HOW DOES YOUR CONSTRUCTION CONTRACT TREAT FLOAT

shutterstock_480673663Although 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.

 

NEED CONTINUING EDUCATION CREDIT IN FLORIDA? CONSIDER THESE COURSES

IMG_3655Are you a contractor and need continuing education credit?  I recently got three one-house courses approved by Florida’s Construction Industry Licensing Board.  These one-hour courses are designed for live breakfast-and-learn or lunch-and-learn sessions.  They are designed for practical application on key issues facing all in construction.  The courses are as follows:

 

 

 

1) Delay!  The Project is Late – What do You do and how do You Allocate the Delay?; 

2) Contract Risk Considerations; and

3) Effective Project Documentation & Management. 

 

 

 

Please reach out to me if you are interested in learning more about these live presentations including whether you think your employees can benefit from a breakfast-and-learn or lunch-and-learn.

 

 

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 CONSTRUCTION PROJECT IS LATE – ALLOCATION OF DELAY

images-1The construction project is late.  Very late.  The owner is upset and notifies the contractor that it is assessing liquidated damages.   The contractor, in turn, claims that the project is late because of excusable, compensable delays and, perhaps, excusable, noncompensable delays.  This is a common and unfortunate story between an owner and contractor on any late construction project.  Now the fun begins regarding the allocation of the delay!

 

Through previous articles, I discussed that in this scenario the burden really falls on the contractor to establish that the liquidated damages were improperly assessed against it and, thus, it is entitled to additional time and/or extended general conditions as a result of excusable delays.   Naturally, this requires the contractor to develop a critical path analysis (time impact analysis) allocating the impacts / delays (and the reasons for the impacts/ delays) to the project completion date. The reason the burden really falls on the contractor is because the owner’s burden is relatively easy – the project was not complete on time pursuant to the contract and any approved changed orders. 

 

In a recent opinion, East Coast Repair & Fabrication, LLC v. U.S., 2016 WL 4224961 (E.D.Va. 2016), the court contained a very detailed and sound discussion regarding this common story between an owner and contractor.   Although this is a case involving a ship repair company overhauling and repairing a Navy  (government) vessel, the court’s discussion would apply to any late construction project and the allocation of delay to a late project.   Please take the time to read the Court’s discussion below as it lays the framework for the allocation or apportionment of delay. 

 

In the context of litigating liquidated damages assessed by the government in a construction contract, the government first must meet its initial burden of showing that “the contract performance requirements were not substantially completed by the contract completion date and that the period for which the assessment was made was proper.” Once the government has met that burden, the burden then shifts to the contractor “to show that any delays were excusable and that it should be relieved of all or part of the assessment.

In order for the contractor to carry its burden it must “demonstrate that the excusable event caused a delay to the overall completion of the contract, i.e., that the delay affected activities on the critical path” because the contractor “is entitled to only so much time extension as the excusable cause actually delayed” completion of the contract.

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Having considered the somewhat conflicting positions taken on this issue in prior federal cases, this Court finds that the better legal interpretation regarding the proper treatment of “sequential delays” (where one party causes a delay followed by a separate-in-time delay caused by the other), is that “apportionment” should be permitted when the evidence provides a reliable basis on which to determine which party is responsible for which delay. Stated differently, the fact that the Government was solely responsible for some delays in this case…does not preclude the Government as a matter of law from recovering some amount of liquidated damages as a result of subsequent, and conceptually distinct, delays deemed to be solely the fault of ECR/Técnico [Contractor and its subcontractor].

 

As to performance delays deemed to be “concurrent,” (both parties causing a delay at the same time), the established law reveals that ECR [Contractor] is permitted to seek an extension of the project completion date for such delay, as long as the delay caused by the Government would have disrupted the “critical path” in the absence of the delay caused by the contractor. However, while ECR may seek an extension of the performance period for a concurrent delay, ECR is precluded by law from obtaining a monetary award to compensate it for “delay damages” for such delays, with the appropriate relief being only the extension of the project completion date (which, in effect, results in a day-for-day reduction of the Government’s liquidated damages claim). 

