Practical completion is a significant milestone in any construction project, but it is not always well-understood. In this newsletter we look at what practical completion is, what might prevent practical completion occurring, and how you can avoid being caught out by common hazards and unscrupulous clients.
Why does practical completion matter?
Practical completion is the point at which the Employer takes control of the site (in the case of an Employer / Contractor relationship) or the point at which the Contractor takes over a Sub-Contractor’s finished works (in the case of a Contractor / Sub-Contractor relationship). Either way, it has several significant contractual consequences:
- The date of practical completion is often the trigger for payments to be made, including the release of half of the retention money.
- It is usually the point at which the person undertaking the work is no longer responsible for insuring it.
- If the project is in delay, liquidated damages should stop running at the date of practical completion.
- It is also often used to calculate other important dates, such as the end of the defects liability period and the date for the final retention release.
What is practical completion? Does the work have to be 100% complete without any defects?
Despite its importance, practical completion is a term that has no precise legal definition. It is generally understood to mean that the works have been completed, apart from minor defects (which includes omissions/incomplete work).
Whether work is practically complete is a question of “fact and degree” which has “to be measured against the purpose of allowing the employers to take possession of the works and to use them as intended”. In other words, it depends!
Notably, practical completion is not defined in the unamended JCT suite of contracts, the idea being that the party for whom the works are being carried out has discretion to determine when it has occurred.
However, contracts sometimes include strict requirements that certain activities must be carried out before practical completion can occur, such as providing:
- Complete O&M documentation.
- Health and safety information required by the CDM Regulations.
- As-built drawings.
- Any warranties which are required to be given.
Strict requirements are likely to limit any discretion that the Employer or Contractor has (or that an Adjudicator making a decision in their place has). In other words, even if the works can be used for the purpose intended, if the contract says that as-built drawings and collateral warranties must be provided before practical completion can occur, then practical completion cannot be certified until they have been provided.
It is therefore important to check your contract for any requirements that might hold up practical completion. Any delays to this might also hold up retention payments due to you and leave you liable for delay damages!
When does practical completion occur?
The contract will often outline a process for what to do when you think practical completion has been achieved. An unamended JCT sub-contract typically involves the following steps:
- Notify the Contractor that the works are (or will soon be) practically complete.
- After a period of time (usually 14 days) the sub-contract works are deemed to be practically complete.
- The Contractor can raise objections in writing to practical completion being granted.
- Any objections will need to be dealt with before practical completion occurs.
Withholding practical completion as a tactic
It seems counter-intuitive that an Employer would want to withhold practical completion when the works have been completed. After all, surely the Employer wants their building finished and handed over to them?
There are two main reasons why an Employer might not want to do this:
- If the Employer is intending to sell or let the building but is unable to do so quickly (e.g. if there are unfavourable market conditions), the Employer may be tempted not to grant practical completion, leaving the Contractor liable for the building maintenance and its insurance under the building contract, as well as liquidated damages for any delay.
- The Employer might insist that the building is finished to an unreasonably high standard – beyond what ought to be required for practical completion and beyond the level of finish that has been allowed for in the Contract. In this instance, they might withhold practical completion as a tool to force the Contractor to carry out additional work.
In either case, the Contractor will naturally want this to be resolved quickly so that they can limit their expenditure and move on to concentrate on other jobs. Fortunately, it is possible to refer a decision not to award practical completion to Adjudication, which is likely to be the fastest way to resolve the issue.
How to protect yourself
The practical completion provisions of contracts are often amended, and so it is important to be familiar with how they work in your contract. There are some key things to look out for:
- Make sure that you are aware of any prerequisites or conditions precedent that must be complied with before practical completion can be achieved and make plans to complete them in sufficient time.
- Make sure you understand any processes that you need to comply with to obtain practical completion and take steps to follow them.
- Be familiar with the defects provisions of your contract, as these are often linked to practical completion.
- If you are expecting a retention payment following practical completion, make sure you check the procedure for retention release. Sometimes contracts are amended so that you do not become entitled to retention until you raise a specific payment application or invoice for it.
How CCC can help
CCC has decades of experience and expertise in advising and assisting parties with dispute resolution relating to practical completion, defects, recovery of retention and all manner of other construction issues. If you have any problems or concerns, we offer a free initial one-hour consultation.
