Achievement of ‘Practical Completion’ under a building contract has significant consequences, including marking the end of substantive works and the start of the defects liability period and, of course, relief from LADs. However, while this is a term used daily across the construction industry, there is no single definition that constitutes Practical Completion.
At the end of 2018, the case of University of Warwick v Balfour Beatty Group  EWHC 3230 (TCC) considered the issue of practical completion in sections.
The University of Warwick (“Claimant”) contracted with Balfour Beatty Group Limited (“Defendant”) under a JCT Design and Build 2011 with bespoke negotiated amendments (“the Contract”). The Contract related to a project to design and build the National Automotive Innovation Centre (“NAIC”) on the Claimant’s campus, the intention of which was to provide an international class of automotive academic and commercial R & D research facility.
The Contract provided for the Works to be divided into four Sections each of which had a Date of Possession of 20 April 2015. Each Section had its own Completion Date.
Under the Contract, the definition of Practical Completion was “a stage of completeness of the Works or a Section which allows the Property to be occupied or used….” The Contract defined Property as “the property comprised of the completed Works” and Works as “the works briefly described in the First Recital, as more particularly shown, described or referred to in the contract Documents, including any changes made to those works in accordance with this Contract”.
The dispute raised the point of whether, on proper construction of the definition of Practical Completion within the Contract, the entire Works were to be complete before a single Section could be certified as complete. In other words, did this particular definition of practical completion frustrate the parties’ intention to divide the work into sections?
It was argued by the Defendant that as a consequence of the proper meaning of Practical Completion, the liquidated damages provisions were rendered inoperable. The Defendant argued that due to the definition, it was not possible to separately achieve Practical Completion of a Section prior to Practical Completion of the whole of the Contract on the basis that, a stage of completeness that allowed the Property to be occupied and used, could only occur when the whole of the Works were completed.
Before the claim was embarked upon in the TCC, it was referred to Adjudication and in May 2018, an Adjudicator accepted the Defendant’s argument stating “I accept Balfour Beatty’s assertion that the ordinary and natural meaning of the words used in the definition of Practical Completion means that it is not possible to achieve Practical Completion of any Section in isolation from the other Sections.”
When the Claimant subsequently commenced proceedings in the TCC, commenting on construction of the Contract and the Adjudicator’s decision, Judge McKenna stated “the interpretation contended for on behalf of the Defendant, and accepted by the Adjudicator, does not accord with the ordinary meaning of the words used, It overly focuses on the meaning of the word Property at the expense of what the parties plainly meant by using all the words and without regard to the wider context of the other provisions of the Contract”.
The Adjudicator seemingly ignored that elsewhere in the Contract there was a clause relating to Practical Completion which detailed the mechanism for issuing a Practical Completion Statement and a Section Completion Statement. The Contract also provided for different completion dates for each section and the Employer’s Requirements provided “Requirements for Practical Completion of a Section”
Judge McKenna held that taking into account the wider context of the Contract, it must have been possible for Practical Completion of a Section to be possible prior to Practical Completion of the whole of the Works. There would be no purpose in treating the Sections separately if Practical completion of each could only be achieved when the Works as a whole were complete.
Happily for the Claimant, the Judge in this case took a pragmatic approach and took into account the intention of the parties and not just the wording of the Contract. This case however, does highlight the problems that can arise when contracts are drafted poorly. Had the TCC interpreted the Contract the same as the Adjudicator, the Claimant may have lost their right to liquidated damages.
Lessons to learn
It is a case for the parties to bear in mind when drafting: definitions should be drafted very carefully so they do not make other provisions of their contract inoperable. When re-using older documents on new projects it is important to consider whether project-specific amendments to contract particulars or contract conditions have a knock on effect requiring a review of definitions.
The full Judgment can be read here.
These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.