11 January 2019 #Construction
The term ‘practical completion’ is not defined in many industry standard forms of building contract, such as the JCT, which can lead to uncertainty and disputes as to whether works are in fact practically complete. Very often therefore, project specific definitions are incorporated by amendments to the standard forms. There have been two very recent cases on the meaning of ‘practical completion’ and we now consider the key issues arising.
Practical completion of a project is of huge commercial importance. When practical completion is certified the contractor gives up possession of the site to the client, the client becomes the ‘building owner’ and becomes responsible for insurance, security and maintenance, typically half of the retention monies are released, the contractor’s potential liability for liquidated damages ends and the defects rectification period begins.
Despite the significance of practical completion, there is no standard form or industry wide definition and so parties can choose either to agree their own contractual definition of practical completion or leave the term undefined.
No definition of practical completion
In Mears Ltd v Costplan Services (South East) Ltd and others (2018) practical completion was not defined in the building contract. As a result, the judge commented on the meaning of ‘practical completion’.
The Judge referred to and adopted the explanation for the term ‘Practical Completion’ in Keating on Construction Contracts 9th Edition paragraph 20-120 which states that:
The Judge observed that practical completion is “not merely about the extent of the work done but also, at least in some respects, its quality” and also placed particular emphasis on the need to consider the “intent and purpose of the building”.
Whether or not practical completion has taken place is fact dependent and will require determination on a case by case basis, but this judgement provides a useful reminder of the key tests that should be utilised in assessing whether practical completion has occurred in the absence of a contractually binding definition of the term.
Long definition of practical completion
In contrast, the University of Warwick v Balfour Beatty Group Ltd (2018) considered the other extreme, a 450-word definition of practical completion incorporated by amendment of a JCT standard form.
The parties entered into an amended JCT Design and Build Contract, 2011 Edition which defined practical completion as “…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 contract provided a mechanism for certifying sectional completion and levying of liquidated damages for delay to each section.
Balfour Beatty commenced an adjudication seeking a declaration that it was not possible to achieve practical completion of one section of the works prior to completion of the whole of the works and as a result the liquidated damages provisions of the contract were inoperable.
The adjudicator agreed but the University issued subsequent court proceedings seeking a declaration to the contrary; that it was indeed possible to achieve practical completion of one section of the works prior to completion of the whole of the Works, consistent with standard industry practice.
The declaration sought by the University was granted by the Judge, so overturning the Adjudicator’s decision, on the basis that:
What to consider when drafting or amending a definition of practical completion?
Parties should take care when incorporating or amending definitions of practical completion and ensure their intentions are clearly recorded within the contract without ambiguity to avoid dispute.
When drafting or amending a definition of practical completion, consider: