The float. Own it.

While the vast majority of parties to construction projects understand the practical importance of a program float, the contract provisions that control this issue are increasingly being overlooked. Indeed, in today’s growing construction climate, some of its participants do not seem to understand the effect that contract drafting can have on program contingency and which party actually receives its benefit.

It is now common for projects to be controlled by a ‘critical path’ method of programming. This means that all construction activities are identified, broken down and then plotted onto a matrix which establishes which activities are on the critical path to enable practical completion to be reached by the date for practical completion. Each critical path activity must be started and finished on fixed dates or the completion of the project will be delayed.

However, construction activities which are not on the critical path are assigned completion periods longer than actually required for the activity, during which the construction activity may be completed without delaying the entire project. The ‘float’ is the period between the earliest possible start and the latest possible finish, less the actual time taken to complete the activity itself. If completion of an activity is delayed beyond its available ‘float’, it becomes a critical path activity in relation to which further delay will result in practical completion not being achieved by the date for practical completion, and consequently the contractor may be liable to the principal for liquidated damages.

So the ‘float’ is the period of time that a contractor includes in its program to enable it to accommodate various risks (such as industrial action or wet weather). Traditionally, it has been accepted that the float is a ‘buffer’ and risk management tool for the benefit of the contractor (meaning that the contractor ‘owns the float’). However, after many years of contracts being amended to be more ‘principal-friendly’, many projects are currently moving forward in circumstances where the principal owns the float. While this, of itself, is not an issue (indeed, many contracting parties negotiate a position under which the principal owns the float for good reason), contractors and principals alike need to ensure that they understand the effect of drafting amendments included in many of today’s contracts.

Ownership of the float is dependent on interpretation of contractual provisions, and in the absence of such clear provisions, the principles of common law. The three possibilities are:

  1. the contractor owns the float; or
  2. the principal owns the float; or
  3. neither party owns the float.

So who should own the float?

Proponents for ‘the contractor owns the float’ position argue that the contractor is entitled to use the float for his own risk events and program rescheduling. The argument is based on the fact that the contractor is the party who develops and owns the program, and if work is planned and carried out in a way that allows for a float, then the contractor should be entitled to the benefit of that float.

Proponents for ‘the principal owns the float’ position argue that because the value of the float forms part of the contract price, and the program is one of the tools to manage the project, the principal should be able to control the float to reduce its costs and control progress. Further, the theory is that the only effect in using the float, is the reduction of the float, which does not affect project completion. On this reasoning, it is viewed as unfair (and unnecessary) to grant the contractor an extension of time while the contractor did not, in fact, suffer any delays to project completion (and will not therefore be liable for liquidated damages).

Each of these possibilities has its own merits. However, at common law, where no express agreement to the contrary exists, the float is not owned by either party. In theory, this should be for the benefit of both parties (as needed throughout the project) for the benefit of the project, however more often than not, this leads to uncertainty and dispute.

The parties’ intentions as to who ‘owns the float’ should be addressed expressly when drafting construction contracts. Properly drafted clauses can avoid disputes arising during the course of the project and they can minimise the incentive to claim extensions of time prematurely (for the purpose of using up the float).

Where a contract provides that an EOT may be granted whenever the contractor is delayed in reaching practical completion, the float remains ‘intact’ and can be carried forward by the contractor to use for its benefit where ‘non-qualifying’ causes of delay arise. For example, Australian Standard contract AS4902 provides:

The Contractor shall be entitled to such extension of time for carrying out WUC (including reaching practical completion) as the Superintendent assesses (‘EOT ’), if:

(a) the Contractor is or will be delayed in reaching practical completion by a qualifying cause of delay; and

Such drafting results in the contractor ‘owning the float’.

Alternatively, where a contract provides that an EOT will be granted only in circumstances where the delay will prevent practical completion being achieved by the date for practical completion, this means that the float needs to be used up before an EOT will be granted.

For example:

The Contractor shall be entitled to such extension of time for carrying out WUC (including reaching practical completion) as the Superintendent assesses (‘EOT ’), if:

(a) the Contractor is or will be delayed in reaching practical completion by the date for practical completion by a qualifying cause of delay; and

The inclusion of the words ‘by the date for practical completion’ results in the principal ‘owning the float’.

Courts are traditionally reluctant to imply obligations on parties to take action to preserve program floats and/or achieve completion dates, so it is important that parties ensure that the contract they are signing gives effect to the parties’ practical understanding of the float, and for whose benefit it is included.