Who owns the float? I’ll go you halves...
- Ownership of float in a construction contract is a commanding position. It has the potential to significantly increase a Contractor’s ability to generate revenue on a project and conversely – where it is not owned by the Contractor – significantly hurt a Contractor’s ability to haul the project in under budget.
- Generally:
- If it is owned by the Principal, the Contractor is in the vexed position of needing to exhaust all its programmed float (or “contingency”) before being entitled to an extension of time (relief from liquidated damages) and then a compensable cause (financial remedy for whatever relief events have been negotiated to be compensable).
- If it is owned by the Contractor, then the Principal will be in a position where it is having to grant EOTs and potentially pay money to the Contractor for compensable causes while the Contractor ostensibly still has programmed contingency available. This can lead to arguments that the Contractor is getting “paid twice” or “double dipping” in its on-site preliminaries and indirect costs. For example, presumably the Contractor had already programmed, and costed, to have its construction manager on site for the duration of float in the programme already. So if the Contractor is getting paid for an EOT before the float is exhausted, the Contractor is getting more money for the same resource.
- What is float in a construction programme?
- Float refers to the total time allocated to the completion of a particular project activity, regardless of the scheduled duration of a particular activity. In essence, float can be viewed as a ‘buffer period’ afforded to either the Contractor or the Principal.
- Added together, a contractor’s programme will then have a “total float”. That total float will be the amount of days that can be delayed before practical completion will be delayed beyond the date for practical completion.
- Savvy Contractors will always try to own the float. And savvy Principals will always seek to do the opposite. Of course from a Principal’s perspective, whether the Principal offers the float to the Contractor will depend on a range of matters raised by Contractors during the tender review process. For example, is there another contractor content to let the Principal own the float and should this then be a factor in favour of the alternative contractor winning the contract?
- But the float ownership does not need to be binary. What about if the parties “split the float”, such that the float is owned 50/50. Or who is to say it cannot be owned 70/30 or 30/70? There are several ways in which the float can be split:
- Probably the simplest way is for the parties to agree, pre-execution of the contract, the amount of float in the Contractor’s programme. This in itself is a dark art (note the distinction between “declared float”, being the float the Contractor will reveal, and “true float”, being the actual float that exists in the programme). Once the parties settle on a number of days of float, then the date for practical completion is simply brought forward by say half that amount of float (for a 50/50 deal). In the contract drafting, the Contractor is then allocated ownership of the float. The effect of this is that the Contractor owns the float in the contract, but the parties have already, before the Contract is executed, halved the amount of float, such that in effect, the Principal retains ownership of the remaining half of the float.
- An alternative is to allocate, in the contract, a “delay allowance” (often seen with “inclement weather allowances”). Assume that during negotiation, the parties agree there is 40 days of float, and they want to do a 25/75 deal, such that the Principal will own 25% of those 40 days (so 10 days) while the Contractor will then retain the remaining 75% (30 days). In this instance there will be a 10 day “delay allowance”, which will be used for any qualifying causes of delay first. That is, even where the Contractor experiences a qualifying cause of delay (which would ordinarily entitle the Contractor to an extension of time and therefore relief from liquidated damages), the Contractor must first drawdown on the 10 days of float allocated to the Principal. Once the 10 days have been drawn down, if there are further qualifying causes of delay, the Contractor can then claim extensions of time such that the date for practical completion is extended, and the Contractor therefore preserves its remaining 30 day float or contingency in the programme.
- Of course if the Contractor hauls the project in early, then all the better for the Contractor. It is to the Contractor’s gain.
- We’ve seen a variety of different regimes where float is split and owned. It is one thing to own the float but during delivery the project team needs to be aligned on how the contract is administered such that the float is tracked and EOTs are appropriately granted (or rejected in the case of the Principal).
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