Contract Completion notes

Practical Completion – When is it achieved and how is it managed?

by Jon Williams

Practical Completion, often referred to as “PC”, is considered to mean the building is finished
to a state where it can be put to its intended use, but small or minor defects may still be present.

Practical Completion is not expressly defined within the JCT suite of Contracts, but it may be
defined as:

“When the works can actually be taken to be complete.”

This definition may seem a little stringent but, in reality, sign off is prepared and issued when
the works are “practically complete,” not absolutely complete. Minor outstanding works should
not prohibit the issuing of a Practical Completion certificate as these can be issued with a
snagging list of outstanding works or works that require improvement.

Practical Completion has significant implications under the Standard Building Contract. When
issuing Practical Completion, the Employer’s Agent or Contract Administrator is relieving the
contractor of the responsibility to insure the site, which passes to the Employer (developer). The
issue of Practical Completion also entitles the Contractor to release of retention. This is usually
50% of the monies held. Practical Completion will relieve the contractor of possession of the
site, and the liability for liquidated damages will cease. The issue of Practical Completion also
commences the rectification period.

An employer may take back part of the site before Practical Completion if they wish to occupy
a party early or to sell the particular part onwards. Contracts can be drafted to provide for
sectional completion in this instance.

It may not always be practical to predict the requirement to occupy part of the site early and,
when contracts have no Sectional Completion stated within them, the employer may elect to
take partial possession of the site. In the terms of the Contract, the part taken is known as the
relevant part.

The relevant part is dealt with in the same manner as Practical Completion. Retention is
released on the value of the part and the obligation to insure the works is removed from the
Contractor. Likewise, the rectification period begins on the relevant part and any damages
levied within the contract are reduced in line with the apportion of the relevant part to
the Contract Sum.
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Contract Completion notes
It is the responsibility of the Employers Agent (D&B) or the Contract Administrator (usually
Architect) to decide when Practical Completion has been achieved, as most standard form
contracts do not prescribe the meaning of Practical Completion. This is left entirely to the
professional judgement of the Employers Agent / Contract Administrator.

As a developer (employer), how do I prove that practical completion has not been met?

To achieve Practical Completion, the Contractor must comply with clause 2.37 (JCT Design and
Build) and provide the Employer with contractor’s design documents and any related
information specified in the Contract that show or describe the work (i.e. As Built Drawings, O
& M Manuals which show the operation and maintenance of the works). The Contractor must
also comply with the obligations placed upon him under the CDM regulations cl.3.16 (JCT)
which require that the Contractor carries out all Duties as Principal Designer and Principal
contractor should they be so named as these within the particulars. This is inclusive of
delivering to the Employer the health and safety file in the case where the Contractor is
Principal Designer.

Practical Completion requires sign off from the Local Authority Building Control or the
Approved Inspector. This is a fit for occupation certificate and a fire life and safety certificate
will also be required. All services should be tested and commissioned with all relevant
certificates provided. Acoustic testing and air tightness tests should be carried out to ensure
compliance with any statutory regulations or any requirements as set out within the Contract
Documents. An Employer might also have included within the Contract Prelims, or wider
contract documents, a “schedule of preoccupation criteria.” This can set out what will be
required prior to practical completion being granted.

If I do not have a main contractor (construction management route) am I responsible for

practical completion or is the responsibility spread across the subcontractors that I
employ?

Where the construction management route is employed for the project, the Construction
Manager should manage the practical completion process. This may be a Construction
Management Consultancy, or a Main Contractor employed on a Construction Management
basis.

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Contract Completion notes
Each individual trade contractor will need to confirm back to the Construction manager when
their section of the works are” complete”. From this, the construction manager will then issue a
certificate of practical completion and accompanying payment notice to each of the trade
contractors as and when required. The wording below is taken from the “Construction
Management Appointment 2011” and states;

“When in the Construction Manager’s Opinion the Works of any Trader Contractor or
such works in a section have reached practical completion, the Construction Manager
shall, as required by the relevant trade contract, issue a certificate to that effect and when
Practical Completion of the last Trader Contract to be completed in respect of the Project
or a Section has been certified, the Construction Manager Shall forthwith issue a Project
Completion Certificate and practical completion of the Project or relevant Section shall
for all the purposes of this Contract be deemed to have taken place on the date stated in
that certificate”

Once all subcontractors have completed their works, the project will be “practically complete”
and it is the Construction Manager’s responsibility to arrange for final inspection from building
control (or approved inspector) and for the building regulations compliance certificate.

Do I monitor Practical Completion throughout the project and what do I need to record
in order to do so?

During a project, progress against the anticipated completion date can and should be monitored.
The Contractor may be requested or obliged to submit master programmes at regular intervals
within the construction periods, showing items of work both on and off critical paths. Delay to
Practical Completion will only result as a delay to items of work that are on the Critical Path.

