‘COMPLETION’ IS THE KEY TO

LIQUIDATED DAMAGES:
BUT WHAT IS COMPLETION?

A paper based on a commended entry

in the Hudson Prize Competition 2003

John Nestor

May 2004

www.scl.org.uk
 ‘COMPLETION’ IS THE KEY TO
LIQUIDATED DAMAGES:
BUT WHAT IS COMPLETION?

John Nestor

Introduction
If a party fails to complete by the date prescribed in a construction contract,
the party in breach is often liable to pay or allow a predetermined sum of
money to the other. If this sum is a genuine pre-estimate of the loss likely to
flow from the breach, it represents consensual pre-agreed or liquidated
damages, which are recoverable without having to prove any loss actually
suffered. Therefore, recovery of liquidated damages for delay to completion
depends on three (and only three) facts:
1. that the works are (or should have been) completed on a particular date;
2. that they should have been completed on an earlier date; and
3. that there is a pre-agreed stipulated sum of money that forms a genuine
pre-estimate of the loss that is likely to flow from the breach.

This paper concerns the first of these. It does so within the context of practical
completion under a standard form of building contract. However, its aim is
prescriptive of completion when completion – or more precisely a failure to
complete – is the trigger for liquidated damages. It goes on to suggest that a
taking-over certificate would be more appropriate than a certificate of practical
completion.

Completion under the standard form

Article 1 of JCT 98,1 which is restated to similar effect in clause 2.1, provides
that: ‘For the consideration … the Contractor will upon and subject to the
Contract Documents carry out and complete the Works shown upon, described
by or referred to in those Documents.’

Clause 1.5 provides that: ‘… the Contractor shall remain wholly responsible
for carrying out and completing the Works in all respects in accordance with
the Conditions, whether or not … the Architect … issues the certificate of
Practical Completion …’

Clause 1.3 defines practical completion by reference to clause 17.1. So, by

virtue of the introductory words in clause 1.3, ‘practical completion’ has the

1 Standard Form of Contract, 1998 edition, The Joint Contracts Tribunal Ltd.
1
meaning ascribed to it in clause 17.1, which provides that practical completion
occurs when:
1. in the opinion of the architect, practical completion of the works is
achieved;
2. the contractor has complied sufficiently with clause 6A.4 (health and
safety file); and
3. if relevant, the contractor has complied with clause 5.9 (supply of as-
built drawings for performance specified work).

The test is threefold, and the first limb has two parts. The first part requires
the architect to apply his or her professional judgment to the question of
practical completion. This implies that completion is a matter of observation,
and therefore interpretation. This has important consequences, because the
certifier is charged with creating certainty by applying professional judgment.
For that reason alone, a party seeking to challenge a certificate will have to
adduce convincing evidence of its incorrectness. Conversely, a party seeking
to challenge a refusal to issue the certificate will have to adduce convincing
evidence that it should in fact have been issued. But this paper is not
concerned with the existence or otherwise of the certifier and how the office
might affect the question of completion. By oversight or design, the parties to
a contract might do away with the certifier, and when the courts review a
certifier’s decision, or rule on a preliminary matter, the judges articulate
principles and standards that the certifier should take into account when
making his or her decision.

The second part imports the word ‘practical’, which suggests completion in a
sense other than (and necessarily lesser than) that envisaged by Article 1 and
clause 1.5. This must be the case, because the consideration plainly relates to
performing all contractual obligations, a point reinforced by the fact that the
contractor remains responsible for carrying out and completing the works in
all respects, including ensuring that the works are free from defects, even if
the architect issues a certificate of practical completion. In other standard
forms, the adjective ‘substantial’ is used, which might suggest something
different from ‘practical’, but the basic point is that, in both cases, something
less than utter completion is expected.

The second and third limbs introduce terms first appearing as Amendment 14
(March 1995) and Amendment 12 (July 1993) of the JCT 80 form.2
Conceivably, they provide that, even if the employer has taken full possession
and use of the works, and they are perfect, but the contractor has not complied
with clause 5.9 or not sufficiently complied with clause 6A.4, the conditions
for issuing a certificate of practical completion will not have been met, and
liquidated damages will apply or continue to apply. Without in any way
seeking to trivialise the importance of such terms, they do not sit comfortably
with the principles at play.

