Floating in a sea of uncertainty?

Who owns the float in a programme? Chris Binnington
gives an insightful answer.

I have never asked the question of any audience, “who owns the float in a programme”, and got a consistent response. The contractors in the audience will invariably say, the contractor owns it because he created it. The professional team in the audience will generally look upon float as something to be used by the employer as and when he wishes to use it. The correct answer is something in between.
When I refer to float here I should, more correctly, refer to terminal float. The difference between when the contractor plans to complete the work and when the contract states he is to complete it. This “unused” portion of the programme is effectively a time risk contingency. It would of course be ridiculous for a contractor to show a programme that indicates the contractor intends to finish the last activity on the last day of the contractual period. Most programmes however do precisely this since under this regime, any employer risk event impacting on a critical activity will have the effect of causing the end date for completion to be exceeded and accordingly create an entitlement to an extension of time. Had the contractor shown terminal float then the employer would expect that this float would first be consumed before any entitlement to an extension would be granted.
From an employer’s perspective, seeing a total absence of float in a programme must engender concern. Either the contractor has very little chance of completing the work by the contractual date or the contractor has another programme hidden from the employer in which the float is there but not for the employer to see!

Addressing the issue
Of the four CIDB approved standard forms of contract only the NEC suite addresses the issue of float in the programme. Although it does not define float it is obvious that it is referring to terminal float as a result of the definition of an extension of time through the provision of clause 63.3 which defines an extension of the Completion Date by comparing the delay between the date of planned Completion on the Accepted Programme with planned Completion on the impacted programme following an employer’s risk event.
The extension of time which is then due is the difference between the two planned Completion dates applied to the Contractual Date thus maintaining the original amount of float created by the contractor in the Accepted Programme. Under this suite the float does indeed belong to the contractor.

“It would, of course, be ridiculous for a contractor to show a programme that indicated the contractor intends to finish the last activity on the last day of the contractual period”

In the other forms of contract the truth is that the float belongs to the project and is used by the first party who needs to use it notwithstanding that it was, in the first place, created by the contractor. It is for this reason that contractors are exceedingly reluctant to show float and then have the benefit of the float they created lost by being used up by the employer where an employer risk event occurs.
Although NEC effectively allocates the float to the contractor I believe that it does not go far enough and in fact discriminates between tenderers by not specifying the amount of float to be created in the initial programme submitted to the Project Manager for acceptance. Since float can only be created by shortening the duration of earlier activities by the application of more resources, there is clearly a cost implication to the creation of float. Under the NEC the Project Manager can reject a programme if it does not show the information which the contract requires it to show. Clause 31.2 requires the contractor to show “float”. It does not however specify how much float. Could the PM therefore reject a programme showing 1 day of float, or would 1 week of float be adequate. In order to overcome this limitation and ensure that all tenderers price the enquiry on a common footing we recommend that the Works Information should specify 4 weeks of float for every 12 months of programme to Completion. The initial programme produced in accordance with the requirements of Clause 31.1 must therefore reflect 4 weeks of float (pro rata to the 12 months construction period) and the PM must be satisfied with that.
Employers who insist on float being shown in a programme are sensible employers. The probability of a contractor finishing on time is much higher where the initial programme does have actual float built in. However, in order to encourage contractors to show float the float should be allocated to the contractor following the example of NEC. Of course, if the contractor does not use the float, then in the absence of any provision in the contract requiring the contractor to maintain the Works until the completion date has occurred will get their Works ahead of schedule and the contractor will be entitled to vacate the site early, a benefit to both parties.

On time and within budget?
Employers who insist on impossibly short durations are already setting themselves up to get their project completed late. Moreover, those employers who also insist on punitive penalty provisions in the belief this will “incentivise” contractors to finish on time, are deluding themselves. In the present market contractors can be expected, under these circumstances, to simply make a realistic assessment of the duration to completion and build in the anticipated penalty as part of the contract price. Employers at the end of the day, where the contractor finishes late, then get their own money back and the contractor is not out of pocket. The correct way to “incentivise” contractors to finish on time is to:

  • set realistic targets;
  • require float to be shown in the programme and allocate ownership of the float to the contractor and
  • set up key milestones and a completion date all with completion bonuses attached to them.

“Of the four standard forms of contract approved by the Construction Industry Development Board, only the NEC suite addresses the issue of float in the programme”

Where contracts are issued for tender when the scope is ill defined, or includes lots of provisional sums (that dreadful building contract practice) are simply denying the contractor the opportunity to complete in a realistic time. Most of the 2010 stadia have been let on the JBCC form of contract, a document which is hopelessly inadequate for projects of this magnitude. How a contractor can commit himself to a fixed completion date for a project where more than 30% of the work is issued for enquiry as “provisional” defies logic. More particularly when massive penalties are attached to the completion date. The final cost of the stadia I am sure will significantly exceed the original budgets and it would be surprising if any of them are completed in time!
 

Chris Binnington