Time Risk Allowance and Terminal Float | C-Link

Time Risk Allowance and Terminal Float

by Dean Suttling

In-direct cost typically ranges between 25% to 60% as a percentage of the direct costs, averaged as a weekly run rate and then multiplied by the length of the programme, so assessing the programme in terms of durations becomes essential to calculate an accurate estimate or price.

However, if you consider the durations involved in each construction activity, it would be short-sighted to omit any time risk in the programme, as many unknowns could affect productivity, typically the contractor’s risks. Examples include plant and equipment breakdowns, resourcing issues or constraints, material shortages, general inefficiencies, unexceptional inclement weather etc. To allow for these risks, the contractor will estimate the time required to complete the activity. For example, fixing steelwork on a small project will take 7.5 hours, but they may round this up to 8 hours to allow for risks that they are responsible for, known as float.

The Society of Construction Law Delay and Disruption Protocol defines float as “the amount of time by which an activity or group of activities may be shifted in time without causing delay to completion”. But how much float should be included, and for how long? Plus, if the risk on activities is not needed and becomes surplus, who owns this betterment, and what can it be used for overall? Does the contract type in use make any difference?

Types of Float

With an NEC3 or 4 contract, there us a clear outline of what to include in the first programme, what to include in subsequent revisions, and that programmes without this information will be rejected. With some forms of contract, if the programme is not submitted for acceptance in accordance with the requirements, the employer is entitled to withhold sums of money until such time that it is. Updates are required to be submitted periodically at intervals stated in the contract

There are different types of float across the programme when using NEC3 or 4 such as:

Time Risk Allowance

As described above, this is the float added to activities to allow for the risk of delays arising or non-productive time occurring. Some contractors show time risk allowance as a total amount in the programme, but this is a less accurate way to manage it against the individual activities and can lead to misrepresenting actual progress or when the project will complete.

Free Float

Activities on the programme can have an ‘early start’ and ‘early finish’, which will depict a period that can elapse before the proceeding activity is delayed. This amount of time between productive works is outside the time risk allowance built into the contractor’s activities for their risks, hence the term ‘free float’ as it is not owned by either the Contractor or Employer.

Total float

Continuing a similar theme to free float, total float is the amount of time that an activity can be delayed beyond ‘early start’ and ‘early finish’ but in totality, before it affects the contract completion date.

Terminal float

If operating an NEC contract, the employer will have stated the completion date they require in Contract Data Part 1. Ideally, once the contractor’s programme is accepted, they will have started their programme for acceptance in Contract Data Part 2, assuming this programme demonstrates their completion date will be ahead of the contract completion date! The contractor’s completion date will be known as planned completion, and the difference in time between the two dates is known as terminal float. For example, let’s say the employer issues a tender and states that completion is required by 31st January 2023, and the contractor submits a tender return demonstrating they will complete the project by the 30th November 2021. The period between the end of November and the end of January dates become terminal float.

If there is a critical delay to the programme, the employer cannot use this period of uncertainty to delay events for employer-owned risks, e.g., compensation events. Suppose the change occurs and the root cause is an Employer risk. In that case, they are to put the contractor back into the position as if the risk had not occurred by awarding an extension to the completion date, preserving the time between planned completion and completion. The logic here is that the employer has given a completion date for the whole of the works and if the contractor believes they can complete ahead of this, and the programme is accepted, the float between the two dates is owned by the contractor for their risk events and cannot be used for the benefit of the employer.

Some employers include delay damages or key dates, which can attribute general delay costs, so using the contractor’s float for the benefit of employer’s risks would be unreasonable, subsequently increasing the contractor’s risk profile and the possibility of being susceptible to pay damages, which go against the NEC’s philosophy of ‘mutual trust and co-operation.’

Along similar lines of openness, the contractor is contractually obligated to show what provisions they have made for time risk allowance on each programme for acceptance. A failure to do so actually risks the project manager being able not to accept a programme. With software such as Primavera P6, Project Managers can apply a blanket float across activities as a percentage or assume a productivity rate that will drive the duration and total float, all of which drive overall costs.

Conversely, suppose the amount of float is too low. In that case, this is equally a reason to reject the programme because it’s unrealistic to expect zero issues, no delaying events, and each activity to be completed on time and move seamlessly onto the next. The reality is that each month the programme will be showing a delay. Managing the programme in this way is not recommended.

What about JCT?

