Wednesday, April 14, 2010

EOT & Construction Programme Float?

There is a saying that “Cash is King and Time is God” and thought the application of such saying to the construction contract, it is fairly understood that money governs the contract and time is something of high significance to the parties of the contract.

Argument relating to Extension of Time (“EOT”), ownership of float and associated compensation are extremely common in the construction industry which may had lead to numerous disputes that requires the resolution through litigation or any alternative dispute resolution.

Under current scheduling practices, total float time is considered “free” and does not belong exclusively to any specific party in the construction process; rather, it belongs to the project and can be used by both owners and contractors to mitigate the potentially negative impact of delays. Utilization of float is, hence, on a “first-come, first-served” basis.

However, usually poorly worded or much amended EOT clauses and uncertainties for causes related to concurrent delays and ownership of floats may have caused the problems. The longer a dispute awaits resolution on a construction project, the more risk the parties run that the dispute will delay completion, add to project cost, and “chill the relationships” among the parties to the dispute. These are the much disfavoured situation, preferable avoided by many parties.

Float allows a work programme manager the ability to reschedule resources and work, yet not delay the project so long as the float is not consumed. Because of this flexibility associated with float, the question of whether the owner, contractor, or the project “owns” float and is entitled to use it remains a significant issue, particularly in the context of multiple delays that exceed total float.

According to the Protocol, float is the amount of time by which an activity or group of activities that may be shifted in time without causing delay to a contract completion date[1]. The Protocol also defined the float as a positive float and not a negative float.

A Positive float refers to an excess time slot available with an activity in a project schedule such that the activity can be delayed by that excess time period without delaying the completion of the project as planned in the project schedule. Therefore, an activity with a positive float is non-critical activity and not on the critical path assigned for the project.

Conversely to the Positive float, the Negative float refers to the unavailability of the excess time period for an activity. Consequentially that activity must have to start before their predecessor activities complete in order to meet a target finish date in a project schedule else the project is bound to be delayed. The Negative Float results when the time difference between the late dates and the early dates (start or finish) of an activity is negative.

The definition of a float in simple terms has been outlines in the Protocol. However, to understand the nature and characteristic of floats, one must obtain a perspective through the method and usage of a project programme.

In project programme, float is the amount of time that a task in a project network can be delayed without causing a delay to succeeding tasks (“free float”)and/or to the project completion date (“total float”). In some project programmes floats are also known as slacks. Float in simple terms is the period between scheduled early finish and the late finish of an activity in the Critical Path Method (“CPM”) schedule[2]

When an activity in the construction project has a total float equal to zero days on the programme, it is being known to be a critical activity. This means that a delay in the finishing of this activity will cause the entire project to be delayed by the equivalent amount of time. A critical activity typically has free float equal to zero, but an activity that has zero free float may not be on the critical path.

The allocation of float time had often been a source of controversy in disputes involving delays, suspensions, and change order. Analysing delays on a construction project is not an easy task. Assigning responsibility for such delays involves extensive analysis. An aspect of this analysis may involve the presence and consideration of so-called concurrent delays.

However, a common controversial situation on the use of float occurs when the contractor has planned the works and is able to or intended to finish early before the specified completion date in contract. The principal may feel that since the contract provides for the owner to make variations to the works through the issuance of variation orders, it allows him to use any available time, which is the float, during the contract performance period. This will then require the contractor to amend the programme to allow for these changes consequentially up to the completion date.

It has been found that no boards or courts have uniformly dealt with this issue, however the trend is still sided to the contractor’s right to finish early. With the contractor finishing early, it may save on time-related expenditures. This also allows for the contractor to generate their contract income faster. Nonetheless, such situation may only happen without causing any dispute between the parties if the contract does provide for early completion. The existence of such clause in any construction contract will allow for an entitlement for the contractor to put forth any claim for damages against the principal in the event of if the principal have had interrupted the contractor from reaching the early completion.[3]

Unless otherwise stated in the contract, where there is remaining float in the programme at the time of a principal’s Risk Event, an EOT should only be granted to the extent that the principal’s Delay is predicted to reduce to below zero the total float on the activity paths affected by the principal’s delay.[4]

If as a result of a principal’s delay, the contractor is prevented from completing the works before the contract completion date, the contractor should, by the principles set out in the Protocol, be entitled to be paid the costs directly caused by the principal delay, notwithstanding that there is no delay to the contract completion date. In such event, usually no entitlement for EOT is granted and such costs were already in the contemplation of the parties when they entered into the contract.

Therefore, here it may be safe to presume that it is important for a contract to provide for a clear definition to the float and further provide a guide to the usage of float in relevance to any intention for early completion by the contractor. Furthermore, accurate identification of the float and concurrency is only possible with the benefit of a proper programme which has also been properly maintained and updated in accordance with the progress of the works.

[1] SCL Delay and Disruption Protocol (2002).

[2] Paul Levin, Construction Contract Claims, Changes & Dispute Resolution (1998)

[3] Robert A. Rubin, Virginia Fairweather, Sammie D. Guy, Construction Claims: Prevention & Resolution (1999)

[4] SCL Delay and Disruption Protocol (2002) page 6.

Sharing is Caring-this is a portion of research paper I wrote for my Master of Construction Law in 2009.