HOW DOES YOUR CONSTRUCTION CONTRACT TREAT FLOAT

Posted on November 5, 2017November 5, 2017 by Edward Garber

Although there are different types of construction schedule float and more technical definitions, the definition that makes sense to me is that float is the amount of time a particular activity can be delayed without that activity delaying the project’s completion date (substantial completion date). In looking at a construction schedule, this determination is made from looking at the difference between the early start date for an activity and the late start date for that activity or the difference between the early finish date for that activity and the late finish date for that activity in your CPM schedule (which should be the same amount of time). This is often referred to as “total float” and is the float that I usually focus on since it may pertain to a delay to the substantial completion date of the project and can trigger either the assessment of liquidated damages and/or the contractor’s extended general conditions, whatever the case may be.

Consider this hypothetical discussed in Weaver-Bailey Contractors, Inc. v. U.S., 19 Cl. Ct. 474, 481 (1990) that discusses the concept of total float by using a simple example that may apply to a residential house job:

To reiterate, a critical path activity is one which, if allowed to grow in duration at all, will cause the overall time required to complete the project to increase. By contrast, an activity with float time may grow in duration up to a certain point, without an adverse impact on the time required to complete the project. Consider the example of a contractor who committed himself to building a house, beginning on January 1, 1989. The contractor has determined that he will need one year to complete the job. Pouring the foundation is a critical path activity because any increase in the amount of time required to complete the foundation will cause an increase in the amount of time needed to complete the house; work on the walls, floors, roof, and utilities cannot begin until the foundation is complete.

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Suppose that as part of the job, the contractor promised to build a fence along two edges of the property, and that building the fence will take 20 days. No other work depends on the completion of the fence, so delaying work on the fence until December 11, 1989 will not put the contractor in danger of late completion. In other words, building the fence is an activity with a lot of float time. However, float time is never unlimited. If on December 20 the contractor has yet to begin the fence, or if there is more than 11 days’ worth of fencing work to be done as of December 20, then the contractor will not finish the job on time. From the foregoing, one can make the following generalization: regardless of whether an activity is on the critical path of a project, if the time required to complete the activity is greater than the time remaining to complete the project, then project completion will be delayed.

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Consider now the effect on our hypothetical contractor if on December 1, before fencing work had begun, the buyer of the house told the contractor that he would like all four sides of the property to be fenced, thereby doubling the fencing work. Clearly the contractor could not complete the entire project by the end of the year, but through no fault of his own. The time required for the fencing portion of the job is now 40 days, and the contractor has only 31 days left.

Many contracts, particularly in the public sector, contain a float-sharing provision that basically says that total float is for the benefit of the project and not for the exclusive benefit of either the owner or the contractor. There are different ways this can be worded. Under this float-sharing provision, construction is taken as it occurs such that use of float is typically applied on a first-come first-serve basis provided parties acted in good faith through the use of the float (good faith, obviously, being a relative term). This obviously can work for or against a party based on when a delay occurs during construction.

There are contracts that include language that provide that float is for the exclusive use and benefit of the owner. Under such a clause, float is not for the benefit of the contractor to account for contractor-caused delays; rather, it is for the sole use of the owner to apply to delays it may cause. When I am representing the contractor, I warn them of the risk of this language as it takes away from the anticipated uncertainty that exists in construction, which is why schedules are never written in stone. Further, if an owner can consume all of the float, it shifts, in my opinion, quite a bit of risk to the contractor since the owner can breach certain time commitments or obligations in the contract under the premise that it was consuming available float. When I am representing the owner, I generally do not include such a provision as I tend to subscribe more to the presumed equity of a float-sharing provision, as such a provision can certainly benefit an owner with delays that occur early on in the job.

There is also the sentiment that float-sharing provisions, no different than provisions that give the owner exclusive use of float, are equally unfair. There is an air of truth to this sentiment because a contractor generates the schedule and controls the means and methods of construction. In doing so, the contractor, through experience, tries to conservatively, but flexibly, account for certain delays it can reasonably anticipate that perhaps would be consumed by float in the schedule. The contractor cannot reasonably account for owner-caused delays and, in reality, an owner would not want the contractor to do so because there would be a huge time contingency built into the schedule to account for such unknown delays (e.g., is the permit going to be issued on time, is the designer going to promptly respond to RFIs and submittals, is there going to be change orders, is there going to be a design issue, etc). The owner would never agree to this because it would simply delay the completion date.

How does your construction contract treat float? How does it define float? How does the consumption of float potentially impact your project based on how you scheduled activities through completion of the project?

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

THE VALUE OF A WELL-WRITTEN SUBCONTRACT TO FORECLOSE SUBCONTRACTOR’S INEFFICIENCY / LOST PRODUCTIVITY DAMAGES

Posted on May 31, 2015May 31, 2015 by Edward Garber

I have previously discussed the challenges a subcontractor has in proving a lost productivity / inefficiency claim. Besides being difficult to prove, subcontractors generally enter into subcontracts that include onerous provisions that foreclose a subcontractor’s right to pursue lost productivity / inefficiency claims. General contractors try to account for these types of delay-related claims by including provisions in their subcontracts that require subcontractors to fully bear this risk. An example of this ocurrence can be found in the opinion entered in Electrical Contractors, Inc. v. Fidelity & Deposit Co. of Maryland, 2015 WL 1444481 (D. Con. 2015) where the trial court precluded a subcontractor from recovering lost productivity / inefficiency costs based on the language in the subcontract that precluded such claims. Additionally, and importantly, the trial court found that that the subcontractor failed to timely notify the general contractor of its claims under the strict notice provisions of the subcontract.