The Contractor might monitor progress by “marking-up”, at monthly intervals, the site copy of
the master programmes to indicate the actual progress of all activities shown thereon. If any
circumstances arise that may affect the progress of Works, the Contractor shall put forward
proposals or take other action as appropriate to minimise any delay and to recover any lost time.
This may be accompanied by marked up drawings and photo evidence. That said, the Employer
and Contractors QS will also review the programme on a regular basis as part of the Application
for Payment Cycle.

Cashflow can be used to monitor progress on site as programmes can be subject to manipulation
to report increased delay periods in the event of an extension of time claim. In this event,
3
Contract Completion notes
manipulating a programme to reflect increased delay should be questioned if the agreed
valuation for that period was generally in line with the previous cashflow. As the cashflow will
have been prepared on a previous programme prior to the delay, if still in line with cashflow,
the contractor is likely still in line with programme unless the delay is anticipated due to knock
on event that can’t be mitigated but hasn’t occurred yet.

Ambiguity of Practical Completion

Swansea Stadium Management Company Ltd v City and County of Swansea, Interserve
Construction Limited (2018)

This recent case highlights two points. The first point is that of the timing of claims brought
from a Construction Contract. Within this case Swansea Stadium Management Company
sought £1.3m of damages under a collateral warranty for defective works under a contract. The
Practical Completion date was 21st March 2005 and the claim was brought about on the 4 th of
April 2017, in excess of 12 years from Practical Completion. The Interserve Defence was that
any claims must be made within 6 years from PC date if executed underhand or 12 years if
executed as deed. The counter argument made by Swansea Stadium Management was in
essence, “the works couldn’t have been practically complete at the time of Practical Completion
as defects were present.” The contract provided words to the following effect in terms of
Practical Completion certification (cl 16):

“If in the reasonable opinion of the Employer, the works have reached Practical
Completion and the Contractor has complied with the relevant clause within the Build
Contract then the Employer shall give the Contractor a written statement to that effect,
which statement shall not unreasonably be delayed of withheld, and Practical Completion
of the Works shall be deemed for all the purposed of this Contract to have taken place on
the day named in said statement”

Technology and Construction Courts (TCC) Decision:

Due to the deeming provisions in Clause set out above, the TCC held that: “the existence of any
defects or outstanding works would not prevent the operation of clause 16. Clause 16 is clear
that where, as in this case, the employer issues a notice that practical completion has been
achieved, practical completion is deemed to have been achieved.”

Interpreting the above Practical Completion must have occurred by 31 March 2005, i.e. the date
of Practical Completion, on which date the 12 years limitation period started to run. The
proceedings were issued on 4 April 2017 by which were time barred and rejected.
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Contract Completion notes
Conclusion and takeaway thoughts

Judgments in case law provide a reminder to the definitive effect and meaning of Practical
Completion within a Construction Contract. Unless amended, Practical Completion is solely at
the discretion of the Employers Agent or the Contract Administrator and it is awarded based on
their professional opinion along with compliance of certain contract clauses.

When deciding whether Practical Completion has been achieved or not, start with the contract:
does this explicitly provide a definition as to what Practical Completion is? If so, this is the
basis for awarding Practical Completion.

Regardless of whether there is definition or implications of Practical Completion, be mindful

of:

- The requirement for the release of half of the retention, which will be in addition to the
latest application for payment

- The obligation to insure the works as this passes from Contractor to Employer upon
Practical Completion

- Practical completion is the date at which the rectification countdown begins. Any

“outstanding / Snagging” items are the responsibility of the Contractor to complete.
However, there may be times, say when a retention bond is used, that the contractor has
little or no “skin in the game” to warrant a return visit to complete any outstanding
works.

There is a lot to consider when approaching Practical Completion of a project. As Practical

Completion itself is essentially “a professional opinion,” this is open to challenge. The
Contractor may apply pressure to issue Practical Completion in order to flatter their records
and, in some circumstances, the client may agitate for issue of Practical Completion as they
need to take control of the building.

In any event, issuing Practical Completion is the sole responsibility of the Employers Agent or
Contract Administrator and should not be taken lightly due to the ramifications to the Building
Contract.

https://c-link.com/blog/practical-completion-when-is-it-achieved-and-how-is-it-managed/

LADs in Construction

by Dean Suttling
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Contract Completion notes
Construction contracts place emphasis on the insertion of clear dates for starting works, when
the works must be completed by, and the provision for inserting dates that sections of the works
must be completed by. Commercial factors drive this necessity for clarity on the timing of the
works. The Contractor wants a back-stop date against which extensions of time can be
measured, whilst the Developer wants certainty on when the project will be complete and ready
for use e.g. a stadium opening for the new season, a shopping centre allowing tenants access
for fit out, a railway station allowing train operating companies to meet their timetables.

Things do not always go according to plan: projects complete late, costs are incurred, and
disputes arise around the recovery of costs.

