Out-Law Guide | 25 Aug 2011 | 11:43 am | 2 min. read
The culmination of most construction contracts is commonly known as 'practical completion' of the building works. Completion triggers the release of any retained funds, the risk of loss or damage to the works passes from the contractor to the employer and the contractor is no longer liable for liquidated damages. The defects liability period begins on practical completion.
Although the term has been used for decades, the precise legal definition of practical completion remains uncertain. It can be argued to have various meanings, ranging from 'nearly but not quite complete' to 'complete for practical purposes'.
The subjectivity of this question can be traced to the wording in the standard form construction contracts which, for the most part, refer to practical completion without providing a clear definition.
Completion under JCT, ICE and NEC
In the JCT forms, except the Major Project Construction Contract, there is no definition of practical completion. Instead, discretion is provided to the contract administrator to determine whether the works have achieved 'practical' completion. The ICE forms also adopt a minimalist approach, by requiring 'substantial completion' which is again not a defined term.
The drafters of NEC3 have tried to provide more clarity by abandoning the term and opting simply for 'completion'. This requires the contractor to carry out all work within the 'Works Information' and rectify any defects which would have prevented use. This on its own could arguably mean defect-free completion of all that is in the works information.
The Third Edition added a final paragraph which suggests that if there is no specific provision in the works information about completion then the test is based on whether the contractor has done all work necessary for the employer to use the works and for others to do their work. It is therefore possible for the works to contain defects and still be usable, and so therefore complete.
What does it mean?
Most of the case law deals with practical completion under JCT, so is of limited help when it comes to the ICE or NEC definition. From the cases, it is possible to say that the indicators of practical completion are:
However, practical completion is possible if there are hidden or 'latent' defects or if minor work remains.
There is therefore useful guidance, but no unambiguous definition of practical completion. This is not surprising as it is an issue which depends on the facts in each project. A simple solution is to define completion at the beginning of the project. If certain elements are required, then set them out to avoid confrontation later on. Parties should apply greater discipline to regularly test the works and discuss concerns throughout the construction process.