In this case, the general contractor was hired by a state agency to construct a laboratory building and furnished the state a public payment bond. The prime contract contained a construction schedule (which is not an uncommon exhibit in a prime contract). The general contractor then entered into subcontracts with trade subcontractors including the electrical subcontractor. An exhibit to the electrical subcontract was a schedule that simply reproduced dates applicable to the electrical subcontractor’s scope of work that were included in the construction schedule attached to the prime contract.

No different than any baseline construction schedule on any construction project, it was not written in stone. This meant there were updates to the schedule that were furnished to the state agency and the state agency unsurprisingly challenged or opposed numerous schedule updates. The general contractor did not keep its electrical subcontractor apprised of the back-and-forth between it and the state agency involving schedule updates (nor was the general contractor under any real obligation to do so).

And, as we all know, the schedule of the project is really driven in the field. So, as the construction progressed, the general contractor’s superintendents directed the electrical subcontractor to perform work in a piecemeal and unsystematic manner. This was due to work areas not being ready for the electrical scope due to delays on the project. The electrical subcontractor notified the general contractor that it was being impacted and forced to work unproductively. Thereafter, the electrical subcontractor sued the general contractor and the general contractor’s payment bond sureties for damages that included lost productivity / inefficiency damages.

However, the subcontract that the electrical subcontractor signed posed problems with its claims, particularly the following contractual provisions:

“Subcontractor agrees to … complete the work in such sequence and order and according to such schedules as Contractor shall establish from time to time … time being of the essence…. If Contractor determines that the Subcontractor is behind schedule or will not be able to maintain the schedule, Subcontractor … shall work overtime, shift work, or work in an altered sequence, if deemed necessary, in the judgment of the Contractor to maintain the progress of the work. Any such … altered sequence work required to maintain progress or to complete the work on a timely basis shall be at Subcontractor’s expense and shall not entitle Subcontractor to … additional compensation.”

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“To the fullest extent permitted by applicable law, Contractor shall have the right at any time to delay or suspend the work or any part thereof without incurring liability therefore. An extension of time shall be the sole and exclusive remedy of Subcontractor for any delays or suspensions suffered by Subcontractor … and Subcontractor shall have no right to seek or recover from Contractor any damages or losses, whether direct or indirect, arising from or related to any delay or acceleration to overcome delay, and/or any impact or effect of such delays on the Work.”

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“In the interest of the overall project, W–T [Contractor] reserves the right to alter the sequencing of activities in order to accommodate project conditions and/or Owner requirements. It is understood that the Subcontractor shall be obligated to complete its activities [timely] … regardless of the actual start date.”

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“There is no guarantee of continuous work. Subcontractor shall work in all areas as they become available and as directed by Whiting–Turner [Contractor]. Subcontractor shall include the inefficiencies, supervision and manpower necessary to run separate and independent crews as necessary.”

Electrical Contractors, Inc., supra, at *6 and *7.

Additionally, the electrical subcontractor needed to timely notify the general contractor of its claims:

“Article 6(d) requires timely written notice as a precondition for making such claims: [N]otice in writing shall be given to the Contractor no later than seven (7) days following the occurrence on which such claim is based…. Any claim not presented within such time period shall be deemed waived by Subcontractor. The notice must describe the dispute, controversy or claim in detail so as to allow Contractor to review its merits … [and] provide detailed information to substantiate such claim including supporting documentation and calculations.”

Electrical Contractors, Inc., supra, at *8 (internal citations omitted).

While the 7-day claim notice requirement may seem unfair, the court explained that the electrical contractor was a sophisticated entity that knowingly assumed this notice obligation.

Of Significance:

These subcontract provisions recited above are not uncommon provisions. They are rather commonplace with sophisticated contractors–there is no real shock value when looking at these provisions, right?

If you are a general contractor that includes such provisions in your subcontracts, this case gives you reassurance as to those contractual provisions that are aimed to insulate you from a subcontractor’s delay-related damage and require the subcontractor to give you timely notification of a claim (so that you are not prejudiced by the late submission of a subcontractor claim). These are important provisions for a general contractor to include in a subcontract and the provisions referenced above are certainly well-written provisions to model. It is understood that a schedule is never going to be written in stone and there will be logic and sequence changes in the schedule, so protect yourself by including such provisions (including the no-damage-for-delay provision). As you can see, there is value in doing so.

On the other hand, if you are a subcontractor, if you accept these provisions, you need to either account for these risks in your subcontract price and/or bear the risk that these provisions may be appropriately enforced against you as shown in this case. Alternatively, and as the court alluded to, as a sophisticated party, you have the option of not signing the subcontract or trying to negotiate the best subcontract for you with an understanding as to those onerous provisions and risks that you choose to accept.