2 Standard Form of Contract, 1980 edition, Joint Contracts Tribunal.

2
Practical completion is significant to the operation of the contract in several
ways, and perhaps that is its weakness. But in this paper it is the contingent
cessation of the contractor’s liability (if any) for liquidated damages that is
most material. It is of note that such liability may alternatively cease or be
curtailed proportionately to the value of any part of the works of which the
employer takes possession pursuant to clause 18. This feature is present in
many other standard forms.

Authorities on completion
The general rule in contract is that a party to a contract must perform exactly
what he or she undertook to do,3 but the doctrine of substantial performance4
restrains the rigour of this rule.5

In the context of recovering the price under a building contract, Sachs LJ

stated in Bolton v Mahadeva:
So far as the law is concerned, I would merely add that it seems to me to
be compactly and accurately stated in Cheshire and Fifoot [The Law of
Contract, 7th edition (1969), at p 492] in the following terms: ‘… the
present rule is that “so long as there is a substantial performance the
contractor is entitled to the stipulated price, subject only to a cross-action
or counter-claim for the omissions or defects in execution”’.6

But the doctrine of substantial performance can be distinguished from

practical completion. In this way, it would seem that something more is
required under a building contract before a party is relieved of its liability to
pay or allow liquidated damages for failing to complete.

Stroud’s Judicial Dictionary of Words and Phrases,7 relying on the case of

Emson Eastern v EME Developments,8 defines completion under a building
contract in the following but fruitless way: ‘completion means practical
completion’.

In Emson, Judge Newey QC had to decide whether snagging and remedial

work carried out after practical completion constituted ‘works’ within the
meaning of clause 27 of a JCT form of contract.9 If it did, even though the

3 See Chitty on Contracts, 28th edition, Sweet & Maxwell, 1999, para 22-001.
4 See note 3, paras 22-032 and 22-033.
5 Notwithstanding the view of the learned editors of Chitty on Contracts relating to the
distinction between severable obligations and entire contracts – namely, that there ought
to be no room in English law for a doctrine of substantial performance – the authorities
support its existence: See Broom v Davis (1794) 7 East 480n; Mondel v Steel (1841)
8 M & W 858; Dakin v Oxley (1864) 15 CB(NS) 646; H Dakin & Co Ltd v Lee [1916] 1
KB 566, CA; Hoenig v Isaacs [1952] 2 All ER 176, CA; Kiely & Sons Ltd v Medcraft
(1965) 109 Sol Jo 829, CA; Bell v Automatic School of Motoring Ltd (1969) 113 Sol Jo
871, CA; Bolton v Mahadeva [1972] 2 All ER 1322, [1972] 1 WLR 1009, CA.
6 Bolton v Mahadeva [1972] 2 All ER 1322, at page 1327.
7 Greenberg and Millbrook, Stroud’s Judicial Dictionary of Words and Phrases,
6th edition, Sweet & Maxwell, 2000, page 463.
8 Emson Eastern Ltd v EME Developments Ltd 55 BLR 114, QBD(OR).
9 See note 2, private without quantities.
3
architect had certified practical completion, the employer would not have been
obliged to pay the contractor anything more until someone else had rectified
such work, because the employer had determined the contractor’s employment
after it had gone into administrative receivership.

Judge Newey QC considered three tests previously put forward (one was his
own):
1. Completion means ‘… completion for all practical purposes, that is to
say for the purpose of allowing the employers to take possession of the
works and use them as intended’ per Salmon LJ in Jarvis v
Westminster.10
2. Completion means ‘… completion of all the construction work that has
to be done’ per Viscount Dilhorne in Jarvis v Westminster, on appeal in
the House of Lords.11
3. Completion means that ‘…the architect [had] a discretion to certify that
[the contractor] had fulfilled its obligation under clause 21(1), where
very minor de minimis work had not been carried out, but that if there
were any patent defects in what [the contractor] had done the architect
could not have given a certificate of practical completion’ per Judge
Newey QC in Nevill v William Press.1213

In terms of completeness, the second test demands more than the third, and the
third more than the first. But all three have the same objective, and presume
that completion ought to be measured by reference to the quantity and quality
of work carried out. They differ, though, on the criterion employed.

