Floating on Assumption: Navigating Construction Project Float Ownership

Whitney Judson | International Law Office | January 7, 2019

Introduction

Construction project schedules are oftentimes the source of many disputes between project owners and contractors. These disputes notoriously evolve into the subject of litigation and arbitration claims that assign fault for delayed project completion to one party or another. A party finding itself in such a scheduling dispute involving concurrent delays will need to demonstrate that the delays it caused did not affect the project completion date, while delays caused by the other party did impact the schedule. One way to prove this is to effectively evaluate the float on the project schedule and to make a careful evaluation of the circumstances surrounding each delay, including which party had the right to absorb any available project float. Oftentimes when delays occur and float is available, each party assumes it has a right to absorb the float. There are sensible reasons why one party may assume entitlement to float and subsequent exemption from liability for damages related to its delay. However, mere assumptions about float ownership—as reasonable as they may seem—could lead to unfavorable outcomes.

Project float is defined as “[t]he amount of postponement which a path of activities can experience without delaying the overall project completion.” Titan Pacific Const. Corp. v. U.S., 17 Cl .Ct. 630, 636 (1989). See also MW Builders, Inc. v. United States, 134 Fed. Cl. 469, 478 n.5 (2017) (“The term ‘float’ refers to the amount of time an activity may be delayed before affecting the critical path of the project”). Ownership of float is critical to a concurrent delay analysis and has a strong impact on whether a contractor has a legal right to delay damages or time extension of a project.

Contractor-owned float

Contractors sometimes assume that they should own and control any float on a project schedule. Many construction contracts require the contractor to control means and methods in the most efficient manner, including effectively sequencing work on the project. Having the ability to control project sequencing and coordination assists the contractor in creating the schedule and estimating the completion and float times for all activities. When delays later interrupt the schedule, the contractor may be responsible for using means and methods to efficiently make adjustments so that the project may nonetheless finish on time when possible. The contractor could arguably also use any available project float for schedule recovery.

For this reason, some construction contracts may include clauses granting the contractor float ownership. Such clauses could mean that owner-requested changes to activities that are not on the critical path require the owner to grant an extension to the contract completion date, despite the availability of unused float. If the contractor is contractually granted ownership of float, the contractor may argue that it has the right to use the float however it wishes—including reserving the float as a safety net for any contractor-caused delays, or conserving the float in an effort to complete the project ahead of schedule.

It is not completely safe to assume however, that a contract clause granting the contractor ownership of project float will fully safeguard the contractor from being affected by owner-caused delays. A contractor’s responsibility to control the means and methods of the project likely involves the contractor’s good faith effort to mitigate delays. If the owner causes a delay, the contractor owning float nonetheless may have a duty to adjust the work and schedule to mitigate the effects of that delay. The owner may likely be responsible for any costs related to the adjustment of the work and the mitigation of the delay without use of available float, but the contractor is still affected by an owner’s delay because it may have to work to implement the same scheduling and sequencing adjustments required when the owner simply utilizes available float.

Owner-owned float

Owners sometimes assume that they should own all available project float. After all, the owner is financing the project and owns and takes responsibility for its construction and completion. If a contract specifies that the owner of a project controls the float, the owner may argue that it has the right to direct the contractor to make non-critical changes without being required to grant the contractor an extension of the completion date. The owner may also argue that in certain circumstances, it has the right to use the float to excuse itself for its own delays. If the length of the owner-caused delay does not overrun the project float, it likely will not affect the critical path. In this situation, the owner may not be required to extend the project completion date, despite being responsible for project delays.

A contract clause granting float ownership to a project owner, however, may not shield the owner from the obligation to compensate the contractor for any damages that the owner’s non-critical delays cause. For example, an owner who uses float to make a change to a non-critical activity that requires additional manpower or materials may not be required to extend the contract completion date, but likely will be required to compensate the contractor for any costs associated with implementing the owner’s requested change.

Project-owned float

If the contract does not specify which party owns the float, the float is typically assumed to be owned by the project itself. This means neither the owner nor the contractor has exclusive control over the float. The float is instead consumed by whichever party needs it on a “first come, first served” basis. Here are two examples with different outcomes that illustrate the implications of shared float: A contractor builds a schedule indicating that glass window installation on a project carries 32 days of float before it begins to affect the critical path. The owner, at some point, decides to implement circular windows on the project, rather than keeping the original square-shaped design contemplated in the project schedule. This increases the amount of time needed to install the glass windows on the project. The contractor determines that cutting circular windows takes 29 days longer than cutting squared windows. The owner’s change therefore causes a delay and consumes all but 3 of the 32 days of float available for window installation. This delay is clearly the fault of the owner, but does not require the owner to grant a contract extension because the delay does not affect the critical path of the project, as the owner had a right to use available project float to offset its delay.