If a project is not completed by the contractual completion date, the Developer can make a
claim for general damages due to a breach of contract. In this situation, the Developer must
prove that a breach has occurred, that such a breach caused them to incur losses, and then prove
the amount of the loss and demonstrate they have acted reasonably in mitigating the impacts.

Alternatively, the Developer can recover damages via Liquidated and Ascertained Damages or
“LADs”, sometimes referred to as LDs or delay damages. Liquidated and Ascertained Damages
are an agreed, pre-determined, amount that is payable in respect of the breach occurring until
the works are fully complete. The benefit of Liquidated and Ascertained Damages is that they
are payable upon the breach occurring, the Developer is not required to prove their loss and to
an extent they provide the Contractor with a cap on their liability. Managing damages in this
way can avoid court and other dispute resolution proceedings taking place.

Liquidated and Ascertained Damages are generally stated in contracts as an amount per week
but can be stated as per day or, in the extreme, per hour or per minute in the case of major
railway projects for example. Whatever the case may be, the amount stated should be pre-
agreed before entering into contract and must also be a genuine representation of the loss the
Developer is estimated to incur. The reason for this is that recovery of Liquidated and
Ascertained Damages puts the Developer back into a position as if the breach had not occurred.

Liquidated and Ascertained Damages are not intended to be a penalty or profit generator. If the
amount stated is more than any loss the Developer is likely to incur, they could be challenged
through the courts as being arbitrary and a penalty and therefore unenforceable.

Contractual Operation

In estimating the rate of Liquidated and Ascertained Damages, the Developer needs to consider
the likely losses they will incur in the event the project runs past its completion date. Factors to
6
Contract Completion notes
consider will include any fines imposed by third parties, loss of income from delayed use of the
building, any legal fees they will incur in managing third party delay costs, the loss of rent from
tenants, and their own finance costs incurred due to delayed use. They should then keep a
record of how they arrived at the rate in case they need to substantiate their position under
challenge through the courts by the Contractor.

When drafting JCT contracts, there must be a date inserted from when the delay damages can
be assessed. The damages can then be applied from that date until the point that practical
completion is achieved. In the absence of a fixed completion date at the outset, Liquidated and
Ascertained Damages cannot be levied.

The Developer must follow a process of notification before imposing Liquidated and
Ascertained Damages in under JCT Contract. Failure to follow this process means Liquidated
and Ascertained Damages cannot be charged:

- Firstly, the Developer must issue a non-completion notice stating that the works did not
complete on time. For example, under a JCT Design and Build Contract, this would be
under Clause 2.28

- Secondly, the Developer must issue a notice that they may require payment, withhold or
deduct Liquidated and Ascertained Damages. For example, JCT Design and
Build Clause 2.29.1.2.

- Thirdly, the Developer issues a notice requiring payment of Liquidated and Ascertained
Damages or withholding or deducting them. For example, JCT Design and Build Clause
2.29.1.

Good practice is for the Contractor to step down Liquidated and Ascertained Damages
provisions into their sub-contracts where they the Contractor estimates their own costs and the
Liquidated and Ascertained Damages that the Developer will impose.

With projects involving multiple subcontractors it can be very difficult to establish who the
dominant delay resides with and, therefore, which subcontractor should be charged the
Liquidated and Ascertained Damages. If the same level of Liquidated and Ascertained
Damages plus the Contractors own costs are inserted into every subcontract, the rate will likely
be so high that you are likely to end up with zero tender returns, or conversely face claims that
the Liquidated and Ascertained Damages are penalties and not representative of true losses. For
this reason, it’s often prudent to omit Liquidated and Ascertained Damages from the
subcontracts and in the event of a breach make a claim under general damages.
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Contract Completion notes
How not to operate LADs?

As noted above, the rate of Liquidated and Ascertained Damages should be representative of
the estimated losses the Developer will incur in the event of a breach. There are many examples
of court cases where it has been proven the rate of delay damages is a penalty and therefore not
commercially justifiable. The outcome in these instances is the Liquidated and Ascertained
Damages are not enforceable and a claim for general damage comes into play along with all the
obligations above in terms of establishing liability.

Some more common issues in terms of drafting contracts can be where a standard form is
completed and the space for entering the rate of damages states ‘Nil’ or ‘Not Applicable.’ In
this instance, the Developer doesn’t want to utilise the option for Liquidated and Ascertained
Damages, but by inserting such words it can be construed that the Contractors entire liability for
damages, be it general or Liquidated and Ascertained Damages, is zero. The way to deal with
such an issue is to delete the relevant contract clauses or put ‘not used’ when drafting.

Where a cap on the level of Liquidated and Ascertained Damages is inserted in the contract, for
example capped at a percentage of the contract value or a fixed sum, the Developer or
Contractor is exposed to losses they are subsequently unable to recover in full. If this event
occurs and if the Developer is faced with a significant delay, and therefore liability, one
possible solution is to terminate the contract and re-tender the remaining works with a new
Contractor.

