Generally in commercial contracts, performance is not complete until all of the obligations under the contract have been satisfied. In other words, the contract isn’t complete if there are still works to be done or documents to be provided.
Completion of a construction project often triggers a number of actions or obligations, or marks the end of any further liabilities, so it’s important to understand the technical terms that surround it.
As with many things in construction, there is no commonly agreed legal definition of practical completion. However, it’s generally marked by the completion of construction works on a project, except for a few minor snags or defects, and signifies that the building can be put to its intended use.
Both contractually and practically, the date of practical completion is important as it typically means that:
- the contractor no longer has exclusive possession of the site
- the contractor’s obligation to provide insurance for the works ends
- the contractor’s liability for liquidated damages for delay ends
- time starts running in respect of the rectification period
- the contractor becomes entitled to part (often half) of the retention monies.
The practical issues that need to be considered
The requirements for practical completion will vary from project to project. Disputes can often arise as to whether or when practical completion has actually been achieved, however these can be avoided by:
- making sure that the contract wording is clear on what constitutes practical completion and when it has occurred
- ensuring that acceptance of possession, partial possession or early access, is appropriately described and documented.
Evidence of practical completion can often include where the owner has “beneficial use and occupation”. So, if they are able to use the project works for the purpose for which they were constructed, then the works must be deemed to be complete in practical terms.
Another sign that completion has occurred is when the contractor has given up control of the site (i.e. when the contractor needs to contact the employer to arrange access for snagging visits). However, in many instances this cannot be a conclusive indicator of completion, as the contractor could give up control of the site without having actually completed all the works.
Sometimes the client will want to take possession of part of the building even though this wasn’t specifically provided for in the contract documents. The contractor is not obliged to allow partial possession, and wouldn’t want to if it means that it would disrupt the remaining works or give rise to additional costs. However, consent cannot be unreasonably withheld.
Partial possession is distinct from “sectional completion”, but still allows the owner to take occupation of a complete section of the project without triggering full practical completion.
Once partial possession takes place, the balance of risk between the parties changes, and important points such as insurance obligations need to be carefully considered.
Partial possession has the following effects:
- any part of the project for which partial possession is agreed is also deemed to have achieved practical completion
- half of the retention monies must be released
- the insurance risk for that part passes to the client
- the defects liability for that part commences
- liquidated damages reduce proportionally.
Should partial possession be a likely consideration, it is worth ensuring that a procedure is put in place in the contracts before the works commence. In any event, any early use or partial possession must be carefully documented.
The general advice is that “Practical Completion” should be a defined term in all construction contracts, with a full procedure put in place for the inspection prior to the issuing of the Practical Completion Certificate.