Out-Law Analysis 3 min. read

How construction contracts might deal with ‘completion’ of higher-risk buildings

Now the main provisions of the Building Safety Act 2022 (BSA) have come into force, we will begin to see market reaction to the different ways in which building contracts can be amended to address how the new ‘gateway’ system of building control for ‘higher-risk buildings’ in England & Wales impacts the normal process for completing construction works.

Higher risk buildings (HRBs) are those which are over 18 metres or at least seven storeys which contain at least two residential units; or alternatively are care homes or hospitals meeting the same height requirements.  The main provisions of the BSA that came into on 1 October contained further details of the HRB regime. All projects getting underway now will either fall within  transitional arrangements or will be subject to the full effect of the new legislation – in which case, consideration needs to be given to how programme and completion cater for the gateways.

Under the BSA, HRBs must be approved by the Health and Safety Executive, as building safety regulator (BSR), at three stages of the project: at the planning application stage (gateway one), before construction works start (gateway two), and before the building is occupied (gateway three): projects cannot proceed to the next stage without the BSR’s approval.

To pass through gateway three, the employer under the building contract must obtain a construction completion certificate from the BSR.

Currently, construction contracts typically deal with completion in a straightforward manner – they generally provide that once the contractor has finished its works to a point of completion or practical completion, the project then moves into the defects rectification period. With the new gateway system of building control in mind, however, employers and contractors must consider the extent to which the contractual provisions relevant to completion should align with the regulatory process for HRBs.

As we see it, there are two principal options as to how parties to a construction contract might deal with this.

Under the first option, the contract could allow the contractor to achieve practical completion when it has finished its work, but before the completion certificate is obtained from the BSR.

On practical completion, the contractor would typically de-mobilise and possession of the site, and responsibility for its security, would pass back to the employer, as would the insurance risk in the works. Any sums that have been retained under the contract would also usually be partially released on practical completion, and it is also common for performance bonds and other forms of performance security to expire on or shortly after practical completion.

If the BSR, in assessing the application for a completion certificate, raised issues with the construction that were the contractor’s responsibility, the effect of this first contractual approach would be that those issues could only then be dealt with as defects under the defects rectification provisions. That generates obvious practical, operational and commercial issues for the employer and contractor.

Under the second option, the contract could be amended to provide that the contractor cannot achieve practical completion for the purposes of the contract until after the completion certificate is obtained from the BSR.

Under that approach, the date for completion would ignore the period that will be required for the BSR’s review.

If issues are identified by the BSR that are the fault of the contractor then these will fall within the works that the contractor would then have to carry out to achieve practical completion. The contractor would have to cope with those works within its period for completion, or face liquidated (or other delay related) damages for a delay in completion.

However, if the time between the point the contractor completes its work and the point that the completion certificate is obtained from the BSR is purely the time the BSR takes to run through its certification process, contractors would expect contractual protection against this risk, by way of an extension of time. Employers would want to ensure that protection is limited to the extent the delay cannot be attributed to an issue for which the contractor was responsible.

The choice has to be made one way or other for any contracts involving HRBs. It is likely that a ‘market position’ on the issue will begin to emerge in 2024. Supply chain contracts will need adjusted to suit.

Our view is that while there are competing interests to balance, the second option is likely to prevail as the most popular.

It is difficult to see that employers will want to have practical completion occur without the comfort of knowing that the BSR has signed off on the building allowing occupation. That means, though, that the industry must wrestle with the consequences of the delay to practical completion – and the legitimate protection the contractor will expect if the delays are just part of the process of obtaining the required completion certification.

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