Liquidated and Ascertained Damages and Extensions of Time

Contracts need a fixed completion date or else Liquidated and Ascertained Damages will not be
chargeable as there is no baseline from which to measure a breach. However, it is possible for
this fixed date to be extended through claims for an extension of time.

If a Contractor can demonstrate entitlement where delays are not their fault and therefore not
their responsibility, they can be granted an extension of time and relief from delay damages. An
example of this could be failure by the Developer to provide something by the date shown on
the programme that ultimately lead to a delay.

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Contract Completion notes
From a Developers point of view, they should administer the contract such that all parties
remain clear on their obligations and there is no ambiguity over when the project should be
completed.

The Developer should take care to avoid any maladministration of the programme such as
failing to provide instructions, changing the sequence of the works, allowing third party
contractors onto site early, but above all not acknowledging entitlement. The reason for this is
that if later down the line they wish to levy Liquidated and Ascertained Damages, the
Contractor can argue that their programme has been impeded beyond their control and therefore
time is generally at large and they can complete the works in a reasonable timeframe. Such
circumstance could make applying Liquidated and Ascertained Damages invalid.

Liquidated and Ascertained Damages and Partial Completion

As projects near completion, for example a shopping centre, the pressure from the Developer
will be to enable their tenants’ early access and allow for shop fitting and potentially open for
trading early. In the event that this is feasible, the Developer will be deemed to have taken over
that section of the works and is therefore liable for it. The Contractors rate for Liquidated and
Ascertained Damages should be reflective of their decreased liability as parts of the work have
essentially achieved practical completion.

Failure to have adequately drafted sectional completion provisions, or if the Developer decides

to change the handover sequence of the works but not amend the Liquidated and Ascertained
Damages, could put the entire Liquidated and Ascertained Damage provision at risk of
uncertainty and therefore make them null and void.

If this type of handover is known about at the start of the project, sectional completion
provisions can be drafted into the contract with suitable levels of Liquidated and Ascertained
Damages applied to each section. However, be aware that when drafting there may be a cascade
effect if sections are not completed in a certain order and therefore weighting should be
considered in the drafting.

Liquidated and Ascertained Damages – Case Law

There is an abundance of case law involving Liquidated and Ascertained Damages with
decisions going either way in many cases. One of the more interesting subject areas is whether
Liquidated and Ascertained Damages can be applied after a contract has been terminated.

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Contract Completion notes
For example, a Contractor was running significantly late with little sign of improved
performance, so the Developer terminates the contract and replaces the Contractor. However,
the Developer wishes to hold the original Contractor liable for Liquidated and Ascertained
Damages until such point that practical completion has been achieved. The line of argument in
regards holding the original Contractor to account is that by relieving them of damages they
have been rewarded for their own default.

In the case of Hall vs Van Der Heiden, Mr Justice Coulson stated:

“I reject the submission that the defendant’s liability to pay liquidated damages somehow
came to an end when his employment under the contract was terminated. There is no
such provision in the contract.”

Despite the above, this runs in direct contradiction this to the case of Shaw & Anor vs MFP
Foundations and Pilings Limited, where Mr Justice Edwards-Stuart stated:

“After the date of termination, the parties are no longer required to perform their
primary obligations under the contract and so the contractor’s obligation to complete by
the completion date no longer remains and the provision for liquidated damages therefore
becomes irrelevant.”

As recently as March 2019 and in the case of Triple Point Technology Inc. vs. PTT Public
Company Ltd, the latest ruling by Sir Rupert Jackson stated:

“In my view, the question whether the liquidated damages clause (a) ceases to apply or (b)
continues to apply up to termination/abandonment, or even conceivably beyond that
date, must depend upon the wording of the clause itself. There is no invariable rule that
liquidated damages must be used as a formula for compensating the Developer for part of
its loss.”

The case of El Makdessi vs Cavendish Square Holdings (2013) demonstrates the requirement for
Liquidated and Ascertained Damages to reflect a reasonable estimate of the Developer’s true
losses. In this case, the Court of Appeal found that the damages clause was a penalty and not
enforceable. The purpose of the damages was a deterrent to finishing late as opposed to being
truly reflective of the Developers losses.

In contrast, the Dunlop Pneumatic Tyre Co Ltd vs New Garage and Motor Co Ltd is treated as a
significant case within the construction industry due to the fact the liquidated damages in

10
Contract Completion notes
question were challenged but ultimately not viewed as a penalty. They were held as a  “genuine
pre-estimate”  of loss by the House of Lords.

Conclusion

The Liquidated and Ascertained Damages are commonly used to protect the Developer’s
commercial interests and to provide an incentive for Contractors to complete on time. However,
they can also drive adverse behaviours such as the Contractor fixating on gaining extension of
time awards to protect themselves rather than focusing on the job at hand.

