FIDIC, NEC4, and float

The contract is (almost) always right

A contract can expressly or implicitly describe the ownership of float in a given situation. If so, parties deal with the matter according to these provisions. However, discussions often arise due to the lack of explicit terminology and phrasing in many contracts.

An important point to consider for a first clue is the terminology in relation to the completion date. For example, a contract might state that the contractor is entitled to an extension of time (EoT) if the contractor’s planned completion is impacted by a delay not attributable to the contractor. This provision implies that the float is owned by the contractor.

In contrast, a provision that refers to the contractual completion date has a very different meaning. In this case, the float is at least owned by both parties (sometimes referred to as owned by the project, meaning first come, first served), if not solely by the owner. The illustration below (Figure 1) clarifies this graphically:

In instances where contractual provisions clash with the local, governing law, the contract terms may be rendered unenforceable and local regulations will take precedence. This scenario is especially likely in the context of public procurement (ref. Future Blogpost on Belgian law on public procurement).

Another circumstance in which contractual provisions might not be upheld is when decisions from arbitrators or courts run counter to them. There is legal precedent, for instance, regarding the strict adherence to the 28-day notice period for contractors under the FIDIC contract. The FIDIC 1999 edition contains a clause that has faced challenges in various court cases:

"When the contractor neglects to provide notice of a claim within the stipulated 28-day period, the Time for Completion will not be extended, the contractor will not be eligible for additional payment, and the employer will be relieved of all liabilities associated with the claim."

FIDIC

While FIDIC is a commonly utilized standard contract, it does not explicitly address the concept of float. We have observed that when a contract lacks explicit provisions regarding this matter, the existing clauses tend to be too ambiguous to provide precise guidance on handling float, its ownership and any resulting extension of time (EoT) entitlements.

In clause 8.4 [Extension of Time for Completion] of the FIDIC Yellow Book edition 1999, it is stipulated that a delay not attributed to the contractor allows the contractor to claim an EoT if the time for completion is adversely affected by the delay. Building on the first paragraph, FIDIC explicitly refers to an impact on the contractual completion (through the defined concept ‘Time for Completion’). This implies that any potential float available before reaching the contractual milestone (the difference between the contractual completion and planned completion, ref. Figure 1) is not the exclusive possession of the contractor. In practical terms, this means that the contractor is entitled to an EoT only when the terminal total float, encompassing all available float between the planned completion and the contractual completion date, is exhausted.

NEC4

The NEC4 standard contract explicitly provides provisions on the concept of float and even addresses the discrepancy between float and time risk allowance (see our earlier blogpost, 'A Time Buffer is not the same as Total Float‘). Clause 31.2 specifically instructs the contractor to explicitly show float and time risk allowances in its programme. This transparency in representing time provisions crucial step to effective float management.

In clause 31 [The Programme], NEC4 refers to the terms ‘Completion Date’ and ‘planned Completion’ to distinguish between what we’ve called earlier ‘contractual completion’ and ‘planned completion’. In clause 63.5, the contract specifies:

“A delay to the Completion Date is assessed as the length of time that, due to the compensation event, planned Completion is later than planned Completion as shown on the Accepted Programme current at the dividing date.”

This means that we are in the left-hand side situation of Figure 1: the impact of a delay not attributable to the contractor (‘compensation event’) on the planned completion is sufficient to entitle the contractor to an EoT to the Completion Date! Terminal total float remains intact and the Completion date shifts with the same time as the delay on the planned completion. It is good to note that the contract deals similarly with ‘Key Dates’.

The aforementioned is valid for terminal total float, referring to float on the longest path to the Completion Date (or Key Date). However, when it comes to float elsewhere in the network, sometimes called free float, the conditions vary. This type of float is regarded as project-owned, indicating that it can be consumed on a first come, first served basis.

The value of NEC contracts (at least versions 3 and 4) lies in their treatment of these subjects. The relevant provisions on programme and delays precisely outline the actions parties must take and delineate their entitlements in diverse situations. This degree of clarity and explicitness is distinctive among standard contracts and is widely acknowledged and appreciated.

Conclusion

While a project owner may write anything in a contract within the boundaries of the governing laws, providing guidance on crucial matters like float-ownership proves immensely beneficial. In this post, we’ve covered that, despites its merits, FIDIC lacks clarity on the issue, necessitating interpretation of contractual provisions through related clauses. On the other hand, FIDIC contracts, widely applied in the construction industry, benefit from a wealth of experience and case law, increasing certainty for all involved parties.

In contrast, NEC4 stands out as a different standard. To the best of our knowledge, it is the only standard contract that minimizes debates by explicitly outlining how to address float ownership and resulting contractor’s entitlements. The entire framework incentivises parties to present a transparent view on the project’s status, all the while providing unambiguous guidance on float ownership.