Jacob Austin 00:00:00 Jacob Austin here from QS.Zone. And welcome to episode 121 of the Subcontractors Blueprint, the show where subcontractors will learn how to ensure profitability, improve cash flow and grow their business. And today we're continuing our exploration of the NEC subcontract. And last week we spoke at length about programs, but we didn't get to talking about some of the important concepts under a compliant NEC program covering risk and float, and the different types of float that are expected to be seen in an NEC compliant program. So that's going to be the focus of today's episode. So welcome aboard. And we're going to start the show with time risk allowances. Now, these are a distinctive feature in unique programs, and a time risk allowance is basically a kind of contingency time that's included within a specific activities, duration or between activities to cater for the risk of delay within that activity. These are for things that are your liability and in any key terms, that means risks that aren't compensation events and items that don't appear in the contractor's liability under the subcontract.
Jacob Austin 00:01:32 The most common example of what a Tra might cover is weather variation. And that's because under the subcontract, you carry the risk for weather up to the 1 in 10 year average. Now, weather events obviously occur a lot more frequently than 1 in 10 years. So what the contract tells you to do is to build in the risk for that weather into your program. It should also cover things like productivity, uncertainty, minor design, development risks or other perhaps foreseeable delays that you as a subcontractor are responsible for managing. And the NEC program clause explicitly requires that programs show provisions for time risk allowances, and these need to be separate from float. And the reason is to encourage realistic planning. A program with zero allowances is likely to be optimistic and could be deemed not practicable or unrealistic, and that is a reason for non acceptance of your program. So by showing Tra you're demonstrating that you built in time buffers for your own risks and thereby increase the confidence that plan completion can be achieved by the date. You're saying the NEC for guidance says that these allowances are owned by the subcontractor as part of its realistic planning to cover its own risks, and therefore they're retained by you in any assessment of delay to plan Planned completion.
Jacob Austin 00:03:01 So when a compensation event is awarded, your time risk allowance gets maintained. So that means you keep that reserve in the bank for your own risks. And it's not used up by the employer or the contractor in events that they've caused. Now showing trait is a slightly different matter, because there's no explicit way laid out in the contract that tells you what to do with it. It just needs to be shown clearly. So you might do that by extending certain activity durations and stating how much you've included within it, or by including separate buffer tasks linked to certain activities. Either way, it needs to be identifiable. If you're going to include your trait within your activities, then good practice is to indicate in a column or in a note how much trade is included for each activity. An activity might have a 20 day duration, and in the column you're indicating Tra for weather risk of five days. This helps the contractor see what you're including. It gives transparency, and the contractor can then agree that the allowances are reasonable and you've thought about them and then move on.
Jacob Austin 00:04:10 Just including a lump sum of Tara at the end of the program is a method that's discouraged because it's then not clear which risk and which program items you're including Tara against. And so it distorts what your program looks like, and it looks more like terminal floats than a time risk allowance. So instead you need to allocate your Tra to specific operations where risk exists. Be that risk in the ground where the risk or risk of method, you include it properly and you describe it in your program narrative. Now, as I mentioned, the contractual status of Tra is that it's owned by the subcontractor. This is different to the sort of general float between non-critical activities. So time risk allowance is for your exclusive use. If things go well and the risk doesn't materialize, then you can finish that activity early and you don't use up all of your tray, or even in some cases, any at all. That means that on your next program, you can bring forward the planned completion date, and it creates more terminal float ahead of the contract completion date.
Jacob Austin 00:05:19 And again, that's floats that you're going to retain. But on the other hand, if the risk does occur then the Tra is there to try and absorb it. With the idea being even if the risk happens, then the activity still finishes as planned without affecting other areas of the program. And that's exactly what it's there for. Now, we mentioned compensation events, and if a compensation event occurs on an activity that had a Tra, the Tra can't be used to offset the delay caused by that compensation event. The entire impact of the compensation event is assessed by moving the activities to the right, and the Tra is included in that. The logic is that that tiara is your risk, your cushion for your own risks. It's not a free gift to the contractor or the client for them to absorb their risks against. Let's put that into context. If a compensation event delays an activity, and suppose that activity on the critical path has five days of tiara built into it, and there's no float because it's a critical path activity.
