Given that it is probably the single most important phrase in the construction world, it is perhaps surprising that “practical completion” has no legal definition and isn’t even defined in many standard construction contracts (for example, the JCT suite). As we all know, practical completion triggers the right to the release of any retention and ends the right to LADs, as well as starting the defects liability period. It is therefore critical that it is easy to determine when PC has occurred.
There are only a handful of key cases which help us to interpret “practical completion”, and in summary, these state that:
- Practical completion means the completion of all the construction work that has to be done under the contract;
- Works are not practically complete if there are patent defects;
- A practical completion certificate can be issued where minor work (i.e., snagging) is outstanding; and
- Works can be practically complete although there are latent (hidden) defects.
Further evidence of practical completion can often include where the employer has “beneficial use and occupation” – i.e. if they are able to use the works for the purpose they were constructed, (or commence fitting out works following construction of the shell) then the works must, as a matter of fact, be practically complete. Another indicator is when the contractor has given up control of the site (i.e. when the contractor needs to contact the employer to arrange for snagging visits). However, the latter cannot be a conclusive indicator as the contractor could give up control of the site without having actually completed all of his works.
On that note, it is worth considering “partial possession”. Partial possession is distinct from “sectional completion”, but still allows the employer to take occupation of a complete section of the works without triggering full practical completion. Once partial possession takes place, the risk allocation between the parties changes and matters such as insurance obligations must be carefully considered. Should partial possession be contemplated, 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 should be carefully documented, ideally with annotated plans.
Our 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 practical completion, and the issuing of the PC Certificate. Furthermore, the parties may wish to consider putting in place a mechanism to deal with an administrative failure by the Contract Administrator to issue the PC Certificate, and/or to deal with a dispute between the parties as to whether or not practical completion has occurred. A careful use of the contract drafting allows the parties to set out the conditions precedent to Practical Completion (both the date, and the issuing of the certificate), for example insisting on the issue of the Health & Safety File, Building Regulations Certificate, NHBC documentation, as-built drawings, collateral warranties etc.
Given that the entire purpose of every building project is to achieve a point where the works can be used for the purpose intended by the paying party, it is something to which we suggest the parties should always give proper thought at the beginning of the project.
These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.