The first is purposive. The guiding tenet is whether the works are sufficiently
complete for the purpose for which they were designed, or whether they are
reasonably fit for possession and use by the employer. In this way, defects are
material if they affect possession and use. The second and third are
abstractive in the sense that completion is a matter of focussing on the quantity
and quality of the work carried out. The first is not pre-occupied with
classifying the work in terms of defects, but the second and third are. They
rely on elusive and troublesome distinctions, spawning qualifiers such as
patent, latent, major, minor and de minimis.

In Emson, Judge Newey QC stated:

The standard by which the architect must apply in deciding when
practical completion of the works has been achieved was differently
stated by Salmon LJ and by Lord Dilhorne in Jarvis’ case; the latter

10 J Jarvis & Sons Ltd v Westminster City Council [1969] 3 AllER 1025, [1969] 1 WLR
1448, CA, at page 1458.
11 J Jarvis & Sons Ltd v Westminster City Council [1970] 1 AllER 943, [1970] 1 WLR 637,
HL, at page 646.
12 HW Nevill (Sunblest) Ltd v William Press & Son Ltd (1981) 20 BLR 78, QBD(OR),
at page 87.
13 Tests set out by Judge Newey in Emson (see note 8), at pages 120-121.
4
 being more stringent than the former. In William Press I seem to have
sought a position in between and I think that that is probably right.14

But unless one construes patent defects in William Press as excluding snags or
minor defects, the Emson test is less exacting than the test in William Press.
In Emson, Judge Newey QC went on to state that: ‘The construction industry
recognises a difference between the carrying out of new works and ‘snagging’,
that is to say dealing with minor defects in them.’15

That engendered another qualifier, because Judge Newey QC decided that the
existence of ‘snags’16 or ‘minor defects’ did not prevent completion, a
decision which is more in keeping with the purposive approach of Salmon LJ
rather than the abstractive approach of Lord Dilhorne. Even if it is not, the
references to the background context and to liquidated damages suggest that
the issue of completion is not solely about completion in the abstract, but
rather completion in the context of, amongst other things, liquidated damages.

In BFI Group v DCB Integration Systems,17 Judge John Davies QC allowed an

appeal from the decision of an arbitrator who had disallowed liquidated
damages after an employer had taken possession of the works under a JCT
Minor Works form of contract, where the ground relied on by the arbitrator
was that the employer had in fact suffered no loss. In the context of altering
and refurbishing offices and workshops at a transport depot, the employer
could not use two out of six loading bays for six weeks after taking
possession, due to the absence of two roller shutters. The judge held that
liquidated damages came into play if the contractor failed to achieve practical
completion by a specified date, and practical completion and the date of
possession were not the same. The judge further held that there was no
question of the damages operating as a penalty, because the arbitrator had
himself decided that they were not.

More recently, in Big Island Contracting v Skink18 the Court of Appeal of

Hong Kong stated that practical completion could not be distinguished from
substantial performance, and explained that that the law in this regard was set
out in Hoenig v Isaacs19 and Bolton v Mahadeva.20 However, it could be
argued that this case is particular to its own facts, in that practical completion
under the contract in question was directly linked to a substantial payment
obligation.