Jacob Austin 00:06:24 So the compensation event delays that activity by five days. So the activity, including its trade, finishes five days later than planned, which pushes out planned completion by that same five days. In that case, you're entitled to a five day extension to the completion date. The contractor can't say, oh, there were five days of trade. So that just covers up the event and it doesn't affect the schedule again. That five days is there to protect you from your own uncertainties. And that's supported by compensation event clauses 3.5 and 63.8, including reasonable trees on critical or near critical tasks can actually benefit you as the subcontractor in two ways it makes the program realistic. It avoids over optimism that can potentially bite you in the backside at a later date. And secondly, if the risks don't occur, then it generates additional terminal float, which is where the project finishes earlier than required, and it's float that you control. But there is a balancing act to take into account, because very large tree on the critical path will push out plan completion unnecessarily.
Jacob Austin 00:07:38 And whilst that is your own float, it might unexpectedly mask events that you would otherwise be entitled to a compensation event for. Plus, it also puts you in kind of a pressure situation if activities without tray are delayed because maintaining the same logic that's going to nudge your program into delay. That's where your planned completion is later than your contract completion, and tra that's on your critical path is more likely to be scrutinized by the contractor. They wouldn't want you to admit it all because it then becomes too optimistic, but they don't want you to include excessive tiaras. On the flip side of it, NBC guidance suggests that parties should be discussing openly and agreeing on what constitutes reasonable time risk allowances, and that discussion should be ongoing as the project progresses. So to sum that up, Tras are a useful tool for you as the subcontractor to manage your own risk in the program, but they should be clearly shown used in a fair fashion and adjusted as risks evolve. Programs without tiaras are very likely to be deemed unrealistic and then be rejected.
Jacob Austin 00:08:49 And the whole point of them is that they give you breathing room to handle minor issues without jeopardizing the completion date, and remember that the trait belongs to you if the sky stays clear and nothing goes wrong, then ultimately those allowances come back to you. Meaning you finish early or you gain more terminal float. Now let's move on to the concept of float. That's a lot more common a term when it comes to programming, and it refers to how much an activity or sequence of activities can be delayed without affecting something else, like the overall completion date. Any C4 requires you to show float on the program, and understanding float is important for both managing the project and determining how delays are handled. So the first two terms total float and free float. These are very similar terms. Total float is the time that an activity can slip before it delays the project's planned completion date, or another constraint like a key date that's in the program as well. Free float is like a subset of total float, and it's the time that an activity can slip before it delays the next activity, not just the project completion date.
Jacob Austin 00:10:02 So free float is always less than or equal to total float. Free float is until you hit the next activity. Total float until you hit the end date. So for an example, if an activity has 12 days of total float but five days of free float, you could delay that activity by five days and not have an impact on any other parallel activity. If the delays in between 5 and 12, then it might start impacting other activities, but without forcing its way onto the critical path so it doesn't delay the project finish. In practical terms, under Nessie definitions, float usually implies total float, and activities on the critical path always have zero float, meaning that any delay will start delaying completion immediately. So one of the big questions under any sea philosophy is who owns the float? And the answer when it comes to total float and therefore free float as well, is that it's a shared resource that either party can use. So it's often said to be first come, first served. And that means that if a compensation event occurs and it's to a non-critical item, the event can consume that total float without necessarily causing the completion date to move.
Jacob Austin 00:11:17 And in that case, there's no entitlement to additional time. And similarly, if you decide to re sequence or your own delay or inefficiency uses up the float on that path first, a compensation event that's assessed afterwards would push out planned completion and then entitle that extension of time. And it's for that reason, and because you get to update the program to reflect current delays before you submit compensation event quotations that actually, I would argue that the subcontractor gets first dibs, because let's say you've got a really simple project to build a house. And as part of that house construction, you've also got to landscape the garden, all the activities that make up the construction of the house are the critical path items, and the garden sort of fits in there somewhere in between. And whilst the house is going on over, let's say 25 weeks this five weeks programmed to landscape the garden and let's say you've used your float. You could have started that five week activity pretty early in the program once the scaffold has been struck and whilst the internal works is going on, you decided, no, I'm not going to call in the landscape yet.
Jacob Austin 00:12:29 I've got time. I'll do it with one week to spare, starting six weeks before the house is due to finish. Now the client comes along and they've decided they want some really fancy landscaping and it's going to take an extra three weeks, which prolongs that landscaping activity. Now, if the client or the contractor has notified you ten weeks in advance of finishing, then they would use up that total float the slack in between the house construction and the landscaping. They would issue the instruction. That event now takes eight weeks, but you've still got two weeks in hand after the scaffold struck to get the landscaping finished. No extension to your completion date, but you've decided to let that landscaping slide. And let's say their instruction comes six weeks before the end in practice. What's going to happen here is you're going to update your program before you start assessing the compensation event. You're going to use that float on your own rescheduling to cover your own decision making. And whilst there is still one week of free float that could be used up, that five week activity becoming eight weeks is now going to delay your planned completion by two weeks.