What should be considered alongside Liquidated and Ascertained Damages are other incentives
for Contractors to complete the works on time or to simply minimise delays. These measures
could include a suitable level of time risk allowance in their programme or, in the event of
delay, undertaking a cost benefit analysis regarding acceleration costs vs delay damages to
make informed decisions. Alternatively, by simply employing performance-indicating tools,
such as earned value management to offer early signs of performance, issues enabling
corrective action in good time.

The 3 minute guide: what is practical completion?

Practical completion confirms the completion of construction works on a project, although

there is no precise legal definition of the phrase.

Generally, it is the point at which a building project is complete, save for minor defects. Some
construction practitioners describe this point as when the building project is "capable of
beneficial occupation and use".

The phrase can also refer to the point at which an employer’s agent/architect/contract
administrator confirms that the building contractor has achieved "practical completion" under
the building contract. As many standard form building contracts do not define practical
completion, this is frequently left to the professional judgement of the certifier.

Why is it so important?

Practical completion of a project is of huge commercial and legal importance. The date of
practical completion (usually stated in a practical completion certificate) is the date on which
the operational period of a project will start.

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Contract Completion notes
It also has a number of contractual and legal implications:

- it ends any right to liquidated damages in respect of a delay to the works;

- the employer must pay a percentage of any retention monies (usually 50%) to the
contractor;

- the “defects liability period” commences from practical completion;

- the risk of loss or damage to (and responsibility for) the works usually transfers from the
contractor to the employer;

- the contract administrator may not instruct the contractor to carry out variations after
practical completion; and

- it may trigger other consequences under the contract (such as the “final account”
provisions under a JCT contract).

So, what practical issues do I need to consider?

The requirements for practical completion vary from project to project. Disputes as to whether
or when practical completion has been achieved are common but can be avoided by:

 checking that the building contract is clear on when practical completion has occurred
(including where practical completion is deemed to have occurred); and

 keeping a paper trail documenting acceptance of possession, partial possession or

agreement for early access, as appropriate.

Finally, if you are amending a standard form building contract to make the test for achieving
practical completion more stringent, you should consider whether this is in the best interests of
the employer; a stringent mechanism can sometimes backfire.

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12
Contract Completion notes

1. What is practical completion?

Practical completion is when a project is ‘practically complete’, in the sense of the works being
capable of being used, as distinct from when they are completely finished (with all defects
rectified).

AS 4000 defines practical completion as:

“that stage in the carrying out and completion of WUC when:

(a) the Works are complete except for minor defects:

(i) which do not prevent the Works from being reasonably capable of being used for their
stated purpose;
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Contract Completion notes
(ii) which the Superintendent determines the Contractor has reasonable grounds for not
promptly rectifying; and

(iii) the rectification of which will not prejudice the convenient use of the Works;

(b) those tests which are required by the Contract to be carried out and passed before the Works
reach practical completion have been carried out and passed; and

(c) documents and other information required under the Contract which, in the Superintendent’s
opinion, are essential for the use, operation and maintenance of the Works have been supplied.”

From this definition, the key components can be broken down as follows:

 Works are complete (except for minor defects)

 All necessary tests have been carried out and passed

 Essential documents and information have been provided to the superintendent

In terms of the first component, it is important to note that all three requirements in paragraph
(a) of the definition of ‘practical completion’ must be satisfied. That is, the defect must not
prevent the works from being used for their stated purpose, the contractor must have reasonable
grounds for not promptly rectifying it, and rectification of the defect must not prejudice the
convenient use of the works. If any of these criteria are not satisfied, the superintendent can
refuse to grant practical completion.

Whether a defect is minor, and fits within paragraph (a) of the definition, will depend on the
circumstances. The focus here is not on the size of the defect itself, but rather on the effect the
defect and/or its rectification may have on the convenient use of the works for their intended
purpose. The same type of defect may be considered minor on one project, but not on another.

The second component of the definition requires the contractor to have conducted all tests
required under the contract or directed by the superintendent.  These tests must be passed before
practical completion can occur.

The third component requires the contractor to have provided all documents and other
information required under the contract and requested by the superintendent. The critical word
here is ‘essential’.  The contractor may be required to provide a number of different types of
document under the contract.  Only those that are ‘essential’ for the use, operation and
maintenance of the works are required for the purposes of practical completion. The

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Contract Completion notes
superintendent is not entitled to refuse to grant practical completion by reason of non-essential
documents not having been provided.

2. How does a contractor claim practical completion?

Clause 34.6 of AS 4000 requires the contractor to submit two notices in relation to practical
completion.

 A written notice of anticipated practical completion (at least 14 calendar days before the
anticipated date of practical completion); and

 A written notice of practical completion (when the contractor is of the opinion that
practical completion has been achieved).

3. What is a notice of anticipated practical completion?

The contractor is required to give the superintendent notice of anticipated practical completion
at least 14 calendar days prior to when the contractor anticipates it will achieve practical
completion. 

