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The significance of a Taking Over Certificate on a project

Article · October 2019

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Fungai Martin Simba

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 The significance of a Taking Over Certificate on a project

A Taking Over Certificate (T.O.C) is an acknowledgement of the completion of works to

a greater extent, and that it is safe for occupation. It is also referred to as a Taking Over
Notice or Certificate of Practical Completion on other contracts. For the purposes of this
text, the discussion will be on the Taking Over Certificate as defined in the FIDIC Red
Book 1999.

Under normal practice, snagging precedes the issuance of a T.O.C. The Engineer inspects
the works, and if satisfied that the works have been completed to a greater extent, he can
issue a T.O.C. Work may not be necessarily 100% complete, but considerably done and
suitable for occupation. The outstanding work is noted on the T.O.C, but more
importantly the Engineer approves the release of first half of retention money at this stage.

Retention money is money that is kept by the Client as a risk measure in the event that the
Contractor fails to complete works. It can be 10% of the contract price, in accordance with
the provisions of the contract. The money may be deposited in a joint bank account owned
by the Client and Contractor, or in some cases the Client retains the amount in his own
account. If the Contractor fails to complete the work, ideally the retention money should
be used to source another Contractor who should finish the outstanding work.
Alternatively, the Contractor provides a bond through a bank or an insurance company
which acts as a surety, as applicable under the terms of the contract.

The issuance of T.O.C kick starts the Defects Notification Periods, which may be a period
of 12 months, in accordance with terms of the contract. The Contractor would no longer
be liable to penalties/ damages that come with late completion, otherwise referred to as
Liquidated and Ascertained Damages (LADs) as defined in the contract. LADs are
damages paid by the Contractor to the Employer due to late completion. Damages may
be predetermined in a contract, or sometimes the direct monetary loss due to late
completion should be proven before the Contractor can be charged. Furthermore, ‘Time
at large’ is avoided by the issuance of a T.O.C. Time at large is additional time allowed
on a project when the contract does not have a provision for extension of time, and the
cause of delay is not the Contractor’s fault.
Issuance of a Taking Over Certificate also marks the end of a minimum threshold amount
payable on interim payment certificates. Sub-Clause 14.6 of FIDIC Red Book 1999 states
that prior to issuance of Taking Over Notice, the Engineer is not bound to pay any amount
less than the minimum payable amount as stated in the Appendix to Tender. This means
that after the issuance of a T.O.C, interim payments could be less than the minimum
amount stated in the contract.

In the event that there is a request for a partial occupation, FIDIC Red Book 1999 Sub-
Clause 14.9 states in summary that 40% of the retention amount for a section of works
should be released. Please note the percentage is not the usual 50% release since the partial
completed works are only a part of the whole works.

Some works may have multiple completion dates and many T.O.C’s are issued as a phase
is completed. A Key Dates Schedule may be incorporated in the contract in-line with base
programme to state the start and end dates of each particular phase. In the event that a
programme of works makes part of the contract, the contractor should be wary of the strict
nature of such a programme, and the need for adherence and proper sequencing. Changes
in sequencing may be permissible upon request and in agreement with the Engineer, and
that is treated as a variation. This approach is different from the usual cases where the
programme of works is not part of the contract, and the contractor may not be religiously
following the sequence as per submitted programme of works.

The Contractor may consider himself entitled to extension of time due to reasons stated
in Sub-Clause 8.4 and 8.5 of FIDIC Red Book 1999. However, the sub-clause has a pre-
condition of Sub-Clause 20.1 which states that a notice should be given within 28 days of
becoming aware or should have become aware of the circumstances causing delays or
additional costs. If that has been met, then further particulars to substantiate the claim
should be gathered to prove cause and effect. It is a procedure that many contractors find
difficult to follow but helps the contractor to be proactive when risk of delay or additional
costs occur.

Any other Interim Certificate that is issued after T.O.C and before the expiry of Defects
Notification Periods should have a component of first half release of retention amount.
The second half of retention money should be released upon the expiry of Defects
Notification Periods as stated in Sub-Clause 14.9. In the event that that there are
 outstanding works beyond the expiry of Defects Liability Period, the second half of
retention of money should still be released at the expiry of Defects Notification Periods
in accordance with the contract, but an amount for the remainder of works can be withheld
until those works are completed. After the Contractor has received a Performance
Certificate, he should then submit a Final Statement and a Discharge, before a Final
Payment Certificate is issued.

The time frame of payment for the release of first half retention in FIDIC Red Book 1999
is not particularly stated. The assumption is that it follows the payment timeframe of any
interim payment certificate, which is 56 days according to Sub - Clause 14.6. In other
contracts such as the FIDIC Short Form 1999 (Green Book), the release of first half
retention is within 14 days of the issuance of Taking Over Notice; which is a much shorter
period.

Other features of a T.O.C may include instructions to complete outstanding works,

acknowledgement of as-built drawings handed over to the Client and the snagging list as
agreed. Furthermore, there could be an acknowledgement of warranties and manuals for
installed equipment as handed over to the Client.

As concluding remarks, there is no doubt that the issuance of a T.O.C is a significant part
of a project. It determines many issues, and any Contractor is more than relieved when a
T.O.C is issued.

Extracted from ‘A Guide on Contract Practices in the Construction

Industry’, book written by Fungai Martin Simba.
Email address: fungaims92@gmail.com

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