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Float Ownership in EPC LSTK Projects

10 replies [Last post]
Mon, 2010-07-12 17:11
MATHEW JOSEPH
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Float Ownership / Lump sum Turnkey EPC Contracts

There are differing opinions regarding ownership of floats (i.e.: Activity Total Float or Path Float):
- Float belongs to the Project;
- Float belongs to the Contractor who programmes the work;
- Float is a commodity shared between the parties to the Contarct;
- ……………………………..

Majority of the standard forms are silent regarding float ownership.

In the absence of an expression or implied provision within the Contract, the usual practice is to adopt industry norms or standards set by Professional Organisations (PMI / AACEI / SCL / APM etc).

In my opinion majority of the standards are published with reference to traditional / re-measurable Contracts.

However in the case of LSTK/EPC Contracts, the risk profile of the Contractor is far greater compared to traditional forms of Contract.

1. Who owns the float in the Contract programme in a LSTK/EPC Project?
2. Are you aware of any Standards / Publications pertaining to float ownership in LSTK/EPC Projects?
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Replies

Tue, 2010-07-13 08:12
#1
Rafael Davila
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As always it depends what it says in the contract.

Float

The above clause is present on most of our contracts, here you would get nothing. Contract rules, increased risk, and so what.

Best regards,
Rafael
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Tue, 2010-07-13 06:37
#2
Mike Testro
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Hi Mathew

As always it depends what it says in the contract.

If the programme has no set bar for Contractors Time Risk then it may be too late to put one in now but it is worth a try.

So - after impacting the event - run a filter on the tasks that are delayed by the excusable event and note:

1. The last activity.
2. The total float on the tasks.

Come out of the filter and address the link between the last impacted task and the immediate successor.

Put a lead lag duration on the link so that the float is reduced to two or three days off critical.

Submit for approval.

Good luck.

Mike Testro
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Tue, 2010-07-13 06:28
#3
MATHEW JOSEPH
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Hi Rafael,

I am trying deduce a general principle. So let’s keep away from the software intricacies for the time being.

What is the entitlemnt due to the Contarctor executing a complex EPC / LSTK Contract impacted by a non-critcal excusable delaying event which can even be rated as a classical prevention event?
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Tue, 2010-07-13 05:12
#4
Rafael Davila
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Mathew,

I doubt you will find contract forms that deal with the fact that schedule durations are not deterministic but probabilistic; usually float is administered as if a deterministic value. Most Protocols insist on using deterministic and outdated CPM concepts that do not represent true schedule performance and insist on using wrong metrics.

Your mentioning about “varying risk distribution” leads us to the probabilistic models that better represent true schedule performance. As you reduce float the chance for non-critical activities will become critical increases, Monte Carlo simulation can give you the necessary metrics. You can define project duration as the projected duration for a certain success probability. You can also explore Spider Project probabilistic functionality a very practical approach easier to apply than Monte Carlo.

Perhaps you can perform a Time Impact Analysis to see the impact of reduced float in the expected project duration for your target success probability. Here you might find a day reduction in float represents more than a day delay in expected project duration, consider the case your delayed activity gets into a rainy season.

If you explore the Schedule Risk and Schedule Risk Analysis Forum you will find most of the posters belong to your industry. Many minds drifting toward this approach tells me it is relevant, keep the perspective, these minds are not the average.

Best Regards,
Rafael
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Tue, 2010-07-13 04:16
#5
Mike Testro
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Hi Mathew

The SCL protocol is 8 years old and is a bit out of date.

The only form of contract that I know of that specifically deals with float is the NEC family.

I have not come across any standards or literature that deals specifically with the topic of float - but it forms part of any reasonable text book on planning - not that I have evr read any.

As I said before - the contractor holds the key to how float is administered.

Best regards

Mike Testro
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Tue, 2010-07-13 04:08
#6
MATHEW JOSEPH
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Hi Mike,

I would also like to consider that ’the Contarctor owns the float’.

Unfortunately, within the industry there are differing opinions and especially in UK condidering the SCL Protocol.

However I think all these assumptions are mostly formualated adopting building projects procured under traditional Contract forms as the basis.

But as you are aware there are different procurement schemes with varying risk distribution schemes:

1. Traditional / Re-measurable;

2. Design and Build;

3. EPC / LSTK;

4. EPCM

5. DBO etc.

Are the generic assumptions suitable for EPC / LSTK Projects?

Are there any standards / literature concerning the topic specific to EPC Contracts?

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Tue, 2010-07-13 03:19
#7
Mike Testro
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Hi Mathew

The contractor - in any form of contract - holds the key to float ownership.

When drafting the contract programme a bar should be inserted for a duration of time called "Contractor’s Time Risk Allowance".

It is then up front and no-one can touch it except the for when the contractor needs it.

The only argument then is what calendar is used - normal work or 24/7.

Best regards

Mike Testro
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Tue, 2010-07-13 00:39
#8
MATHEW JOSEPH
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Hi All,

Thank you very much.

Can we initiate a discussion specific to EPC LSTK Projects.

I think majority of the published articles are generic in nature or oriented towards traditional / re-measurable Contract forms.

Whether the float ownnership issue can be viewed from a different perspective in the case of EPC / LSTK Contract forms?

Here the change in the risk profile can produce a greater impact on the EPC Contractor compared to a traditional building Contractor?

Also one needs to consider the fact that an EPC Contractor’s risk profile is high even during the mechanical completion, pre-commissioning, commissioning, perormance testing stages.

Hence losing the float flexibility at an early stage of the Project (especially due to issues for which the Owner is responisble) is detrimental to the EPC Contractor?

Therefore does he retain the right to maintain his schedule flexibility and risk profile irrespective of whether the excusable delaying event is critical or non-critical?

Or in other words can he claim time allowance equivalent to the period of non-critical delay?

Please comment.

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Mon, 2010-07-12 20:59
#9
Rafael Davila
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Float Ownership is the most stupid idea embraced by some so-called Project Management Institutes and Protocols Drafters. Fortunately, for our courts it is "Cause and Effect" what really matters.

At times, we have some notable exceptions, especially when the contract calls for negative float display some courts have recognized negative float theory of criticality in favor of the Contractor, and this is good, very good.

Float is a useful metric that can be misleading if not well understood, especially under resource leveling where float is not continuous, a concept not understood by many. In Spider Project, the developers recognize this and therefore there is no display for float bars but only early and late bars, it is just the correct math as a lie is unacceptable.

Float Bars
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Mon, 2010-07-12 19:09
#10
Rodel Marasigan
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Mathew,

Here are some good references for your info:
Who Owns the Float?

Who Owns the “Float” – AWCI

Legal Q&A: Who owns the float?

Who owns the float period?

Float - Is It Real?
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