This notice must include the date which the contractor expects that it will have satisfied all of
the requirements of the above definition of practical completion.

Below is an example of a notice of anticipated practical completion:

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Contract Completion notes

4. What is a notice of practical completion?

Once the contractor is of the opinion that the requirements of practical completion have been
achieved, the contractor must submit a written notice to the superintendent. Usually this notice
would be sent on the day practical completion is reached. This notice must include a request
that the superintendent issue a certificate of practical completion.

Below is an example of a contractor’s notice of practical completion.

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Contract Completion notes

T
he next step is for the superintendent to issue a certificate of practical completion.  

5. What is a certificate of practical completion?

Within 14 calendar days of receiving the contractor’s notice of practical completion, the
superintendent must either issue a certificate of practical completion or provide reasons why the
superintendent is not of the opinion that practical completion has been achieved. This certificate
must be issued to the contractor and the principal.

If the superintendent issues reasons why practical completion has not been achieved, the
contractor must address the issues raised by the superintendent. Once the contractor is of the
opinion that those issues have been addressed, it must issue another notice of practical
completion to the superintendent.

Below is an example of a certificate of practical completion.

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Contract Completion notes

If the superintendent is of the opinion that practical completion has been reached, the
superintendent may issue a certificate of practical completion even if the contractor has not
requested one. 

6. What is the ‘date of practical completion’?

The ‘date of practical completion’ is defined to be ‘the date evidenced in a certificate of

practical completion as the date upon which practical completion was reached’.

According to the NSW Court of Appeal, that wording means that the date of practical
completion is the date the certificate is issued (even if the certificate states that practical
completion was reached on some earlier date.) You can read more about that decision here.

7. How does practical completion operate for separable portions?

Where a project involves a staged handover of separable portions, each separable portion will
have its own date for practical completion. The process for practical completion outlined above
applies to each separable portion.

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Contract Completion notes

The meaning of ‘Practical Completion’

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:

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.

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Contract Completion notes
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

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Contract Completion notes
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.

JBCC: practical completion, works completion and final completion: a brief overview

3RD JUNE 2011

Introduction

We examine the following terms namely ‘practical completion’, ‘works completion’ and ‘final
completion’ as set out in the JBCC 2000, Principal Building Agreement, 6th edition and provide

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Contract Completion notes
commentary on achieving each stage, the consequences of having achieved each stage and the
general problem areas for each stage of completion.

Practical completion

This is defined as the stage when the works, as certified by the principal agent, are substantially
complete and can be used for the purposes intended. On the face of it, is very open-ended and
denotes a subjective assessment.

Nevertheless, the latter part of the assessment criteria, “...can be used for the purposes
intended...” does provide some guidance in that there are some general criteria that would apply
to a house, a factory or even a hospital for example. In order to narrow these down it is
suggested that at the outset (at tender stage) the contractor establish the following:-

• Specific requirements
In the case of the construction of a house, as an example, the requirements may differ from one
project to another. Whilst certain obvious requirements are common to all projects, things such
as perimeter walls, garages and others are not. The solution is for the contractor to make the
necessary enquiries and to agree upon such criteria with the principal agent. The purpose hereof
is to try and remove the subjectivity associated with this stage.

• Quality standards
The contractor should establish such standards in relation to things such as plastering and
paintwork if possible by reference to samples.

• Inspection period
The contractor must establish the number of days the principal agent will need in order to carry
out his inspection. He must then allow sufficient time for this to be done prior to the stated
practical completion date and for any remedial work that may be required. The contractor
should make provision for this in his programme and include a period for rectification of the
works, if any, in order to achieve practical completion.

Once work commences the principal agent is obliged to carry out periodic inspections and
guide the contractor on these requirements. At the appropriate time the contractor must notify
the principal agent of the anticipated practical completion date and to inspect the works in order
to meet such date. Should the principal agent be satisfied, upon such inspection, that practical
completion has been reached he shall then issue the practical completion certificate, provided
that this may not be done prior to the date stated in the contract data unless the parties agree.

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Contract Completion notes
The reason for this is that the employer may not yet have made suitable arrangements regarding
things such as early occupation and insurance. Where the principal agent is not satisfied he is to
issue a practical completion list of defective and incomplete items to be attended to as required
for practical completion whereafter the process is to be repeated until the principal agent is
satisfied. Contractors argue that this process is frequently abused and that the list should be
limited to incomplete items and leave out defective items which can be attended to during the
subsequent completion stages. The incentive herein is to avoid a delay in the commencement of
the defects liability period.

The consequences of practical completion are as follows:-

- The contractor is no longer obliged to carry out a contract instruction in relation to

additional work;
- The employer takes possession of the works subject to any right of retention (lien); and
- Risk passes to the employer and the contractor’s insurance obligations are terminated.

