Out-Law / Your Daily Need-To-Know

Out-Law Guide 2 min. read

Practical completion in construction projects

‘Practical completion’ is a term used to describe a milestone reached in building works that has various commercial consequences.

The term is used in the JCT suite of construction contracts but is not defined in the JCT standard forms, nor is there is a clear legal definition for the concept in case law.

However, case law has provided some guidance on what is meant by ‘practical completion’. Examples include:

  • completion of all the construction work;
  • no apparent defects except for those that are very minor; and
  • completion for all practical purposes.

Where practical completion occurs, it is ordinarily the case that the employer must release a percentage of retention, the employer’s right to liquidated damages ceases, the defects liability period commences, and responsibility for the works passes to the employer.

The courts have emphasised that practical completion can only be certified where the employer can take possession of the asset and use it as intended. Therefore, understanding the intention and use of the works is essential in achieving practical completion.

Contractual requirements for practical completion

Due to the fact that there is no definition of ‘practical completion’ under JCT contracts, definitions and requirements are often introduced by the parties themselves in contracts using those standard forms.

When negotiating building contracts, we frequently see the following types of clauses and requirements introduced:

  • an obligation to procure all collateral warranties in connection with works pre-completion;
  • a requirement to ensure that all conditions in third party agreements that relate to works are discharged or fulfilled;
  • an obligation to satisfy a list of practical completion pre-conditions; and
  • requirements that may be difficult or impossible to achieve.
Collateral warranties

To be able to provide all collateral warranties, the contractor needs to be aware of this condition and engage with subcontractors from the outset. The contractor could consider making the provision of the required collateral warranty a pre-condition to any payment being made to the subcontractor.

Conditions in third party agreements

A requirement to ensure all conditions in third party agreements are discharged can cause problems where the obligations are not expressly set out in a schedule to the building contract, as otherwise it can be difficult to work out what needs to be done and when. For instance, third party agreements relating to the works can require them to be carried out in a certain way or to a certain standard. It is therefore good practice to agree specific obligations or to ensure scope documentation reflects these obligations and the scope takes priority over ancillary documents.

Pre-conditions to practical completion

Pre-conditions may also be included in the building contract that must be satisfied by the contractor. Pre-conditions should be checked to ensure they are achievable. For instance, it is not always possible to provide “as built drawings” before practical completion. Splitting these requirements into a pre- and post-practical completion list will ensure that practical completion can be achieved and certified.

Onerous requirements

On occasion, employers seek to introduce unduly onerous requirements to achieving practical completion, such as a requirement to achieve carbon net zero, for example, or to ensure works are signed off as meeting the ‘BREEAM Outstanding’ standard. Whilst both are laudable, neither are readily achievable. For example, the bar to achieve BREAAM Outstanding is high and relies on a third party signing it off, thereby reducing the contractor’s control in achieving practical completion.

Actions for parties

Whilst ‘practical completion’ has no clear legal definition, specific drafting in building contracts and careful negotiation of requirements can assist contractors to ensure contractual requirements and pre-conditions are reasonable and achievable. This will mean that practical completion can be certified by reference to an agreed standard and help avoid disputes.

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