Free Scope Margin Leakage: Why "Just Add It" Costs Profit
Free scope margin leakage drains project profit one friendly extra at a time. See how Saudi and GCC contractors spot it, price it, and control who says yes.
STABILIZE THE BUSINESS
Mustafa M A
11/7/20265 min read
Executive Summary
"It's only a few sockets. We'll add them, no problem." The site manager said it to the client in week three. Fourteen months later, that sentence and about forty others like it had taken more than two-thirds of the project's profit.
The site manager works for Sara, the CFO of a mid-sized contracting company in Riyadh. Sara and her company are illustrative, not a real client, but the pattern is common in project businesses across Saudi Arabia and the GCC. Free scope margin leakage rarely begins with a bad decision. It begins with a kind one that nobody records, prices or approves.
The short answer
What is happening: work outside the signed contract is given away in small, friendly yeses, and its cost lands on the project with no revenue behind it.
Why it matters: on a 10% margin, every riyal of free work needs ten riyals of new sales just to earn the lost profit back.
What to do first: make every extra a decision someone owns: price it, trade it for something, or give it on purpose and record it.
Free Scope Is Work Nobody Decided to Give Away
Scope is the work the contract pays for. Free scope is any work outside it that the company performs without a price, a trade or a recorded decision to give it away.
Three things look similar but are not free scope. A mistake in your own estimate is a costing problem. A defect you must fix is a quality cost. A goodwill gesture approved by someone with the authority to give it is a commercial choice. All three cost money, but each has an owner and a reason. Free scope has neither.
The test is simple. If you asked "who decided to give this away?", would anyone put up their hand?
How Much Can a Few Small Extras Really Cost?
More than most owners expect, because no single request looks worth a meeting. Here is Sara's fixed-price fit-out contract, with illustrative numbers:
1. Contract value: SAR 20.0 million.
2. Planned profit: SAR 2.0 million, a 10% margin.
3. About 40 free requests at roughly SAR 30,000 each: SAR 1.2 million gone.
4. Three extra weeks on site at SAR 60,000 a week: SAR 0.18 million gone.
5. What is really left: SAR 0.62 million, about 3%.
The project lost SAR 1.38 million, or 69% of its planned profit. To earn that back at a 10% margin, the company must win and deliver about SAR 13.8 million of new work. That is most of another contract of the same size, carried out just to stand still.
The second cost is the one people forget. Each extra keeps the whole site open a little longer: supervision, rented equipment, the site office. The request carries its own cost, and the delay adds a cost to everything else.
Why Does Nobody See It Until the Final Account?
Because free scope has no line of its own in the accounts. Its cost hides inside materials, labour and site overhead, so the project report shows a "difficult job", not a series of decisions.
Requests also arrive through channels finance never reads: a site walk, a phone call, a WhatsApp message to the foreman. By the time the final account (the closing statement of what the project earned and cost) is drawn up, the trail is cold. Management sees the margin fade but cannot point to the day it left.
This is not a local habit. PMI's 2018 Pulse of the Profession survey found that 52% of projects completed in the previous year suffered scope creep, meaning the work grew beyond what was agreed. Five years earlier the figure was 43%. In the Middle East, HKA's 2022 CRUX Insight report found that change in scope had been the leading cause of construction claims and disputes since the report began.
Could the Margin Loss Have Another Cause?
Yes, and management should test that before blaming the site team. A fading project margin could also come from an estimate that was too thin, material prices that rose after the bid, weak productivity, or rework on defects.
The evidence separates them. Rebuild the list of extra requests from site diaries, emails and messages, then cost each one. If the rebuilt list explains most of the gap, free scope is the main leak. If it explains little, look at the estimate and productivity instead.
A second test is to compare the bill of quantities (the priced list of work in the tender) with what was actually built. Work that appears in the building but not in the bill, with no matching variation order (a formal, priced change to the contract), is your free scope.
The number alone cannot prove the cause. One weak project may simply be a weak estimate. The same fade on several projects run by the same team is a pattern of decisions.
Won't Charging for Extras Damage the Client Relationship?
This is the objection I hear most, and I would challenge it. Clients rarely object to a clear, fair price given before the work starts. What damages relationships is surprise: an extra that was "free" in month three becomes a dispute in month twelve, when the contractor tries to recover its losses.
Pricing an extra does not mean refusing it. There are four honest answers to a client's request:
· Yes, at this price.
· Yes, if we swap it for something else in the contract.
· Yes, free, because we decided the relationship is worth it.
· Not in this contract, but we can quote it separately.
Each of them serves the client better than an untracked yes, because the client knows exactly where they stand. Generosity is still allowed. It just becomes a decision with a number on it, not an accident.
Who Should Be Allowed to Say Yes on Site?
Decision rights (who may commit the company's money, and up to what amount) are the real control. In many companies that leak scope, a site engineer can give away work worth SAR 50,000 but cannot buy a SAR 5,000 tool without approval. That mismatch is the problem.
A simple ladder works. The site team may record and acknowledge any request, but may not commit to it. The project manager may approve small extras within a set limit per item and per month. Anything above that goes to the commercial lead or general manager.
The right limits depend on the company's margins and size. The principle does not: giving work away needs the same approval as spending money, because it is the same thing.
Four Controls Stop Free Scope Margin Leakage
Four controls do most of the work:
6. A change register: one shared list where every request outside the contract is logged on the day it is made, with an estimated cost and a status.
7. Price before work: no extra starts until it has a price, a trade or a recorded decision to give it free.
8. Decision limits: the approval ladder above, written down and known by every site team.
9. A monthly review: each project manager presents the register, with the total value given away so far set against the planned profit.
In the 3Ms Business Operating System, the signal is a project margin that fades between the bid and the final account. The pricing and costing lens tests whether free scope or a weak estimate is the cause. The decision is who may give work away, and how much. The commercial lead owns the register. The monthly review brings the running total into the management rhythm, so the leak is seen in month three, not month fourteen.
In Saudi Arabia this matters for cash as much as profit. Even priced work on public contracts waits to be paid. Under the 2019 government procurement regulations, an agency could take up to 70 working days to pay a submitted claim, according to Baker McKenzie. Free work never enters that queue at all. It is cost with no claim behind it.
External sources used
· Scope Patrol: Scope Creep Is on the Rise as Stakeholder Expectations Increase, PMI, PM Network, 2018: 52% of projects saw scope creep, up from 43% five years earlier.
· Middle East Faces Heaviest Delays in Construction and Infrastructure, Consultancy-me, 2022: HKA CRUX data; change in scope has been the top cause of Middle East claims since the first edition.
· Saudi Arabia: Key Changes Under New Government Procurement Law, Baker McKenzie, 2026: 70 working days maximum payment period under the 2019 Regulations (Article 109); the new law takes effect on 2 January 2027.
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Three questions to answer before the call
How do you allocate overhead across machines today?
Do you see profit by customer?
Do you track net price after discounts, rebates, freight and terms?
If any answer is "not really", margin is probably leaking, and the Check will show where.