Practical Completion in Construction Contracts - Case Law Update

Practical completion signifies a turning point in the lifecycle of a construction project where the employer is able to occupy the ‘completed’ property after the design and build phase and when the maintenance phase of the project begins. Significantly, practical completion can also instigate the defects liability period, and often, the starting point for calculating liquid ascertained damages (LADs) (where applicable) for the contractor. For the employer, it will often require the payment of some or all retention moneys.

Agreeing on whether or not practical completion has been achieved is a common cause of dispute in the industry. Defining ‘practical completion’ is tricky as there is no agreed definition in standard forms and there is a lack of guiding case law.

Practical completion will usually be marked by the delivery of a completion certificate from the persons acting on behalf of the employer (an architect, contract administrator etc.). This ‘certifier’ will usually inspect the works alongside a representative of the contractor before making a decision based on the material condition of the site and in their judgement. Where assessing practical completion, it is necessary to consider:

1. Most large contracts will have technical specifications incorporated into the contract which will include a testing methodology/ process which will need to be completed before practical completion is possible.
2. The contractor will usually be required to obtain and hand over certificates of compliance and other documents to the employer prior to completion certificate being presented (incl. building regulation approvals, collateral warranties, operation manuals for the project, fire, health and safety files etc).
3. The presence of ‘de minimis’ (minor) snagging issues which do not affect the practical occupation and use of the site will not prevent practical completion.[1] These will usually be contained in a ‘snagging list’ to be remedied in a pre-agreed time frame post-completion.
4. Patent defects (i.e. an observable fault apparent to an employer/ certifier on inspection) should prevent a completion certificate being issued.[2]

 

Standard form contracts - relevant sections

JCT

• Clause 2.30 of the JCT Standard Building Contract 2011/2016
• JCT Major Project Construction Contract 2011/2016 provides a useful working definition

 

NEC 3/4

• NEC use the term ‘completion’ synonymously with ‘practical completion’
• Clause 30.2 of the NEC4 Engineering and Construction Contract (ECC)
• Clause 11.2(2)

 

University of Warwick v Balfour Beatty Group Ltd.[3]    

This case offers important clarity into this subject area, where the employer, University of Warwick, sought the courts assistance for defining ‘practical completion’.

In this case, an amended JCT 2011 Design and Build form of contract (with amendments) was entered into by the parties which allowed sections (of which there were 4 in total) within the project to be signed off as practically complete before the works as a whole had been signed off.

Clause 1.1 defined ‘practical completion’ as a stage of completeness “of the works or a section” permitting the employer to occupy or use the property. ‘Property’ was defined as “the property comprised of the completed works”. Clause 2.27.1 was amended to read:

“2.27 When Practical Completion of the Works or a Section is achieved and the Contractor has sufficiently complied with clause 2.37 and 3.16.5, then:

1. In the case of the Works, the Employer shall forthwith issue a statement to that effect (“the Practical Completion Statement”) and the Employer shall from such date be entitled to enter and take possession of the completed Works with effect from such date;
2. In the case of a Section, he shall forthwith issue a statement of Practical Completion of that Section (a “Section Completion Statement”);

and Practical Completion of the Works of the Section shall be deemed for all the purposes of this Contract to have taken place on the date stated in that statement.”

Clause 2.29 entitled the employer to liquidated damages if the works as a whole or a particular section failed to attain a completion certificate by the Completion Date (as fixed by the Contract Particulars), with a separate liquidated damages figure for each section defined in the Contract Particulars.

Balfour Beatty claimed that because it was not possible to separately achieve Practical Completion of a section prior to Practical Completion of the whole of the Works, then the liquidated damages provision was inoperable. This argument was favoured in adjudication as one facility could not be used or occupied by the employer until all other sections had been completed.

However, the court overruled this decision stating that a contractual interpretation should focus on the words used by the parties in the contract, and not what the parties should have agreed to given their commercial interests. [4] The court said that it was necessary to identify what a reasonable person would have understood the words in the contract to mean, rather than ignore the words of the contract and import words that had not been used in order to achieve what it thinks the real intentions may have been.

The parties had chosen to complete the Contract Particulars to provide for different Completion Dates for the 4 Sections and specified different liquidated damages for those sections for late completion. The Court found that the ordinary interpretation of clause 1.1, 2.27 and 2.29 which reference “works or a section” indicated that completion of certain sections could occur before completion of the works as a whole. Drafting the words separately suggested that “the works” and “sections” were not to be considered interchangeable. The court found, in addition, that the amended drafting to the standard form JCT D&B contract supported the assertion that there was clear intention for the parties to achieve practical completion in this staged process.

 

Our recommendations:

Whilst the Court’s finding seems clear and obvious when reflecting with hindsight, there are lessons to be taken from this case including:

• Improve contractual drafting to maintain an unambiguous working definition of practical completion specific to the eccentricities of the project.
• When amending standard form contracts consider whether amendments could have unintended consequences.
• Ensure drafting does not inadvertently incorporate conflicting definitions.[5]

 

Article written by David Arnold and George Riach.

 

[1]               Westminster City Council v J Jarvis & Sons [1970] 1 All ER 943

[2]               Nevill (H W) (Sunblest) Ltd v William Press & Son (1981) 20 BLR 78

[3]               University of Warwick v Balfour Beatty Group Ltd. [2018] EWHC 3230 (TCC)

[4]               Arnold v Britton [2015] UKSC 36

[5]               GB Building Solutions Limited v SFS Fire Services Limited (t/a Central Fire Protection) [2017] EWHC 1289 (TCC)