Ownership of Float

Ownership of Float

 

BACKGROUND

Who owns the float? The purpose of this article is not to re-invent the wheel and dwell in to the complexity which already revolves around this Million dollar question. However, this question commands utmost respect regarding its gravity when it comes to business implications it can have when not properly responded.

The industry has witnessed various standpoints as a response to this question. The wide classifications of these standpoints are as follows:

 

  • Contractor owns the Float – Contractor Ownership
  • Employer owns the Float – Employer Ownership
  • Project owns the Float – Joint Ownership

 

In recent times, the paradigm has strongly shifted towards ‘Joint Ownership’ and has gained wide acceptance and recognition.

Various forms of Contracts have introduced clauses to direct and manage this ‘Joint Ownership’ without letting one party to gain undue advantage over the other. Programming methods have been adapted to complement the Contractual requirements and ensure this ‘Joint Ownership’ of float.

This article is focused to contemplate on a consistent and widely applicable practice which can lead to efficient management of the ‘Joint Ownership’ of float. To attain such an objective, let us discuss the ways for best performance of programming methods and complementing contract provisions.

 

TYPICAL CONTRACT

For the purpose of this discussion let us adapt for example the ‘Construct only’ form of Contract where in the Design responsibility is entirely retained by the Employer and the Contractor is required to perform the Procurement and Construction part of the Contract. Such definition of scope can be termed as ‘Deliverable Portion’.

In principle, in such contractual arrangements the Contractor is paid to perform the scope of services / works as per the design and specifications laid out by the Employer. Needless to say, with reasonable performance of the Contractor’s scope, the success of the performed scope depends heavily on the accuracy, efficiency and timing of the Design / specifications issued by the employer.

In essence, the risks in performing the Deliverable Portions being inter-relative are deemed to be ‘Jointly Owned’ both by the Employer and the Contractor as per their respective Deliverable Portions and hence the risks should be allotted accordingly. The Employer owns the risk of design efficiency and the Contractor owns the risk of construction, with an inter-relation with each other, particularly in matters of time.

 

CONTRACT PROGRAMME

Given that, ‘Programming’ forms part of the scope to be performed by the Contractor for which the Contractor is being paid by the Employer. The Contract Programme forms the most important document of the Contract which best speaks out the inter-relation of time based risks borne by various parties. This Contract Programme carries primary bearing and implication to all other contract mechanisms regarding time based risks.

Hence as discussed in previous paragraphs, the essence of ‘Risk allocation’ and ‘Joint Ownership’ should also be equally applicable to the Contract Programme with the same effect and strength with particular relevance to the ownership of float. It is highly important to understand that the lack of float in a Contract Programme is a qualified risk to the obligor.

However, the Contract Programme does not share the tangible nature of the ‘Built’ Scope and due to this reason the demarcation and allocation of risks in the Contract Programme becomes very difficult to be properly defined. The topics following in this article are the preferable ways to define and demarcate such risk allocations and mainly ‘Float’.

 

DELIVERABLE PORTIONS

As explained earlier, the performance of the project depends on Deliverable Portion of the parties involved. The ownership and risk allocation should be based on the portion of each party. Such Deliverable Portions should aptly be reflected in the Contract Programme. Any normal programme in a ‘Construct only’ contract would typically comprise two portions, as following:

 

  • Design & Detail
  • Procurement & Construction

 

In normal practice, the Contractor proposes an integrated programme with activities involving both the above portions.

Alternatively, each party can prepare separate programmes for its own Deliverable Portion and coordinate to achieve an integrated programme.

In both the cases, it is highly important that ‘Pacing’ should be avoided both by the Employer and the Contractor while programming for their respective Deliverable Portion. The element of Pacing if adopted by any one party pushes undue risk to the other party and hence leads to unwanted dispute.

The best method to achieve the above intent is to adopt a practice as elucidated below:

 

  • The Owner floats the tender with a well detailed ‘Deliverable Portion’ programme (Design Programme in this instance)
  • Such a programme should form the integral and final part of the Contract Programme and hence the Contract.
  • It also provides the Contractor an opportunity to build its risk assessment around this programme (while establishing the Contract Programme) and appropriately price the tender to include for its construction delivery risks.
  • It also avoids the imbalance of power and hence the imbalance of risk at a later stage when the Contractor seeks approval / acceptance of the proposed Contract Programme and the Employer with its bargaining power attempts to use the programme for its own benefit.

 

DEMARCATION

During the integration of Deliverable Portions of the Employer and the Contractor, the portions can be demarcated from each other by placing constraints at terminal nodes of a Deliverable Portion. The programme is otherwise free flowing well within each portion.

Such demarcation segregates the ownership of float and confines the ownership only to the extent of the Deliverable Portion belonging to each party. This approach provides a justifiable share of ‘Joint Ownership’ of float between the parties as per the extent of the Deliverable Portion a party has to perform.

In this case the float available in the Deliverable Portion (Design) shall be owned by the Employer and the float available in the Deliverable Portion (Construction) shall be owned by the Contractor.

 

TIME RISK ALLOWANCE

In their respective Deliverable Portions, the Employer and the Contractor are encouraged to add reasonable time risk allowance known as ‘Delay Contingency’. Such an allowance is also a kind of float in other guise but with distinct and reserved ownership.

Moreover, apart from the above allowance, the Employer and the Contractor may also agree to assign another ‘Joint Delay Contingency’ to address other ‘Neutral Risks’ in the project.

 

NOTIFICATION OF WORK PROGRESS

As a practice which is currently upcoming, notification of work progress enables the parties to be aware of consumption of float well before the delay event affects the critical path. This is nothing but notification to the parties about the consumption of float in order to engage in precautionary remediation before any damage is done. More importantly it is reiterating and reserving the float by a party within its Deliverable Portion and notifying the other party of potential breach by float encroachment.

 

CONCLUSION

Hence a delay event within a Deliverable Portion of an integrated programme is allowed consumption of float available only within that portion. Any further encroachment of float into the other party’s Deliverable Portion is easily identifiable and becomes culpable. Such an approach of float management duly complemented by Contract provisions turns out to be an effective tool in avoidance of lengthy and complicated dispute resolution procedures.

The concluded discussion might not have addressed all specific circumstances of delay occurrence and float ownership but is reasonably sufficient to convey the thought behind the proposed approach. The success of this approach would realize only when adapted by programming practices with project specific diligence and care rather than making a general adaptation. Contributing feedback and suggestions from the readers are most welcome.

 

Disclaimer: The material contained in this article is provided for general purpose only and does not constitute legal or other professional advice. Appropriate advice should be sought for specific circumstances and before an action is taken.

 

© Bharath Nagaraj July 2015

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