Last edited 10 Oct 2019

Practical completion

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[edit] Introduction

The contract administrator certifies practical completion when all the works described in the contract have been carried out. Practical completion is referred to as 'substantial completion' on some forms of contract, particularly in the United States.

Certifying practical completion has the effect of:

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

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.

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.

[edit] 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.

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.
  • 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

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