There are many economic advantages to the acceleration and early completion of a project. By completing a project earlier than the contract completion date, a contractor is able to reduce the project overhead costs, and therefore maximize revenue. The owner, in turn, benefits from the contractor’s ability to bid the project at a reduced price, which reflects the reduced overhead anticipated by early completion. Thus, the economic advantages of a contractor’s early completion are generally experienced by all parties. An early completion schedule, however, also reduces the amount of float available to the project.[i]
Float is a term of art that was first conceived in conjunction with the development of the Critical Path Method (“CPM”).[ii] Float can be defined as the time associated with noncritical activities, or activities that can be delayed without causing delay to the overall project. In theory, when an activity’s float is consumed by delay, the activity is then pushed onto the critical path. The amount of float available is measured by the number of days between an activity’s early and late start dates. Claims for delay to early completion bring into question who actually owns the float, and whether the contractor is entitled to complete early.
Contractors view the float as something incorporated into the project schedule and to be used for their own benefit. Float allows for the most efficient use of resources, such as allowing a single work crew to perform activities sequentially, as opposed to concurrent work through multiple crews.[iii] Conversely, owners view the float as already incorporated into the contract price. Thus, in the owner’s view, the float has already been paid for, and they therefore should be entitled to its benefit.[iv] These conflicting views give rise to many issues over extended overhead or loss of productivity when the float is absorbed by one of the parties. In cases of frustrated early completion, if certain requirements are met, a contractor may be entitled to compensation for the unabsorbed overhead due to owner-caused delays.
Frustrated Early Completion Claims: Intent, Capability, and Prevention
In the event the contract fails to allocate float-ownership, a contractor may accelerate the schedule for early completion, and an owner may not “hinder or prevent early completion without incurring liability.”[v] The Washington Supreme Court held that in cases of timely completion, an owner may not “obstruct, hinder, or delay the contractor….”[vi] The Court additionally held that the owner “will in all ways facilitate the performance of the work to be done by him.”[vii] It follows, then, that the owner must also facilitate the contractor’s performance in cases of early completion.
In Interstate General, the Federal Circuit established a three-part test to be applied when determining owner liability for a contractor’s frustrated early completion. The test requires that from the outset of the contract, the contractor (1) intended to complete the contract early; (2) had the capability of actually completing the contract early; and (3) actually would have completed early but for the owner/government’s actions. The failure to maintain contemporaneous documentation is one of the greatest weaknesses to many legal claims brought by contractors.
In that case, the Court held that the contractor failed to satisfy any of the prongs, mostly due to lack of sufficient evidence. First, the contractor failed to provide any contemporaneous internal or external documentation of its intent of early completion. Courts will not accept “hypothetical, after-the-fact projection[s]” in lieu of actual proof of intent to complete early at the time of the bidding.[viii] Second, the contractor offered a schedule that was generated after the delay to demonstrate capability to complete early. The Court again denied this evidence as probative of actual capability because it was after-the-fact documentation. Finally, because the contractor was unable to provide the Court with any documentation contemporaneous with the project, it likewise failed to adequately demonstrate the “required nexus” between the delay and its contemplated early completion.[ix] As can be clearly ascertained from this case, maintaining proper, contemporaneous documentation is crucial in asserting a claim for frustrated early completion. And, as with most issues that arise in construction litigation, the easiest way to prevent future claims is an airtight contract.
Float Ownership Provisions: Preventing Frustrated Early Completion Claims
A contract allocating all rights retained and all risks assumed by each party in advance of performance can help to prevent subsequent litigation when the project schedule does not go exactly according to plan. Parties attempt to contract around potential delay or loss of productivity claims by incorporating “float ownership” provisions, or provisions that specifically allocate who is entitled to use the “float” as a resource to reduce the effect of his or her own delays.[x] Such allocation allows for each party to anticipate what they will be entitled to in the event of project activity delays and to allocate resources accordingly.
If the owner “owns the float,” it is the owner’s to use to reduce any effects of delays the owner caused or is responsible for and not to be used by the contractor. If the contractor “owns the float,” it is for the contractor’s use to reduce its own delay effects, and therefore not to be used by the owner.[xi] However, such simple allocation of float ownership would require the float to be a static resource, when in fact it is ever-changing. Thus, any allocation of ownership to either party up front is likely to yield undesirable consequences.[xii]
Alternatively, many contracts allocate float ownership to the project itself. Such float-sharing provisions allow the float to be used on a first-come, first-served basis-meaning the float is available to either party so long as their use is in good faith.[xiii] Under these provisions, neither party has priority over use of the float. Thus, if in the event of a delay and there is float available, the party responsible for the delay may use the float to reduce or remove the delay without being charged for it.[xiv] Such clauses have been utilized by owners to defeat loss of efficiency claims based on delay or disruption claims premised on the right to early completion.[xv] A contractor’s hope for compensation, in cases of float-share provisions, must therefore be grounded in other remedy-granting possibilities, such as the owner’s implied duty not to hinder performance.[xvi] Such provisions are more realistic within the dynamic CPM framework, but present problems as well. Nevertheless, when a contract contains a float-sharing provision, courts will apply its plain meaning and consider the project float as it stands at the time of conflict in determining who is liable for the costs of frustrated early completion.
Comment: Accelerated or early completion of a project results in savings to both parties. As such, contractors and owners alike should work together to facilitate early completion by utilizing float in the most economic manner. Contracts containing float allocation clauses are one step in the right direction, but demonstrating intent to complete early from the beginning of the project, as well as maintaining contemporaneous documentation, will be crucial in proving a claim for damages resulting from frustrated early completion.
[i] Construction Schedule Delays § 3:6 at 1.
[ii] 5 No. 2 Journal of the American College of Construction Lawyers 2 at 1.
[iii] Successful Claims Resolution: Understanding the Law Governing Allocation of Risk for Delay and Disruption, 2005 WL 7140939 at 3 (hereinafter Successful Claims Resolution).
[iv] 6 No. 4 Construction L. Int’l 14
[v] Metropolitan Paving Co. v. United States, 325 F.2d 241, 242 (Ct. Cl. 1963).
[vi] Haley v. Brady, 17 Wn.2d 775, 789, 137 P.2d 505 (1943) (emphasis added).
[viii] Interstate General Government Contractors, Inc. v West, 12 F.3d 1053, 1060 (1993).
[x] Construction Briefings No. 2005-2
[xii] 5 No. 2 Journal of the American College of Construction Lawyers 2 at 12.
[xiii] Construction Briefings No. 2005-2 at 1.
[xiv] Id. at 7.
[xv] Successful Claims Resolution at 3.
[xvi] Id. “Generally, courts have distinguished between damages caused by disruption and those caused by delay. See John E. Green Plumbing & Heating Co. v. Turner Constr. Co, where the Court awarded the subcontractor damages for interferences despite a clause prohibiting damages for delay.