14 See note 8, at page 122.

15 See note 8, at page 122.
16 The Oxford English Dictionary defines a ‘snag’ as an impediment, obstacle, disadvantage,
hitch or defect.
17 BFI Group of Companies Ltd v DCB Integration Systems Ltd (1987) CILL 348,
QBD(OR).
18 Big Island Contracting (HK) Ltd v Skink Ltd (1990) 52 BLR 110, CA(HK).
19 Hoenig v Isaacs [1952] 2 All ER 176, CA.
20 See note 6.
5
Completion and the Architects’ Job Book
The Royal Institute of British Architects issued the following guidance in the
Architect’s Job Book:
The practical completion certificate … is issued only when in the
opinion of the contract administrator … the works have reached a state
of practical completion.21

In its latest edition, the Royal Institute of British Architects issues the
following guidance (or warning):
Issue certificate of practical completion in accordance with the
provisions of the contract. Certify practical completion only when, in
your opinion, this state has been attained. Be very wary of pressure from
the contractor or the client to certify practical completion early – the
consequences can be serious for all concerned.22

Completion should be set by reference to availability

When liquidated damages flow from a failure to achieve a form of completion
within a prescribed period, and they accrue by reference to time, although the
existence of defects might suggest that the works are not complete, the guiding
criterion should be whether the works are sufficiently complete for the
purpose for which they were intended – that is to say, whether they are
reasonably available for possession and for the intended use by the employer.

Wrong measure

The starting point for this proposition is that, in principle, liquidated damages
expressed by reference to time must be the wrong measure of damages for the
existence of defects in a building that may or may not impinge on availability.

The authors of McGregor on Damages state that the normal measure of

damages for failing to complete a building by the time required by the
contract: ‘… should be the value of the use of the building during the period of
delay, the value generally being taken as the rental value.’23 This can be
distinguished with the normal measure of damages for rectifying defects in a
building that do not impinge on availability – namely, the cost of cure.24
Plainly, the two methods of calculating loss recognise that the consequences of
delayed performance and defective performance are not the same.

21 Architect’s Job Book, 6th edition, RIBA Publications, 1995, page 251.
22 Architect’s Job Book, 7th edition, RIBA Publications, 2000, page 246.
23 See McGregor on Damages, 17th edition, Sweet & Maxwell, 2003, para 26-007.
24 See note 23, para 26-009. But if the cost of cure is out of all proportion to the benefit to
be obtained, the normal measure is the diminution in the value of the building occasioned
by the breach – see Ruxley Electronics & Construction Ltd v Forsyth [1996] AC 344,
[1995] 3 All ER 268, 73 BLR1, 45 ConLR 61, HL.
6
The essence of pre-agreed damages is a genuine25 pre-estimate of the loss that
is likely to flow from a particular breach.26 This carries with it the implication
that, at the time the parties made their contract, they had regard to the range of
losses that the parties could reasonably anticipate arising from the breach,
which in turn involves issues of measure and quantification. When defects do
not impinge on availability, it cannot be appropriate to use a measure founded
on availability, because it could not (except by pure coincidence) correspond
with a sum that ought to be posited. Indeed, given that damages are invariably
a calculation founded on the employer gaining no useful benefit whatsoever
from the building during the period of delay, the stated sum cannot be justified
unless the particulars of breach do in fact impact on the employer in this way.
Further, the use of an inappropriate measure would in any event undermine the
genuineness of the estimate that must be made.

In short, the main purpose of clauses providing for pre-agreed damages is to

alert the contractor to the likely consequence of failure to complete on time
and to avoid the difficulty of having to prove the extent of actual damage at
any trial of an action for breach.27 They seek to address problems of
quantification. They do not seek to subvert the very foundation on which any
given loss lies.

The construction point

The second point is that the issue of whether a particular breach is covered by
a liquidated damages clause is a matter of construction. That being so, the
courts have held that such clauses should be construed so as to avoid the result
that they cover breaches of contract resulting in minor loss.

In Jarvis v Westminster, Salmon LJ stated:

If completion in clause 21 meant completion down to the last detail,
however trivial and unimportant, then clause 22 would be a penalty
clause and as such unenforceable.28

In Emson, but not in William Press, Judge Newey QC referred to this point
and stated:
If, contrary to my view, completion is something which occurs only after
all defects, shrinkages and other faults have been remedied in accordance
with clauses 17.2 and 17.3 … it would make the liquidated damages
provision in clause 24 unworkable ....29

More recently, the Court of Appeal considered the issue in the context of
shipbuilding in the case of Cenargo Ltd v Empresa Nacional Bazan de