Jacob Austin 00:13:39 And because it's you that updates to the program, you get to carry out your re sequencing first and you're not punished for letting that landscaping activity slip. And that's what I mean by you as a subcontractor getting first dibs on float in the program. Your client or your contractor has still had the benefit of some of the free float because their delaying event was three weeks and completion is only gone out by two weeks. But importantly, you're not being punished for letting that activity slip. So in practice, total float isn't exclusively owned by either party. It benefits whoever's delay is notified first. The other important concept is terminal float. And terminal float specifically refers to the difference between planned completion, which is when you think you can finish the work, and the completion date, which is your contractual deadline for getting done. Now, if you think you're going to finish two weeks early, say you're going to reflect that on your program and you're going to generate two weeks of terminal float. That float is your headroom before damages start to apply.
Jacob Austin 00:14:46 And terminal float is regarded as being owned by the subcontractor. It's not available to be used by compensation events. And that's a significant point. And it means that if you build in some cushion at the end of your program, and an employer's risk event occurs that would ordinarily consume some of that cushion. The NEC contracts approach is to give you an extension of time rather than let that cushion be worn down. And so essentially you keep the benefit of finishing early. So let's consider another example. You've got a project and the completion date is the 31st of December. But your accepted program shows planned completion on the 30th of November. So you've got a whole month of terminal float. Now let's say that the client instigates a change that causes a two week delay on the critical path. If nobody owned terminal float, then the contractor might think that's okay. This subcontractor was due to finish at the end of December. They're still going to finish by mid-December. And two weeks of float have been used up. But because under any C4 logic, that terminal float is maintained.
Jacob Austin 00:15:55 You're going to keep your one month buffer, and the whole of the program is going to move to the right by that two weeks that the job is delayed, meaning that your completion date is now mid-January. So if you are going to save four weeks of prelims by working really hard and getting the job done an entire month faster than you needed to, then the contract says just because the client has delayed you, you shouldn't lose that for weeks. And how that's described in the contract, is that a delay to the completion date due to a compensation event is assessed by how much later planned completion is compared to what it was on the previous program. So if planned completion moves by two weeks, then contract completion moves by two weeks as well. That process is there to incentivize the client and the contractor to avoid causing delays, because they can't just use up your terminal float without granting an extension. So having some terminal float is advantageous. It provides you breathing room to avoid delay and damages if things go off track.
Jacob Austin 00:16:59 and it means that even minor employers delays will definitively lead to additional time. So to sum up the different types of float, you've got free float, which is the time that an activity can slip without delaying a next event. You then got total float, and that's time that an activity or a chain of activities can slip without delaying planned completion of the work. And you've got terminal float. This is the float generated by you working efficiently, by you implementing the equivalent of a target program. And that terminal float is owned by you. It's not consumed by compensation events, so it's always maintained by instructions or the occurrence of contractor's risk items. Now one thing that I haven't mentioned is assessing compensation events against the program and the importance of having a current accepted program, because if you haven't got an accepted program, then the contractor can assess the time effects of compensation events. Now, going back to what I said earlier about you having first dibs on free or total float in the program, if you haven't got an accepted program and the contractor is doing those assessments himself, then he's less inclined to take into account delays of your making in his assessment, and whether that's inefficiency or whether it's re sequencing that you've chosen to make, is less likely than you are to factor that in.
Jacob Austin 00:18:26 I'm not saying that's maliciously, but is likely to be less aware of your decisions and is naturally going to amend the program in a way that favors him more so than you. And that's where a properly maintained, accepted program is one of your most powerful allies in the contract. It's not just the schedule of work, but it's a benchmark for measuring changes against. And there are several ways that a robust program protects you and helps you generate additional entitlement to extension of time and compensation. So first off, it is that baseline for compensation events. Many events explicitly refer to the accepted program. For instance, if the contractor fails to give access or information by the date shown on your accepted program, that's a compensation event. Similarly, if others and that might be other subcontractors don't work within the timescales on the accepted program that triggers compensation event. 60.15 so the program creates enforceable commitments by populating your program with all the timing and sequences that depend on the contractor and other people working for them, you are ensuring that if those timings aren't met, then there's a clear right to claim time and money.