East Coast Repair & Fabrication, supra, at *13-14 (internal quotations omitted).

 

 

 

 

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.

LIQUIDATED DAMAGES IN CONSTRUCTION CONTRACTS – WHO BEARS THE BURDEN?

imagesLiquidated damages are in many, many construction contracts.   They are designed to capture an owner’s damages if a project, or portion thereof, is not substantially completed by an agreed date.  The liquidated damages provision contemplates that the contractor will be liable for a daily rate of “x” for each day of delay beyond the substantial completion date (or any agreed change to this date).   Sometimes there is a cap on the contractor’s liquidated damages exposure (say, capped at the contractor’s fee) and sometimes there is no cap.   On private projects, the liquidated damages provision is a negotiated provision.  Typically, on public projects, the liquidated damages provision is not negotiated, but is known upfront and the contractor can try to account for that risk in any bid or proposal.

 

Assume a project is completed 100 days beyond the agreed-upon substantial completion date.  The contract provides for liquidated damages of $2,000 per day with no cap.  This means the contractor has liquidated damages exposure in the amount of $200,000.  The question, however, is who bears the burden relating to the 100-day delay that triggers the application of the liquidated damages provision. Understanding this burden is important, especially if you are the contractor looking to challenge this assessment and, perhaps, support a claim for extended general conditions / overhead.

 

The owner’s initial burden is typically an easy burden—known as the burden of persuasion.  The owner really just needs to produce evidence that the project was not substantially completed by the agreed-upon date.  Once the owner does this, the burden shifts to the contractor to prove that the owner prevented performance, there was excusable delay such as concurrent delay, or the owner caused the delay or a portion of the delay (e.g., design-changes, late change orders, etc.).   The contractor will want to do this to not only establish it is not liable for a majority or all of the assessed liquidated damages, but that the owner is liable for the contractor’s extended general conditions / overhead associated with delay.  Once the contractor does this, the burden of proof then shifts back to the owner since the owner carries the overall burden relating to its assessment of liquidated damages. 

 

This sentiment was conveyed In the Armed Services Board of Contract Appeal’s decision in In re Idela Const. Co., ASBCA No. 45070, 2001 WL 640978 (ASBCA 2001) (internal quotations and citations omitted):

 

In order to assess liquidated damages the Government [owner] must prove by a preponderance of the evidence that the contractor is in default, that it did not prevent performance or contribute to the delay, and that the appellant was the sole cause of the days of delay. The Government has established that substantial completion did not occur until 109 days after the adjusted contract completion date.

 

In order to defeat the Government’s claim for liquidated damages, the appellant [contractor] must come forward with evidence to show that the Government prevented performance or contributed to the delay or that the delay was excusable. Because liquidated damages is a Government claim, the Government continues to have the overall burden of proof, and if the responsibility for days of delay is unclear, or if both parties contribute to the delay, for the Government [t]o recover liquidated damages the Government must prove a clear apportionment of the delay attributable to each party.

  

See also Sauer, Inc. v.  Danzig, 224 F.3d 1340, 1347 (Fed. Cir. 2000) “(As a general rule, a party asserting that liquidated damages were improperly assessed bears the burden of showing the extent of the excusable delay to which it is entitled.); A.G. Cullen Const., Inc. v.  State System of Higher Educ., 898 A.2d 1145, 1162 (Pa. 2006) quoting PCL Constr. Servs., Inc. v. U.S., 53 Fed. Cl. 479, 484 (2002) (“As to the applicable burden of proof in a liquidated damages claim, the government has “the ultimate burden of persuasion as well the initial burden of going forward to show that the contract was not completed by the agreed contract completion date and that liquidated damages were due and owing.”).

 

 

Remember, a liquidated damages provision is a common provision in construction contracts.  Make sure you appreciate how this clause is triggered, the application of the clause, and who carries what burden when its comes to assessing and challenging liquidated damages.

 

 

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.