WHO OWNS THE FLOAT?

January 2013: Who owns the float?

 

In September 2008 I addressed the issue of terminal float in construction programmes in an article published in this magazine entitled “Floating in a Sea Of Uncertainty”. That article, in particular, addressed the requirements of terminal float as specified in the NEC Suite of Contracts. An understanding of the issue of who owns the terminal float in a construction programme is vital to the Contractor in the event that it plans to finish early since the ownership of terminal float will dictate whether it becomes entitled to an extension of time even though the contractual completion date will not be exceeded. This article will therefore look at the ownership of terminal float and try and answer the question “Who does own the terminal float in the various standard forms of contract?”

In 1987, P Weaver in a paper published in the journal of the Australian Institute of Construction entitled “The Philosophical Technique and Legal Problems Associated with Float in Construction Programmes”, stated:

“Float is used to help in identifying critical paths which cannot be allowed to slip without risking substantial problems later. It is used to assist with the efficient allocation of resources and by monitoring unexpired float and rate of production the probability of completion on time can be monitored. Float is a very dangerous element in construction programs, frequently misunderstood, widely abused by all parties usually along the lines of assuming it to be ‘spare time’ and therefore unimportant. As the amount of the float increases so does the probability of completion on time.”

Although this paper is now 25 years old his comments still remain relevant.

Ownership of Terminal Float in the NEC Suite of Contracts

The NEC Construction Contract creates an obligation on the Contractor to show float by virtue of the express obligation in clause 31.2 that each programme which the Contractor submits for acceptance must indeed include float. Although float is not defined in NEC it is obvious from a reading of the entire contract that what is being referred to is terminal float. Clause 63.3 of this contract makes it clear that this terminal float is indeed owned by the Contractor and is therefore protected in the sense that any Employer delaying event would necessitate a corresponding extension of the contractual completion date in order to maintain the period of terminal float shown on the current accepted programme. The Employer therefore has no access to this terminal float other than by agreement with the Contractor and the Contractor will use this terminal float for its own benefit over the life of the contract.

Ownership of Float under the FIDIC Suite of Contracts

The position in FIDIC is slightly more complicated by virtue of the fact that the FIDIC Suite does not, in any one specific clause, identify and allocate ownership of float. Instead it is necessary to examine the contract and the several clauses which, when read together, will give the answer as to who owns the float. In the Red, Yellow and Silver books, it is apparent from clause 8.2 that the Contractor is required to complete the Works within the Time for Completion. Time for Completion is a defined term and refers to the total period available to the Contractor for construction of the Works. Accordingly the Contractor can plan to finish early and therefore create terminal float but it is under no obligation to do so.

Clause 8.4 provides that an Extension of Time is to be awarded if “completion” is or will be delayed by any of the identified Employer risk events. In other words clause 8.4 identifies an entitlement to an extension of time if “planned completion” is delayed. (Although this terminology is not used by FIDIC).

Clause 10.4 defines taking over when the Works are in a fit state to be taken over which when read with clause 8.2 means within the Time for Completion.

Accordingly under the longer forms of FIDIC the answer to the question “Who owns the Terminal Float”, is to be found by combining the above 3 sub-clauses and the result is that the Contractor under these forms of contract owns the terminal float. However this situation is different in the short form, Green Book, of the FIDIC Suite, since the equivalent clause to 8.4, clause 7.3 provides for an extension of time to the “Time for Completion” and not to “completion”. The result of this wording is that under the Green Book, the project owns any terminal float created by the Contractor and the normal position would be that the first person who needs access to this float is entitled to such access whether it be the Contractor or the Employer.

Ownership of Float under GCC 2010

Again, under this form of contract it is necessary to examine several sub-clauses to determine the answer to the question. Clause 5.14.1 entitles the Contractor to receive a Certificate of Practical Completion when the Works have reached Practical Completion.

Practical Completion, by definition (clause 1.1.1.24) means when the Works can effectively be used by the Employer. .

The Extension of Time clause 5.12 entitles the Contractor to an extension of time where “Practical Completion” of the Works is delayed by an Employer risk event.

By definition clause 1.1.1.14, the “Due Completion Date” means the date of expiry of the time stated in the Contract Data for achieving Practical Completion. In other words it is the defined contractual period for constructing the Works.

Accordingly where the Contractor plans to finish early and achieve Practical Completion before the Due Completion Date he would be entitled to claim an extension to the Due Completion Date where the date for Practical Completion has been delayed. In other words the Contractor owns the terminal float under this form of contract.

Ownership of Float under the JBCC Series 2000, July 2007 Edition

JBCC frequently fails to express itself clearly which frequently leads to dispute due to the poor quality of drafting. This is also evident in trying to unravel the answer to the float question under JBCC.

Practical Completion is defined as where the works are substantially completed and can effectively be used by the Employer. A certificate of completion is issued by the Principal Agent stating the date on which practical completion of the works was achieved. In terms of clause 24.3.1, where the works have reached practical completion, the obligation is on the Principal Agent to issue the certificate. However unless otherwise agreed by the parties, being the Employer and the Contractor, this certificate shall not be issued before the date for practical completion as stated in the contract data. Accordingly even if the Contractor plans to finish early, unless it has been otherwise agreed by the parties that such early completion will result in practical completion being certified by the Principal Agent, the Contractor would be obliged to maintain the works until the date stipulated in the contract data and only then would the Principal Agent be obliged to issue the certificate of practical completion.

Under this regime it necessarily follows that only a delay by the Employer to the date stated in the contract data would entitle an extension of time and thus it would be the project which owns the float absent an agreement between the parties allowing earlier practical completion.

Where there has been such an agreement then clause 29, which deals with a “revision of the date for practical completion” refers to delay to practical completion caused by one of the listed events in sub-clauses 29.1, 29.2 or 29.3.

It is accordingly arguable that where the parties have agreed to an earlier date for practical completion then the float belongs to the Contractor. Of course if the parties, Employer and Contractor have agreed to an earlier date for practical completion, then this may indeed have constituted an amendment of the contract to change the contractual completion date from that as stipulated in the contract data to whatever has now been agreed between the parties. If that is the case then a programme reflecting this earlier date for practical completion will not in fact create terminal float but will simply reflect the new contractual completion date. JBCC are sending us, once again, around in circles.

I hope that the above gives some guidance to this frequently difficult area of interpretation of the contracts and that the parties to a contract, Employer and Contractor realise the benefit which can be obtained by requiring terminal float to be shown and best international practice dictates that float should be a requirement of the contract and should be allocated to the Contractor.

C D BINNINGTON
BINNINGTON COPELAND & ASSOCIATES (PTY) LTD