Jacob Austin 00:19:41 An accepted program effectively documents the agreed plan, and any deviation from that plan by the client or the contractor becomes evident, and you can be compensated for it. And it's your means to assessing delay and extensions of time. And that's because the change is measured by the amount that the planned completion date is delayed by a particular event. Because of the NEC's forward looking approach. It's done at the time of the event, not after all the work is complete. So if you keep your program up to date, then at the point of a C happening, adjusting it accurately reflects the remaining work and shows what the extent of the delay is, and it makes assessment of delays really objective. If you're not regularly revising and submitting an accepted program, then you're giving the contractor the ability to argue about remaining durations or whether delays were caused by something else. And you can cut through those arguments just by maintaining your program. We also mentioned in last week's episode about the 25% payment retention for the first program. If there isn't a bigger carrot and stick for submitting and getting a program accepted than that, then I don't know what it is.
Jacob Austin 00:20:55 But you can also couple to that the contractors ability to assess compensation events that we mentioned a few moments ago. Not having an accepted program might mean the contractor conservatively assessing compensation events and minimizing the impact, and that means that you've lost your ability to demonstrate and argue the full extent of any particular delay. It's also a record of progress, and it's a key tool that you can use when you're discussing early warnings. If something's likely to cause delay, then either the contractor or you, as the subcontractor, should give early warning. If the program is slipping, then an early warning meeting can be called to address how to prevent missing key dates or missing the completion date, and the proactive use of the program can lead to actions that might be acceleration, re sequencing, or using extra resource that prevent you from incurring delay damages. The accepted program is also the starting point for discussing acceleration. Clause 36 about acceleration involves you providing a quotation and a potential revised program if it's instructed, showing the earlier completion date and changes to key dates.
Jacob Austin 00:22:07 The accepted program is the starting point for those discussions. It identifies what the critical path is and how much it needs to be accelerated by and agreed acceleration, which is a mutual agreement as in the contractor can't impose it on you, will result in a new accepted program with revised dates. That means that you are only held to accelerated dates if you've been compensated for them, and the program is adjusted alongside it. And again, the program is there to protect you by formalizing those changes. And the biggest strength of all of the accepted program is that it holds both parties transparently to account. You start with a plan. You identify dates that the contractor has got to do X and Y by each section, that they give you access to each activity that they complete and hand over to you if they give you materials, if they give you design information, those dates need to be on your program. And the moment one slips, you're then entitled to a compensation event that removes a lot of he said she said about delays.
Jacob Austin 00:23:13 But to get your hands on those entitlements, you've got to treat the program as a living document. You've got to update it on time. And that means within the window that the contract tells you and at any other point you're instructed, you've got to include those relevant details. Treat it as the ultimate record to demonstrate this is what happened. This is when it happened. And this is the impact of it. A well maintained program also builds your credibility. If the contractor sees that each update is thorough and good and honest. Not only are they more likely to accept them without a dispute, but it means when it comes to assessing a compensation event, they're more likely to trust your assessment of it so that you can be compensated properly. The NSA mantra is that the program is a management tool, not just a contract requirement. And when it's used well, it holds people to account, but it also guides them in making effective decisions. For example, if a delay is shown, it prompts how can we recover that delay, not just who bears the cost of it? And if you use it to document your plan and your progress, then if you are delayed by others, it's plainly visible so that you can obtain extensions of time in a logical and objective way, rather than one big sum up at the end.
Jacob Austin 00:24:29 And so if you treat the program as your friend, invest time in it, invest effort in it, then it will pay you back by minimizing disputes and helping you to secure your entitlements against changes. And there we have it. Today we've covered time risk allowances, free float, total float, terminal float, and what they mean to you as a subcontractor and more importantly, how you can use those different components, along with the key pieces of information that you need to show on your program to both protect yourself and to demonstrate entitlement to additional time under the subcontract. And so I hope you've got something positive out of today's show. My mission with the podcast is to help the million small contractors working out there in our industry, and I really need your help to spread the word and share the show so that I can help as many subcontractors as I possibly can to manage and understand their contracts properly. And so if you could share the show with just one person who'd benefit from hearing it, then I'd appreciate that.
Jacob Austin 00:25:29 Incredibly. And thanks for tuning in. If you like what you've heard and you want to learn more, then you can also find us at www.QS.zone. And we're also on all your favourite socials again at QS.Zone Thanks again. I've been Jacob Austin and you've been awesome.
