The coined phrase “time is money” especially applies in the construction industry. Construction participants go to great lengths to build their projects on time and avoid delay costs. To facilitate timely project completion, construction schedulers create sophisticated project schedules utilizing the critical path method (CPM).
CPM scheduling identifies the project’s construction activities, organizes them into a logical sequence, and assigns each activity a duration – the designated time for completion. CPM scheduling also identifies which construction activities are “critical” and “noncritical.”
For the purposes of this article, critical activities are those construction activities that must be completed on time or else the entire project will be delayed accordingly. On the contrary, noncritical activities are those that contain “float,” or the extra time that is allotted to complete an activity in addition to the designated duration. For any given construction project, there are various activities on which the project completion date does not depend and therefore may contain float.
Unsurprisingly, construction projects are complex and often experience delays. The party responsible for a delay subjects itself to potentially severe consequences. Some of the ways a project owner can cause a delay are by issuing excessive project changes, failing to respond to contractors’ notices, interfering with contractors’ work, and failing to perform its contractual duties according to schedule – such as making progress payments, and reviewing and approving construction documents, etc. Owner-caused delays potentially equate to increased contractor costs, equipment costs, managerial costs, lost profits, etc.
A contractor can cause a delay by failing to timely perform its work. This can include inefficiencies and loss of productivity, failure to hire sufficient and skilled labor, delayed supply deliveries, scheduling errors, and corrections of construction defects, etc. Contractor-caused delays potentially equate to increased equipment rental costs, labor costs, insurance costs, liquidated damages, etc.
When project delays occur, the owner and contractor each want to “own” the project float to be able to apply the extra time available in the project schedule toward their own delays, thereby avoiding delay consequences and potential liability. In other words, if the contractor owns the float, then the contractor may apply the float to mitigate or eliminate the impact of contractor-responsible delays and the float would be unavailable to the owner to mitigate any owner-caused delays. The inverse would also apply.
The “float” dilemma begs the question: who owns the float?
In the beginning stages of float allocation cases, courts simplistically and generally held that the contractor owned the float. Unfortunately, the early case decisions regarding float allocation provided little analysis behind the courts’ reasoning. Yet, with the increased usage of CPM scheduling in recent decades, courts grew more comfortable with CPM analysis and their decision-making regarding float allocation became increasingly sophisticated.
Accordingly, instead of mechanically allocating the float to the contractor, courts and boards began analyzing the relevant project delay holistically and whether the relevant delay consumed a project’s entire available float, regardless of the party causing the delay. If there was available float in the project to absorb the delay’s impact, then the party causing the delay was allowed to apply the float and mitigate the delay. This holistic approach gave way to the general and current rule that the “project owns the float.” Accordingly, and absent an agreement otherwise, courts now generally hold that a construction schedule’s float is available to the party who “uses” it first, or in other words, on a “first come, first served” basis.
A construction project’s float therefore holds tremendous value to a party’s potential delay liability. Consequently, owners and contractors often negotiate for float-sharing or float-allocating clauses in their contracts. As its name implies, a float-sharing clause generally provides that the project’s float is explicitly owned by the project and is available to any party who may need it to reduce delays to project completion or any other enforceable sharing arrangement. A float-allocating clause generally provides that the project’s float is owned by the owner (or contractor) and that the contractor (or owner) or any other party is not entitled to any adjustment to the project completion date or compensation because of the loss or use of project float.
While a float-sharing or float-allocating contract clause can take various forms, the takeaway is that owners and contractors should carefully understand the impacts float may have on a project and negotiate and contract accordingly. Absent a float-sharing or float-allocating clause in a construction contract, the modern trend is that the “project owns the float.”
Originally published as an Op-Ed by the Oregon Daily Journal of Commerce on October 14, 2021.