Often in today’s fast-paced construction industry, critical path method (CPM) schedules are used as a tool to sequester project float as a hedge against potential project risks. Float is how long a specific task can be delayed without causing disruptive delays to key tasks that follow it. The practice of sequestering float violates a major tenet of most construction contracts, one that calls for schedule float to be shared among the contracting parties.
Contractors sequester float by padding durations for construction activities and by using preferential, or soft, logic. On the other hand, owners sequester float by imposing in the contract longer times for submittal reviews.
Time is money, and when it is offered on a first-come, first-served basis, the game of float is inevitable. Moreover, certain provisions in a construction contract often exacerbate the situation by creating a kind of “float-management paradox.”
For example, owners may introduce a provision for early completion to help manage contract risks, especially those that potentially interfere with contractor performance. It stipulates that the owner has the right to shorten the contract time should the contractor submit a baseline schedule that shows an earlier completion date; thus, moving up the liquidated damages to the newly proposed completion date.
The owner uses this contract provision to protect against a potential claim by the contractor, which might seek to recuperate costs if the owner’s actions prevent it from achieving the earlier completion date.
Perhaps ironically, the early-completion provision often will encourage the contractor to sequester float to avoid financial risks. Those could come in the form of liquidated damages imposed on the potentially earlier completion date.
Avoiding the game of float promotes an environment of trust and cooperation between owner and contractor. Such an environment will increase the chances of successfully delivering the project on time and on budget. It allows both sides to focus on real impediments to progress. Float sequestration has the opposite effect because it creates an environment of mistrust. It diverts attention away from the real issues affecting progress and toward manipulating the schedule for financial gain.
Owners can take several steps to better manage or alleviate float sequestering:
- They can invest more time and resources in determining the actual contract time. This entails developing a resource-driven construction schedule based on quantities determined in the engineer’s estimate, meaning that the contract time will be more reasonable.
- They need to prohibit contractors from using preferential logic in the baseline schedule.
- They need to allow for varying review times of construction submittals, depending on the size and complexity of the material.
- They need to mandate that contractors submit resource-driven CPM schedules as opposed to task-driven schedules. Calculation of the longest-path and activity-remaining duration in a resource-driven CPM schedule considers project resources. Resource-driven schedules are more effective in neutralizing preferential logic and activity-duration padding, the two principal culprits of float sequestration.
- If the contractor submits a resource-driven CPM schedule that satisfies all contract requirements before the contract time, the owner should treat the saved time as a contractor-schedule contingency. This will provide schedule transparency and present contractors with an alternative to sequestering float to hedge against risks that were unknown when the bid was prepared.
The concept of a contractor-schedule contingency raises an important question: What will happen if actions by the owner cause a delay that will partly or fully consume the contractor-schedule contingency? Will owners be responsible for compensating contractors for the use of their schedule contingency?
Contractors should be entitled to noncompensable, excusable time extensions in the event of owner-caused delays that affect their contingency. This will relieve the contractor from exposure to liquidated damages and preserve the contingency.
It also will protect the owner from financial-exposure risks that could arise from interference with the project’s early-completion time as proposed by the contractor.
These steps may not solve the float-sequestration problem, since it’s likely that attempts to sequester float will continue; however, those may occur on a much smaller scale that owners can better control through effective project-schedule management.
Leaving behind the game of float offers both the owner and the contractor a golden opportunity to focus their energies on genuine impediments to project progress. And that will improve the chances of a successful on-time and on-budget delivery.