included the following question and response:
Question 15: Who is responsible for excavation and backfill of underground electrical conduits?
Response: The electrical subbidder is responsible for this work.
The owner later issued Addendum No. 3. Among other things, this addendum replaced Drawing Sheet E-401 with a revised Sheet E-401, which provided additional trench details regarding the excavation and backfill of underground electrical conduits for the project. AMP was the lowest electrical subbidder and ultimately entered into a $1.8 million subcontract with Schultz for “all work specified in Division 16 of the specifications for Electrical,” “the plans referred to therein,” and Addendum Nos. 2 and 3.
About a year into the project, AMP submitted a change order to Schultz requesting an increase in price for the work associated with excavation and backfilling for the underground electrical conduit, believing this to be outside of its subcontract scope.
The owner’s project engineer rejected AMP’s change order, stating that addenda 2 and 3 clarified that this work was part of AMP’s responsibility. AMP ultimately proceeded with the excavation and backfilling work under protest.
Once completed, AMP provided Schultz with an updated change order for this “extra work” in the amount of approximately $83,000. Schultz rejected this updated request for a change order.
The parties were never able to resolve this issue, which prompted AMP to sue Schultz in a Massachusetts state court. Schultz successfully moved to dismiss AMP’s case on summary judgment, and AMP appealed that summary judgment order to the Appeals Court of Massachusetts.
The ruling
The appeals court looked at the findings of the lower court, where the trial judge determined that Addendum No. 2 clarified that the electrical subcontractor was responsible for all backfilling and excavating and that the “contract documents made clear that AMP was required to excavate and backfill underground electrical conduits.” The appeals court found no error in the judge’s determination and rejected AMP’s arguments.
AMP asserted on appeal that Massachusetts law prohibited a public agency from clarifying a class of work in addenda, arguing that the excavation and backfilling work was included in an addendum, which was “neither a ‘specification’ nor a contract term” and “was not directed to the electrical subbidder in particular.”
The appeals court rejected this interpretation of Massachusetts procurement law. Moreover, the court noted that the electrical work was specified in Division 16 of the specifications, and those specifications referenced plan Sheet E-401. It further noted that AMP received addenda 2 and 3 before it submitted its bid and that AMP’s bid was in response to the specifications and supplemental documents, including the addenda.
AMP acknowledged that it received notice of addenda 2 and 3 but nevertheless insisted that “excavation and backfilling are not customary electrical work, and thus, are the contractor’s responsibility.”
Because AMP never provided evidence to the trial court about customary electrical construction business practices, the appeals court did not consider this argument. Instead, the court focused its analysis on the language of the subcontract, which clearly showed that the excavation and backfilling work described in the addenda were part of AMP’s work.
The court added that the “E” in Sheet E-401 from Addendum No. 3 stands for “electrical,” so at the very least, such a designation should have signaled to AMP that the update pertained to electrical work.
Finally, the appeals court stated that because there were so many signs pointing to the incorporation of the addenda into the contract, “any confusion (AMP) may have had regarding whether the excavation and backfilling work were its duties should have been resolved by AMP clarifying such.”
Takeaways
It is very difficult to understand how AMP reached the conclusion that the excavation and backfilling work shown in the addenda was not clearly within its scope. The language of the addenda is clear, and AMP’s subcontract explicitly stated that it was obligated to perform the work in that addenda.
While AMP may have been correct that this type of work would not normally be performed by an electrical trade subcontractor, it was obligated to say something about this before bidding – not after the subcontract was signed.
Schultz, as the general contractor, was undoubtedly helped by the fact that one of the electrical bidders actually raised the question that prompted the responses in the addenda. If this question had not been asked, it is easy to imagine that the dispute between AMP and Schultz over this issue would have been much different – with AMP stating that this was a classic “scope gap” issue and that an electrical subcontractor would not be expected to perform this work.
Without the benefit of the subcontract language to fall back on, Schultz would have had a more challenging time prevailing.