25 The learned editors of Chitty (see note 3), para 27-104 state that this word has not been
interpreted in a reported case, but presumably it means ‘… a serious attempt to estimate
loss …’
26 See Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79, HL;
Philips Hong Kong Ltd v A-G of Hong Kong (1993) 61 BLR 41, 9 ConstLJ 202, PC.
27 See note 23, para 13-011.
28 See note 10, at page 1458.
29 See note 8, at page 122.
7
Construcciones Navales Militares SA.30 Here, the claimant contracted with
the defendant to construct and deliver two ‘ro-ro’ ferries. The contract
provided that each ferry was to have a freight capacity of at least 146 spaces
(each 13 metres long). The contract further provided for payment of
liquidated damages for each space by which the ferries were deficient in
freight capacity. The claimant argued that the defendant had provided only
140 spaces, since there were issues preventing the claimant from using six of
the spaces. The Court of Appeal held that there was no breach. The
obligation to deliver vessels with the requisite freight capacity meant
delivering vessels capable of providing the right number of spaces, and it was
only because of faulty design or work that the right number of spaces had not
been provided earlier – that is to say, on delivery. Further, the Court of
Appeal held that, even if the vessels had been incapable of providing the six
required spaces, the loss resulting from the breach was not intended to be
covered by the liquidated damages clause.

Longmore LJ, with whom the others agreed, stated:

There is a danger that, if a liquidated damages clause is held to apply to
trifling breaches of contract or breaches of contract which result in
trifling loss, the whole clause might be struck down as a penalty clause
… it is important that such contracts should be construed, if possible, to
avoid the result that breaches of contract resulting in minor losses will be
covered by such clauses. As Lord Woolf said in Philips Hong Kong Ltd
v Attorney General of Hong Kong (1993) 61 BLR 49 at page 59: ‘So
long as the sum payable in the event of non-compliance with a contract
is not extravagant, having regard to the range of losses that it could be
reasonably anticipated it [the relevant clause] would have to cover at the
time the contract was made, it can still be a genuine pre-estimate of the
loss that would be suffered and so a perfectly valid liquidated damage
provision.’
That shows that it is important to have in mind the range of losses the
parties would anticipate the clause would cover when they made their
contract. I do not consider that the parties in this case, when agreeing
liquidated damages in relation to trailer carrying capacity, could have
had in mind defects in design or workmanship which could be rectified
without incurring major expense, even if it could be said that until such
defects were rectified the vessel’s spaces were, in breach of contract, not
fully available.31

Longmore LJ also quoted from a passage in Treitel on the Law of Contract,

which says:
A sum may, therefore, be regarded as penal if it might have become due
on a trifling breach, even though the breach which actually occurred was
quite a serious one, and one for which the sum could be regarded as a
genuine pre-estimate. In this way, the rule can invalidate perfectly fair
bargains. The courts will do their best to avoid such results by

30 Cenargo Ltd v Empresa Nacional Bazan de Construcciones Navales Militares SA [2002]

EWCA Civ 524 [2002] CLC (Commercial Law Cases) 1190, CA.
31 See note 30, at page 1197B-E.
8
 construing the contract so as to make the sum payable only on major
breaches, for which it is a valid pre-estimate.32 [emphasis added]

Longmore LJ explained that ‘major breaches’ meant breaches of contract

giving rise to substantial loss of the kind contemplated by the liquidated
damages clause.

It is plain that defects in a building which do not affect availability do not

cause substantial loss of the kind invariably contemplated by liquidated
damages clauses. This is because they are founded on total unavailability.
Therefore, they should be construed, if possible, so as not to apply to defects
or breaches that do not affect availability. This can be achieved by adopting
the purposive approach suggested by Salmon LJ in Jarvis, rather than the
abstractive approach suggested by Viscount Dilhorne and others.

The terms

The third point is that availability is relatively consistent with the terms of the
standard form, and more so than the abstractive approach. Perhaps it would be
hopeless to search for some logically consistent and complete exposition of
the meaning and effect of a standard form, at least when such form is the
product of evolution by derivation from several predecessors, and subject to
numerous amendments along the way, thus creating ideal conditions for
introducing inconsistency, ambiguity and redundancy. To this one can add the
imperfect procedure of the legal process itself and the inherent risk of
choosing questionable paths that are rarely retraced, but from which deviations
frequently occur.