Conversely, if the contractor experienced 5-day delay in the staining of the glass for the windows prior tothe owner requesting a change in the shape of the windows, the contractor has the right to use 5 of the 32 days of float, leaving 27 days of float remaining. The owner’s subsequent 29-day circular window change would then overrun the available float and affect the critical path, requiring the completion date to be extended by 2 days. In each example, the first party to use the float is granted priority of ownership. If the other party is responsible for a subsequent, additional delay to the same activity on the schedule, it is only allotted whatever amount of float is remaining. Delays running beyond the remaining float may require a contract extension or delay damages.

Comment

Successfully staking claim on project float may excuse a party’s delay in a concurrent delay dispute. This should not be done by reliance on assumptions of float ownership. Rather, the parties should engage experienced counsel to negotiate a contract clause that clearly and unambiguously assigns ownership of project float. Such clauses may not offer unbridled use of non-critical delays to the float-owning party, but they allow the parties greater control over the possibilities of legal outcomes and provide a clear understanding between the parties of how float is to be utilized. If the parties do not specify float ownership, shared float is assumed and the parties then lose the ability to specify how the float is allocated. When the parties share project float, they must take care to expeditiously exercise their right to it, as float is consumed on a first come, first served basis. Simply assuming that the amount of float indicated on a project schedule will be available at any given time could have grave consequences. Speaking with legal counsel experienced in construction law matters, including scheduling and delay issues, is helpful to any party who wishes to proactively address float ownership issues and avoid or limit future liability for delays on a construction project.

Mind the Details: Make Sure your WRAP Coverage is Done Right

James Vorhis  | Litigation Advocates | October 10, 2014

A client recently asked for advice about insuring their development project with a wrap insurance policy.  As we talked through the pros and cons, I was reminded of the intricacies of wrap insurance products.  Undoubtedly, wrap insurance is a critical risk mitigation tool for many developers, owners, and general contractors of construction projects.  These policies, which are designed to provide coverage to multiple parties performing work on a project, allow parties to control costs, more easily coordinate defense efforts in litigation, and reduce the infighting that complicates so many construction defect lawsuits.

But these policies also present unique and tricky coverage issues.  The language in wrap policies is not uniform, and certain coverage provisions within the policies, such as the enrollment and notice requirements, can vary significantly.  Because of these variations, it is absolutely critical to diligently review your policy.  One of the most common coverage problems occurs when a party seeks coverage for a construction defect lawsuit under a CGL policy with a wrap exclusion.  If a wrap policy was obtained for the project, insurers will often deny coverage based on that exclusion whether it is merited or not.  But like the wrap policies themselves, the language and scope of wrap exclusions can vary greatly from insurer to insurer.  Two cases dealing with these wrap exclusions illustrate that seemingly minor variations in language can make a huge difference in the scope of coverage.

In D.R. Horton Los Angeles Holding Co., Inc. v. American Safety Indemnity Co., 2012 U.S. Dist. LEXIS 1881 (Jan. 5. 2012), a wrap insurance policy was obtained by the plaintiff to cover the work it performed on the project.  One of plaintiff’s subcontractors separately purchased a CGL policy and named plaintiff as an additional insured.  When the plaintiff was later named as a defendant in a construction defect lawsuit related to the work of the subcontractor, plaintiff sought coverage under the CGL policy.  The carrier denied coverage based on a wrap exclusion, and a coverage lawsuit ensued.  On summary judgment, the Court ruled against the carrier, and held that the wrap exclusion, which stated, “This insurance does not apply to any work insured under a consolidated (Wrap up) Insurance Program” did not preclude coverage.  Because the wrap policy covered the work of the plaintiff, and not the subcontractor under whose CGL policy the plaintiff sought coverage, the wrap exclusion did not apply to bar coverage.

Contrast that result with A.W. Interiors, Inc. v. The Travelers Indemnity Co., 2014 U.S. Dist. LEXIS 71065 (D. Col. May 23, 2014).  There, a wrap policy was purchased to cover the work of the general contractor.  The plaintiff subcontractor separately purchased a CGL policy.  After a construction defect lawsuit was filed, coverage was denied by the CGL insurer based on the presence of a wrap exclusion.  This time, the Court granted summary judgment for the carrier because the wrap exclusion barred coverage for “operations performed by you or on your behalf on or from all premises covered under a contractor controlled insurance program or owner controlled insurance program, ‘wrap up’ or other similar insurance program.”  Because this exclusion focused on work performed at any premises for which a wrap policy was in effect, there was no coverage for the subcontractor under the CGL policy for work performed at that premises.

The lesson of these cases is that Insureds who do not understand their policies correctly can easily take themselves out of coverage or find themselves in coverage disputes.  While larger general contractors or developers may be able to absorb the expense of defending a construction defect lawsuit, many smaller subcontractors may literally be forced out of business by a simple misstep.  Wrap policies are important and useful risk mitigation tools, and can cohesively coordinate with CGL coverage.  Nossaman attorneys can assist in critical policy review and help ensure adequate protection is in place.

via Mind the Details: Make Sure your WRAP Coverage is Done Right | Litigation Advocates.