It is important to note that where the employer takes possession, whether in part or wholly, by
agreement with the contractor prior to the practical completion date then practical completion
shall be deemed to have been achieved and the principal agent must issue the practical
completion certificate. However in what is another inconsistency the agreement is silent on the
consequences of the employer taking possession without agreement with the contractor and this
needs to be addressed at the outset of the contract.

Works completion

This concept is not defined nor is there any set date but it follows from practical completion.
The process starts with the principal agent issuing a works completion list to the contractor
which details defective and incomplete work present at practical completion but which are not
required to achieve practical completion. The contractor must remedy the defects in this list in
order to achieve works completion.

Once the contractor has addressed all incomplete and defective items on the ‘works completion
list’ he must notify the principal agent to inspect these items, and if satisfied, issue a certificate
of works completion . If the principal agent remains unsatisfied then he is required to identify
which items have not been completed or rectified to his satisfaction and the contractor must
carry out the rectification and completion procedure again in accordance with sub-clause 25.2 .
This procedure may be repeated several times until the principal agent is satisfied that all the
items on the work completion list have been appropriately addressed.
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Contract Completion notes
Alternatively, should the principal agent not issue a works completion list within 5 working
days of the date of practical completion the contractor is obliged to notify both the employer
and principal agent in this regard and the principal agent is required to submit a works
completion list within 5 working days of receipt of the contractor’s notice. Should the principal
agent fail to submit the works completion list thereafter, works completion shall be deemed to
have been achieved on the expiry of the initial 5 working day period after the issue of the
certificate of practical completion.

The only evident incentives that exist for the contractor in relation to works completion is that
the contractor has 20 working days to complete and / or rectify the items on the works
completion list in order not to forego compensatory interest on the value of outstanding work .
The issue of the works completion certificate marks the commencement of the 90 calendar day
defects liability period. (NB The Contractor is not entitled to compensatory interest on the value
of outstanding work , see clause 25.4)

Final completion

At the end of the defects liability period, or when the contractor believes the defects liability
period has come to an end, he must submit a notice to the principal agent who is obliged to
inspect the works within the period specified in order to determine whether any defects are
present. Should any defects be identified, the principal agent is obliged to provide the contractor
with a defects list, which have arisen during the defects liability period and which the contractor
must rectify in order to achieve final completion of the works.

Similarly, as provided for under works completion, if the principal agent does not issue a
defects list within the period prescribed of 5 working days from the end of the defects liability
period, the contractor is obliged to notify both the employer and principal agent in this regard
and the principal agent is required to submit the defects list within 5 working days of receipt of
the contractor’s notice. Should the principal agent fail to submit the works completion list
thereafter, final completion shall be deemed to have been achieved on the expiry of the initial 5
working day period after the end of the defects liability period.

The achievement of final completion by the contractor has the following consequences:

- all the contractor’s liabilities and obligations in relation to a subcontractor’s defects

comes to an end and any remaining portion of the subcontractor’s defects period is
agreed and assumed by the employer ;

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Contract Completion notes
- all guarantees, warranties and indemnities provided by the contractor, subcontractors
and suppliers are ceded to the employer on the date which the certificate of final
completion is issued ; and
- the certificate of final completion constitutes conclusive evidence as to the sufficiency of
the works and that the contractors obligations have been fulfilled other than latent
defects.

Conclusion

Practical completion, works completion and final completion deal exclusively with the
construction period. Once the contractor has achieved final completion he still retains certain
obligations in relation to the latent defects liability period. The latent defects liability period
commences when construction begins and ends 5 years after the date when final completion
was achieved.

Written by Niel Coertse, Associate at MDA Consulting 

Practical completion

Introduction

The RIBA Plan of Work 2013 suggests that: 'Practical Completion is a contractual term used in

the Building Contract to signify the date on which a project is handed over to the client. The
date triggers a number of contractual mechanisms.'

Practical completion is referred to as 'substantial completion' on some forms of contract,

particularly in the United States.

The contract administrator certifies practical completion when all the works described in

the contract have been carried out. Certifying practical completion has the effect of:

 Releasing half of the retention (an amount retained from payments due to

the contractor to ensure they complete the works).

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Contract Completion notes
 Ending the contractor's liability for liquidated damages (damages that become payable to
the client in the event that there is a breach of contract by the contractor - generally by
failing to complete the works by the completion date).

 Signifying the beginning of the defects liability period.

Documentation that should be issued to the client on certification of practical completion might

include:

 A draft building owner's manual.

 A building user's guide.

 The health and safety file.

 The building log book.

 A construction stage report.

Once the certificate of practical completion has been issued, the client takes possession of

the works for occupation.

There is no absolute definition of practical completion and case law is very complex. There is

some debate about when practical completion can be certified and whether it can
be certified where there are very minor (de minimis) items 'not affecting beneficial occupancy'
that remain incomplete.

