Practical Completion

No one is truly sure when the use of the phrase Practical Completion had taken place within the construction industry, it is a phrase which is widely known, however, it would seem not widely understood. It would seem the interpolation of the meaning of practical completing is down to the individual at the time of practical completion of the project. In many instances the interpolation is down to the client and their designers (architects).

For more than 50 years the courts have tried to define what practical completion really means, from the case of; Westminster Corporation v J. Jarvis and Sons [1970] Lord Salmon LJ stated that;

I take these words to mean completion for practical purposes, i.e. for the purpose of allowing the council to take possession of the works and use them as intended…

In other words, the project is completed to a stage where the client can use the building and conduct their business in a safe environment.

However, Lord Dilhorne giving his own definition in the same case, appeared to view practical completion as fault free completion of the works saying that;

…that this was not the intended meaning and what is meant is the completion of all the construction that has to be done…

What he did not mention in his statement was any minor works (snagging) which may have to be undertaken, only that all elements of the construction work must be completed before a completion certificate can be issued.

In Emson Eastern v EME Developments (1991) Judge Newy considered the previous statement made in; HW Neville (Sunblest Ltd) v William Press and Sons (1982)

…I think the word practically completion gave the Architect a discretion to certify that the contractor had fulfilled its obligation. Where very minor deminimis work had not been carried out, but that if there were any patent defects in what the contractor had done the Architect could not have given a certificate of Practical Completion”…

Over the years the term ‘practical completion’ has caused more than a few headaches. Practical completion is often the trigger for important milestones such as retention release, the rectification period, and the end of delay damages. But despite this standard forms of contracts do not define what ‘practical completion’ is.

Rectification Period (or Defect Liability Period) is a duration in which a contractor has responsibility to rectify any defects.  The Rectification Period begins after a completion certificate is released typically for six to twelve months.

The contract administrator certifies practical completion when all the works described in the contract have been carried out. Practical completion is referred to as ‘substantial completion’ on some forms of contract, particularly in the United States.

Certifying practical completion has the effect of:

Releasing half of the retention (an amount retained from payments due to the contractor to ensure they complete the works).

Ending the contractor’s liability for liquidated damages (damages that become payable to the client in the event that there is a breach of contract by the contractor – generally by failing to complete the works by the completion date).

Signifying the beginning of the defects liability period.

Documentation that should be issued to the client on certification of practical completion might include:

  • A draft building owner’s manual
  • A building user’s guide.
  • The health and safety file.
  • The building log book
  • A construction stage report.

Once the certificate of practical completion has been issued, the client takes possession of the works for occupation and beneficial use.

There is no absolute definition of practical completion and as you can see by the case law stated previously, the law surrounding practical completion is very complex and shows no clear definition of the subject. There is some debate about when practical completion can be certified and whether it can be certified where there are minor (de minimis) items ‘not affecting beneficial occupancy’ that remain incomplete.

It is important to note however, that the defects liability period, which follows certification of practical completion, is not a chance to correct problems apparent at practical completion, it is the period during which the contractor may be recalled to rectify defects which appear following practical completion. If there are defects apparent before practical completion, then these should be rectified before a certificate of completion is issued.

This can put the contract administrator (architect, project manager) in a difficult position, as both the contractor and the client may be keen to issue the certificate (so the building can be handed over), and yet defects (more than just de minimis) are still apparent in the works. Issuing the certificate could render the contract administrator liable for problems that this causes, for example in the calculation of liquidated damages, the position in relation to performance bonds and the release of retention when it is not certain that the works will be completed.

If the contract administrator is put under pressure to certify practical completion even though the works are not complete, they might consider informing the client in writing of the potential problems of doing so, obtaining written consent from the client to certify practical completion and obtaining agreement from the contractor that they will complete the works and rectify any defects. If the contract administrator is not confident about the potential problems, they may advise the client to seek legal advice.

On construction management contracts, a separate certificate of practical completion must be issued for each trade contract. Once all trade contracts (or all trade contracts for a particular section of the works) have been issued, the construction manager issues a certificate or project completion (or sectional completion). The same is true on management contracts, where each works contract must be certified individually.

Practical completion is not a term recognised in some recently developed contracts such as PPC 2000 and other partnering contracts which simply refer to ‘completion’. This can put the contract administrator in a difficult position as to when the project becomes ‘useable’ by the client.

If practical completion is not certified by the most recently agreed completion date, then the contractor may be liable to pay liquidated and ascertained damages to the client. These are pre-determined damages set at the time that the contract is entered into, based on a calculation of the actual loss that the client is likely to incur if the contractor fails to meet the completion date. Some contracts require that a certificate of non-completion is issued as a pre-requisite to deducting liquidated and ascertained damages.

NB: Sectional completion refers to a provision within construction contracts allowing different completion dates for different sections of the works. This is common on large projects that are completed in sections, allowing the client to take possession of the completed parts whilst construction continues on others. Sectional completion differs from partial possession in that it is pre-planned and defined in the contract documents.

If you require any further information on this subject which may be particular to your own project, contact us at; Alternatively, your first 30-minute call is free.

Author; Michael D Hempsey, 7th August 2019

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