Looking further at the provisions of JCT 98,33 doubtless, there is force in the
argument that because clauses 17.2 and 17.3 expressly deal with defects that
appear within the defects liability period, it plausibly follows that the period is
not intended to address defects that cannot appear within it, such as defects
that are already apparent. Thus, as the defects liability period starts once
practical completion has been achieved, the implication is that practical
completion cannot be achieved until those defects which are apparent have
been rectified. Lord Dilhorne made this point in Jarvis,34 giving more weight
to the concept of a ‘defects liability period’ than to other terms, such as
clauses 18 or 24. Nonetheless, the case of Emson35 shows that clauses 17.2
and 17.3 do not have the effect suggested by Lord Dilhorne. Not only in
principle can minor patent defects be rectified during the defects liability
period, but also in practice they often are, minor or otherwise.

As to clause 18, this is plainly relevant, as it provides for the employer to take
possession of part of the works. If the employer does so, the contractor’s
liability for liquidated damages is expressly curtailed proportionately to the

32 See note 30, at page 1197G, Sir Guenter Treitel, The Law of Contract, 10th edition,
Sweet & Maxwell, 1999, at page 932 (11th edition published 2003, see pages 1001-2).
33 See note 1.
34 See note 11.
35 See note 8.
9
value of such part when measured against the contract sum and the rate
specified in the contract for liquidated damages. Further, it would appear that
clause 18 operates when the employer has taken possession of all the works,
not just part of them: see Skanska Construction v Anglo-Amsterdam.36 Thus,
the consequences of taking possession of all the works relieves the contractor
thereafter from liquidated damages or further liquidated damages.

If the abstractive approach and the cases mentioned above are sound, the
resulting analysis seems to be this: ‘If the employer takes possession of the
works, liquidated damages cease; but if the employer does not take possession,
even though the works are reasonably available for such possession, liquidated
damages do not cease provided the existence of defects precludes the issue of
a practical completion certificate.’ This suggests that there is a distinction
between the act of taking possession, when liquidated damages cease, and
omitting to take possession, despite availability, when they do not. In this
way, liability for damages is at the election of the employer. However, this
distinction is not supported by the learned editors of Keating on Building
Contracts, who state that:
The Employer is not bound to take possession of a completed part of the
Works. But it is thought that where liquidated damages are running, an
Employer who, in all the circumstances, was unreasonable in refusing
the Contractor’s offer of possession of a completed part of the Works
might be open to arguments in favour of a proportional reduction in
liquidated damages for failing to mitigate his loss.37

This suggests that the resulting analysis is not correct. It suggests that if the
works are reasonably available for possession and for their intended use,
liquidated damages should cease. This in turn suggests that the test is, or
should be, availability.

A taking-over certificate would be more appropriate

When liquidated damages are linked to completion, the guiding criterion
should be whether the works are reasonably available for possession and for
the intended use by the employer. In this way, the principles rooted in
damages prevail over the test for completion, particularly as the latter could be
set by reference to terms other than the quantity and quality of work carried
out.38 Ideally, however, there should only be one form of completion under a
construction contract – that is, utter completion – and, when the building is
reasonably available for possession and for the intended use by the employer,
the architect should issue a taking-over certificate, not a certificate of practical
completion.

36 Skanska Construction Regions Ltd v Anglo-Amsterdam Corporation Ltd 84 ConLR 100,

(QBD(TCC).
37 Stephen Furst QC and Vivian Ramsey QC, Keating on Building Contracts, 7th edition,
Sweet & Maxwell, 2001, para 18-191.
38 Could completion be linked to the contractor performing some grossly unconventional
(but legal) act?
10
As mentioned, to render completion workable in the context of liquidated
damages, something less than utter completion is required. This creates
difficulty for the architect, because he or she is required to certify that degree
of completion, and the governing institute, while stressing independence,
urges caution. Pragmatism leaves the architect exposed, and the ultra cautious
disengage from the duty at hand, thus attracting the employer’s intervention.
Indeed, anecdotal evidence suggests that some architects court such
intervention, particularly as it relieves them of liability for premature
certification.