It is important to note however, that the defects liability period, which

follows certification of practical completion, is not a chance to correct problems apparent
at practical completion, it is the period during which the contractor may be recalled
to rectify defects which appear following practical completion. If there are defects apparent
before practical completion, then these should be rectified before a certificate of practical
completion is issued.

This can put the contract administrator in a difficult position, as both the contractor and

the client may be keen to issue the certificate (so the building can be handed over), and
yet defects (more than a de minimis) are still apparent in the works. Issuing
the certificate could render the contract administrator liable for problems that this causes, for
example in the calculation of liquidated damages, the position in relation to performance
bonds and the release of retention when it is not certain that the works will be completed.
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Contract Completion notes
If the contract administrator is put under pressure to certify practical completion even though
the works are not complete, they might consider informing the client in writing of the potential
problems of doing so, obtaining written consent from the client to certify practical
completion and obtaining agreement from the contractor that they
will complete the works and rectify any defects. If the contract administrator is not confident
about the potential problems, they may advise the client to seek legal advice.

On construction management contracts, a separate certificate of practical completion must be

issued for each trade contract. Once all trade contracts (or all trade contracts for a
particular section of the works) have been issued, the construction manager issues
a certificate or project completion (or sectional completion). The same is true on management
contracts, where each works contract must be certified individually.

Practical completion is not a term recognised in some recently developed contracts such as PPC

2000 and other partnering contracts which simply refer to 'completion'. This can put the contract
administrator in a difficult position as to when the project becomes 'useable' by the client.

If practical completion is not certified by the most recently agreed completion date, then

the contractor may be liable to pay liquidated and ascertained damages to the client. These are
pre-determined damages set at the time that the contract is entered into, based on a calculation
of the actual loss that the client is likely to incur if the contractor fails to meet the completion
date. Some contracts require that a certificate of non-completion is issued as a pre-requisite to
deducting liquidated and ascertained damages.

NB: Sectional completion refers to a provision within construction contracts allowing

different completion dates for different sections of the works. This is common on
large projects that are completed in sections, allowing the client to take possession of
the completed parts whilst construction continues on others. Sectional completion differs
from partial possession in that it is pre-planned and defined in the contract documents.

Case law

The case of Mears Limited v Costplan Services (South East) Limited, Plymouth (Notte Street)

Limited, J.R. Pickstock Limited [2019] EWCA Civ 502 has provided additional guidance about
the meaning of practical completion, based on the interpretation by the court that the contract as
it stood would lead to a “commercially absurd result” in which practical completion could not
be certified.

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Contract Completion notes
LJ Coulson said it would be “commercially unworkable if every departure from the contract
drawings, regardless of the reason for, and the nature and extent of, the non-compliance, had to
be regarded as a breach of contract”.

He suggested that law on practical completion could be summarised as follows:

a) Practical completion is easier to recognise than define: see Keating on Construction

Contracts, 10th Edition, paragraph 20 – 169. There are no hard and fast rules: see Bailey
paragraph 5.117, footnote 349.

b) The existence of latent defects cannot prevent practical completion (Jarvis). In many

ways that is self-evident: if the defect is latent, nobody knows about it and it cannot
therefore prevent the certifier from concluding that practical completion has been
achieved.

c) In relation to patent defects, the cases show that there is no difference between an item
of work that has yet to be completed (i.e. an outstanding item) and an item of defective
work which requires to be remedied. Snagging lists can and will usually identify both
types of item without distinction.

d) Although one interpretation of Viscount Dilhorne in Jarvis and Lord Diplock in Kaye
suggests that the very existence of patent defect prevents practical completion, that was
emphatically not the view of Salmon LJ in Jarvis, and the practical approach developed
by Judge Newey in William Press and Emson has been adopted in all the subsequent
cases. As noted in Mariner, that can be summarised as a state of affairs in which
the works have been completed free from patent defects, other than ones to be ignored as
trifling.

e) Whether or not an item is trifling is a matter of fact and degree, to be measured against

"the purpose of allowing the employers to take possession of the works and to use them
as intended" (see Salmon LJ in Jarvis). However, this should not be elevated into the
proposition that if, say, a house is capable of being inhabited, or a hotel opened
for business, the works must be regarded as practically complete, regardless of the nature
and extent of the items of work which remain to be completed/remedied. Mariner is
a good example of why such an approach is wrong. In consequence, I do not consider
that paragraph [187] of the judgment in Bovis Lend Lease, with its emphasis on
the employer's ability to take possession, should be regarded (without more) as an
accurate statement of the law on practical completion.

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Contract Completion notes
f) Other than Ruxley, there is no authority which addresses the interplay between
the concept of completion and the irremediable nature of any outstanding item of work.
And even Ruxley is of limited use because that issue did not go beyond the first instance
decision. But on any view, Ruxley does not support the proposition that the mere fact
that the defect was irremediable meant that the works were not practically complete.

Ref https://www.bailii.org/ew/cases/EWCA/Civ/2019/502.html

29