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Practical Completion

Practical Completion

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Published by: delies_ on Jan 13, 2010
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Delay andcompletion
What is practical completion?
Consequences of practicalcompletion
Options as to delay
The defects liability period andobligations
Delayed completion
The date set in the building contract asthe date for completion of the newdevelopment is less than one monthaway. The employer visits the site withhis contract administrator. Whilevarious parts of the development arealmost complete, other parts of thedevelopment will clearly not be readyby the completion date, the date theemployer has arranged to takepossession and move into the newbuilding.
What are the options?
The employer should immediately askto sit down with his contractadministrator and discuss the optionsopen to him. However to begin with,the employer will want to know:
Why is the development not goingto be ready on time?
Whose fault is the delay?
Is the contractor entitled to anextension of time?
What remedies are available?
Practical completion
While the phrase “practicalcompletion” and other similar phrases,such as “substantial completion”, areoften used in construction contracts,many do not in fact define what it is.In order for the development to bepractically complete, there must be nopatent defects. However, the contractadministrator does have discretion tocertify practical completion if there arevery minor items of work left tocomplete and the development as awhole is capable of being fully used bythe employer.Some of the newer standard forms ofcontract (e.g. JCT Major Project Form)have defined practical completion astaking place when the development iscomplete for all practical purposesand, in particular:
the relevant statutory requirementshave been complied with by thecontractor and any necessaryconsents or approvals obtained;
none of the minor outstandingworks affect the use of the building;
any stipulations identified by theemployer in the building contractas being essential for practicalcompletion to take place have beensatisfied; and
the health and safety file and all “asbuilt” information and operatingand maintenance information havebeen provided to the employer.
The impact of practical completion
The date of practical completion actsas a trigger for a number of differentand important events. It signifies thecommencement of the defects liabilityperiod (or, as it is now increasinglybeing called, the “rectification period”).This is the period during which thecontractor has an obligation to remedyany (originally latent) defects whichmay emerge. Generally speaking, it isa 12 month period, which allows theemployer to operate the buildingthrough all the seasons and gives timefor defects to emerge.The date of practical completion alsofixes the date for the release of thefirst half of the retention. It also startsthe timetable for agreeing the finalaccount.Equally important, on practicalcompletion, the insurance obligationsunder the contract cease. Theemployer must have insurance for thebuilding as from that date.The date of practical completion alsonormally signifies the start of thelimitation period for any claims againstthe contractor under the buildingcontract.
Liquidated damages
If the works are not practicallycomplete by the completion date, asextended by any extension of time towhich the contractor is properlyentitled, the employer is entitled,subject to the requisite contractualnotices being served, to deductliquidated damages from any sumsotherwise due to the contractor. Suchliquidated damages are calculated atthe rate set out in the building contractfrom the completion date, as extended,until such time as the contractorachieves practical completion. Therelevant contractual notices which actas a pre-condition to liquidateddamages can include; a certificate on
This guide will considerwhat is practicalcompletion and theconsequences of practicalcompletion eitherhappening or not beforeexamining the options ifpractical completion isdelayed as well asdiscussing obligationsarising during, and at theend of, the defects liabilityperiod?
non-completion being issued by thecontract administrator; the employernotifying the contractor that it mayexercise its right to levy liquidateddamages; and the employer issuing avalid withholding notice.Liquidated damages provide anexclusive remedy in respect of thecontractor’s delay.
Partial possession
Even if the building contract does notcontain a provision for sectionalcompletion of that part of the workswhich is very near to completion, theemployer can, if he wishes and if thecontractor consents, take partialpossession of that part of the buildingwhich will, in the very near future, bepartially complete.However, taking possession of part,before the whole development iscomplete, does have its disadvantages.These include that, notwithstandingthere may still be some patent defects,practical completion of the part ofwhich early possession is taken will bedeemed to have occurred and all theconsequences of practical completionwill follow in respect of that part. Thiswill lead, for example, to there beingtwo defects liability periods (one forthe part of the development for whichearly possession is taken and the otherfor the remainder of the development).Equally, the employer will have toinsure that part of the development inrespect of which possession is taken.In addition, the amount of liquidateddamages to which the employer isentitled in respect of the non-completed part and in respect of whichpossession is not taken, will bereduced accordingly.However, with the agreement of thecontractor, it may be possible toovercome some of the problemsarising out of the employer takingpartial possession. If agreement ispossible, a supplemental agreement isrecommended, varying the terms ofthe original building contract.
Defects Liability Period (“DLP”)
At practical completion, there are notmeant to be any patent defects. TheDLP is about remedying defects which“appear” during that period. However,if a schedule of minor defects (asnagging list) is in fact attached to thecertificate of practical completion,those minor defects should beremedied at the start of the DLP withina reasonable time from practicalcompletion.During the DLP and if the employer soinstructs, the contractor has anobligation to remedy any (originallylatent) defects which may emerge, atits own cost. As noted already, it isgenerally a 12 month period.
The end of the Defects Liability Period
Very shortly before the expiry of theDLP, the contract administrator shouldinspect the works and draw up aschedule setting out, in some detail,any defects which are apparent.
What options are there as to thedefects identified?
The contract administrator caninstruct the contractor to make goodthe defects within a reasonable time,at no cost to the employer.Alternatively, the contractor can beinstructed not to remedy the defects.The employer would then make anappropriate deduction in respect of thecosts that it will incur in having thedefects remedied by others. Howeverthe employer may be restricted torecovering no more than the costs thatthe contractor would have itselfincurred, had it been asked to remedythe defects. This is in line with theduty to mitigate.The contract administrator does nothave to wait until the end of the DLP. Itcan issue instructions during the DLPto remedy any defects which emergeduring the DLP.
Once the defects have been madegood
Once the defects have been made goodand assuming that the contractor wasactually instructed to make good thedefects, the contract administratormust issue a notice to that effect, forexample, the certificate of makinggood.
Consequences of issuing theCertificate of Making Good.
The issuing of the certificate of makinggood will result in the release of thesecond and final part of the retention.The final certificate cannot be issuedprior to the issuing of the certificate ofmaking good.
Defects appearing after theCertificate of Making Good has beenissued
Strictly speaking, the contractadministrator cannot issue thecontractor with an instruction to makegood any defects which appear afterissue of the certificate of making good.However, if the final certificate has notyet been issued, an adjustment as tothe amount payable to the contractorcan be made.The employer should check the termsof the building contract to ascertainthe contractual effect of the finalcertificate and in particular whether itis conclusive and if so, as to what?As a last resort (and assuming that thefinal certificate does not act as a bar),the employer may have no alternativebut to issue proceedings in relation tothe losses which it will suffer, as aresult of the defects. The issuing ofproceedings is outside the scope ofthis guide.
So while practical completion and theDLP are the final hurdles, it isimportant that care is taken to ensurethat the project does not stumble atthis late stage when the finishing postis in sight.For further information, please contactJames LevyTel: 020 7074 8074Email: james.levy@lewissilkin.com

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