The meaning of ‘Practical Completion’

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 9^th Edition paragraph 20-120 which states that:

1. works can be practically complete notwithstanding there are latent defects;
2. practical completion should not be certified if there are patent defects;
3. practical completion means the completion of all the construction work; and
4. the certifier is however given discretion to certify practical completion when there are very minor works left incomplete on “de minimis” principles.

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:

• Balfour Beatty’s construction of practical completion did “not accord with the ordinary meaning of the words used. It overly focuses on the meaning of the one 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 and the background known to both parties at the date that they entered into the Contract”;
• taking into account the wider context of the contract, it was possible for practical completion of a section to be possible prior to practical completion of the whole of the works; and
• there was no ambiguity in the wording and “business common sense” supported the University’s interpretation.

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:

• if there is a related need for sectional completion;
• if there are any deeming provisions in relation to practical completion;
• the effect of practical completion on the project in terms of the works as defined;
• the scope and extent of any minor defects that may be permitted in certifying the works practically complete;
• whether any documentation must be provided (e.g. as built drawings/O&M manuals) as a condition precedent to practical completion; and
• ensure the definition is consistent with other terms of the contract.