Yet completeness becomes secondary when the question is one of availability,

a move which could help erode the caution fostered by the inevitable trap of
subsisting defects exposing the architects’ certification. In turn, this could
promote greater consistency among certifiers, as well as leading to a more
measured and thorough examination of disconformities.

Clearly, the courts have faced real difficulties grappling with a concept that
they did not create. This is partly because ‘completion’ is a misnomer, and
militating adjectives such as ‘practical’ and ‘substantial’ serve as a clear sign
of this. Indeed, the concept of practical completion has led some to suggest
that a construction contract is, in practice, two contracts. A prevalent and
counterproductive view seems to be that when practical completion has been
achieved, the contractor has all but discharged its obligations. In this way, the
contractor frequently focuses on achieving practical completion to the
detriment of what is ultimately required.

As noted earlier, the weakness of practical completion is that it is significant to

the operation of the contract in several ways. Amongst other things, it denotes
a form of completion and the cessation of liability for liquidated damages.
Achieving practical completion marks the change between concepts that stand
in opposition to each other: liquidated damages do not cease until the defects
liability period begins. In this way, much rests on practical completion.
Frequently, contractors seek to explain away or dispute the existence of
defects, not because they may have strong grounds for doing so, but because
of what follows their existence.

This all or nothing relationship creates plenty scope for dispute, confrontation,
posturing and lack of co-operation. Although the concept of taking-over
would not remove dispute, it could provide greater flexibility for the certifier,
allowing fairness and pragmatism to be dispensed when circumstances
demand. Another advantage is that, unlike practical completion in practice, it
would not seek to span the divide between availability and something less than
utter completion.

Taking-over is not, as some might suggest, a charter for defective

performance. On the contrary, it could encourage contractors to prioritise
their activities with availability and utter completion in mind. There are many
possibilities, one of which is that the employer could, after taking-over, allow
the contractor to address disconformities by way of a license founded on an
occupation charge or a charge for each day that utter completion remains
outstanding.
11
The practical significance of this is that, if the charge reflects the irritation of
simultaneous occupation or incompleteness, instead of total unavailability, as
liquidated damages do, the significance of practical completion or taking-over
wanes. This could encourage contractors to acknowledge disconformities, and
focus effort on addressing them. They might be encouraged to plan the
discharge of all obligations with efficiency in mind, electing to do so either
before or after taking-over.

In the light of the Government’s desire to build better relationships within the
construction industry, engaging processes that promote that desire should be
encouraged. A conspicuous and direct link between availability for intended
use and liability for liquidated damages for delay to commencement of that
use can only strengthen the concept of liquidated damages and clearly
establish commencement of intended use as the initial goal of all the
contracting parties. This might help promote a better relationship between
employer, contractor and certifier, one where the parties seek to mitigate the
overall financial impact of construction delay. Additionally, the pre-
determination of the occupation charge payable by the contractor after taking
over would, if appropriate amounts are prescribed, help the contractor
understand the balance between delayed commencement of intended use and
disruption to that use after commencement. This might help the contractor
understand and manage the risks associated with construction delay.

John Nestor BSc (Hons), LLB (Hons), MRICS is a senior consultant

with Trett Consulting in London.

© John Nestor and the Society of Construction Law 2004.

The views expressed by the author in this paper are his alone, and do not necessarily
represent the views of the Society of Construction Law or the editor, neither of whom
can accept any liability in respect of any use to which this paper or any information
in it may be put, whether arising through negligence or otherwise.

12
 ‘The object of the Society
is to promote the study and understanding of
construction law amongst all those involved
in the construction industry’

MEMBERSHIP/ADMINISTRATION ENQUIRIES
Jackie Morris
67 Newbury Street
Wantage, Oxon OX12 8DJ
Tel: 01235 770606
Fax: 01235 770580
E-mail: admin@scl.org.uk

Website: www.scl.org.uk

13