As noted above, the contractor has provided an excellent programme in an ideal NEC world, included in the contract from the outset. In JCT contracts, the principles of constraints are set out against which the contractor must abide. For example, the start date, completion date, when the employer will provide access, if there are any sectional completion dates to adhere too and if there are damages for not achieving the sectional or completion dates.

However, where NEC requires a first programme for acceptance, periodic updates, and for these to be accepted or rejected by the project manager, the JCT requires a master programme for execution of the works as soon as possible after award. There is no requirement to submit revisions even if it is clear that progress has fallen behind the programme. Also, whilst NEC is very prescriptive about what to include in the programme, JCT does not state-specific requirements.

If the contractor wishes to claim for an extension of time, they will undoubtedly demonstrate the effect of a relevant event on their programme, but if there are not previous monthly ‘as-built programmes to fall back on, it can be challenging to ascertain if the claimed period is correct.

Regarding assessing events in the programme and awarding of extensions of time in JCT, there is no requirement to establish terminal float or drill down and analyse the time risk allowance of total float. It’s in the architect’s hands to form a view, and therefore nothing is stopping them from using the float on the programme before awarding an extension of time. The float in the programme is very much up for whoever gets there first, i.e., the contractor can use it to mitigate their own delays, but the architect can use it to deal with employer-led delays. Float under JCT is very much owned by the project.

This is not to say that the contractor will not seek to be paid for the use of their float, as they may raise a loss and expense claim that the architect has used the value associated with the float (if priced) and that they have lost the benefit of creating or not using the float in the first place.

Interesting Case Law

Regarding JCT and the project owning the float, this is supported by the case of Ascon Contracting Ltd v Alfred McAlpine Construction Isle of Man Ltd (1999). Ascon was the reinforced concrete subcontractor to McAlpine’s. Once the subcontract works were complete, Ascon submitted an extension of time claim with costs, to which McAlpine’s rejected and levied delay damages from the header contract on the basis that Ascon was contractually obligated to follow the main contract.

As the dispute manifested and appeared before a Judge, the ruling was that Ascon had no obligation to work towards the main contractor’s programme. Ascon used up the float in McAlpine’s programme, which was allowable on the first-come, first-served type approach. Therefore, McAlpine’s counterclaim for delay damages to be paid By Ascon ultimately failed.

In the case of The Royal Brompton Hospital National Health Service Trust v Frederick Alexander Hammond and Others [2002] EWHC 2037 (TCC) where the case involved the client bringing about a negligence claim against their team i.e., architects, project managers, consultants, etc. with the position being that they had been too lenient in awarding extensions of time. The client was unhappy with the delay and disruption allegedly caused to the contractor due to the insufficient time in providing coordination drawings to carry out the works to the programme.

The ruling by the Judge was as follows:

‘Under the JCT conditions, as used here, there can be no doubt that if an architect is required to form an opinion then, if there is then unused float for the benefit of the contractor (and not for another reason such as to deal with p.c. or provisional sums or items), then the architect is bound to take it into account since an extension is only to be granted if completion would otherwise be delayed beyond the then-current completion date. This may seem hard to a contractor but the objects of an extension of time clause are to avoid the contractor being liable for liquidated damages where there has been delay for which it is not responsible, and still to establish a new completion date to which the contractor should work so that both the employer and the contractor know where they stand. The architect should in such circumstances inform the contractor that, if thereafter events occur for which an extension of time cannot be granted, and if, as a result, the contractor would be liable for liquidated damages, then an appropriate extension, not exceeding the float, would be given. In that way, the purposes of the clause can be met: the date for completion is always known; the position on liquidated damages is clear; yet the contractor is not deprived permanently of “its” float. Under these JCT Conditions the Architect cannot revise an extension once given so as to fix an earlier date. Thus, to grant an extension which preserved the contractor’s float would not be “fair and reasonable”.

The key points to take away from this were:

  1. The architect is entitled to consider float when reviewing and awarding extensions of time.
  2. If there is not enough float to cover the period of delay and the contractor is exposed to damages, the extension of time should take the contractor past this point. It is unreasonable to expose the contractor to damages for a client event.
  3. Granting extensions of time that preserved the contractor’s float was not considered to be fair and reasonable.

The need for float is therefore not in dispute. It’s recognised and understood and should be included in programmes if they are to be accepted as realistic. However, when it comes to assessing delays across NEC and JCT, the principles are undoubtedly different.

Feature Photo by Alex Blajan on Unsplash

About Dean Suttling

A member of the Royal Institution of Chartered Surveyors, Dean has twenty years of experience in commercial management and quantity surveying, undertaking roles for contractors, clients, and consultants.

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