Practical Completion – When is it achieved and how is it managed?

Practical Completion, often referred to as “PC”, is considered to mean the building is finished to a state where it can be put to its intended use, but small or minor defects may still be present.

Practical Completion is not expressly defined within the JCT suite of Contracts, but it may be defined as:

“When the works can actually be taken to be complete.”

This definition may seem a little stringent but, in reality, sign off is prepared and issued when the works are “practically complete,” not absolutely complete. Minor outstanding works should not prohibit the issuing of a Practical Completion certificate as these can be issued with a snagging list of outstanding works or works that require improvement.

Practical Completion has significant implications under the Standard Building Contract. When issuing Practical Completion, the Employer’s Agent or Contract Administrator is relieving the contractor of the responsibility to insure the site, which passes to the Employer (developer). The issue of Practical Completion also entitles the Contractor to release of retention. This is usually 50% of the monies held. Practical Completion will relieve the contractor of possession of the site, and the liability for liquidated damages will cease. The issue of Practical Completion also commences the rectification period.

An employer may take back part of the site before Practical Completion if they wish to occupy a party early or to sell the particular part onwards. Contracts can be drafted to provide for sectional completion in this instance.

It may not always be practical to predict the requirement to occupy part of the site early and, when contracts have no Sectional Completion stated within them, the employer may elect to take partial possession of the site. In the terms of the Contract, the part taken is known as the relevant part.

The relevant part is dealt with in the same manner as Practical Completion. Retention is released on the value of the part and the obligation to insure the works is removed from the Contractor. Likewise, the rectification period begins on the relevant part and any damages levied within the contract are reduced in line with the apportion of the relevant part to the Contract Sum.

It is the responsibility of the Employers Agent (D&B) or the Contract Administrator (usually Architect) to decide when Practical Completion has been achieved, as most standard form contracts do not prescribe the meaning of Practical Completion. This is left entirely to the professional judgement of the Employers Agent / Contract Administrator.

As a developer (employer), how do I prove that practical completion has not been met?

To achieve Practical Completion, the Contractor must comply with clause 2.37 (JCT Design and Build) and provide the Employer with contractor’s design documents and any related information specified in the Contract that show or describe the work (i.e. As Built Drawings, O & M Manuals which show the operation and maintenance of the works). The Contractor must also comply with the obligations placed upon him under the CDM regulations cl.3.16 (JCT) which require that the Contractor carries out all Duties as Principal Designer and Principal contractor should they be so named as these within the particulars. This is inclusive of delivering to the Employer the health and safety file in the case where the Contractor is Principal Designer.

Practical Completion requires sign off from the Local Authority Building Control or the Approved Inspector. This is a fit for occupation certificate and a fire life and safety certificate will also be required. All services should be tested and commissioned with all relevant certificates provided. Acoustic testing and air tightness tests should be carried out to ensure compliance with any statutory regulations or any requirements as set out within the Contract Documents. An Employer might also have included within the Contract Prelims, or wider contract documents, a “schedule of preoccupation criteria.” This can set out what will be required prior to practical completion being granted.

If I do not have a main contractor (construction management route) am I responsible for practical completion or is the responsibility spread across the subcontractors that I employ?

Where the construction management route is employed for the project, the Construction Manager should manage the practical completion process. This may be a Construction Management Consultancy, or a Main Contractor employed on a Construction Management basis.

Each individual trade contractor will need to confirm back to the Construction manager when their section of the works are” complete”. From this, the construction manager will then issue a certificate of practical completion and accompanying payment notice to each of the trade contractors as and when required. The wording below is taken from the “Construction Management Appointment 2011” and states;

“When in the Construction Manager’s Opinion the Works of any Trader Contractor or such works in a section have reached practical completion, the Construction Manager shall, as required by the relevant trade contract, issue a certificate to that effect and when Practical Completion of the last Trader Contract to be completed in respect of the Project or a Section has been certified, the Construction Manager Shall forthwith issue a Project Completion Certificate and practical completion of the Project or relevant Section shall for all the purposes of this Contract be deemed to have taken place on the date stated in that certificate”

Once all subcontractors have completed their works, the project will be “practically complete” and it is the Construction Manager’s responsibility to arrange for final inspection from building control (or approved inspector) and for the building regulations compliance certificate.

Do I monitor Practical Completion throughout the project and what do I need to record in order to do so?

During a project, progress against the anticipated completion date can and should be monitored. The Contractor may be requested or obliged to submit master programmes at regular intervals within the construction periods, showing items of work both on and off critical paths. Delay to Practical Completion will only result as a delay to items of work that are on the Critical Path.

The Contractor might monitor progress by “marking-up”, at monthly intervals, the site copy of the master programmes to indicate the actual progress of all activities shown thereon. If any circumstances arise that may affect the progress of Works, the Contractor shall put forward proposals or take other action as appropriate to minimise any delay and to recover any lost time. This may be accompanied by marked up drawings and photo evidence. That said, the Employer and Contractors QS will also review the programme on a regular basis as part of the Application for Payment Cycle.

Cashflow can be used to monitor progress on site as programmes can be subject to manipulation to report increased delay periods in the event of an extension of time claim. In this event, manipulating a programme to reflect increased delay should be questioned if the agreed valuation for that period was generally in line with the previous cashflow. As the cashflow will have been prepared on a previous programme prior to the delay, if still in line with cashflow, the contractor is likely still in line with programme unless the delay is anticipated due to knock on event that can’t be mitigated but hasn’t occurred yet.

Ambiguity of Practical Completion

Swansea Stadium Management Company Ltd v City and County of Swansea, Interserve Construction Limited (2018)

This recent case highlights two points. The first point is that of the timing of claims brought from a Construction Contract. Within this case Swansea Stadium Management Company sought £1.3m of damages under a collateral warranty for defective works under a contract. The Practical Completion date was 21^st March 2005 and the claim was brought about on the 4^th of April 2017, in excess of 12 years from Practical Completion. The Interserve Defence was that any claims must be made within 6 years from PC date if executed underhand or 12 years if executed as deed. The counter argument made by Swansea Stadium Management was in essence, “the works couldn’t have been practically complete at the time of Practical Completion as defects were present.” The contract provided words to the following effect in terms of Practical Completion certification (cl 16):

“If in the reasonable opinion of the Employer, the works have reached Practical Completion and the Contractor has complied with the relevant clause within the Build Contract then the Employer shall give the Contractor a written statement to that effect, which statement shall not unreasonably be delayed of withheld, and Practical Completion of the Works shall be deemed for all the purposed of this Contract to have taken place on the day named in said statement”

Technology and Construction Courts (TCC) Decision:

Due to the deeming provisions in Clause set out above, the TCC held that: “the existence of any defects or outstanding works would not prevent the operation of clause 16. Clause 16 is clear that where, as in this case, the employer issues a notice that practical completion has been achieved, practical completion is deemed to have been achieved.”

Interpreting the above Practical Completion must have occurred by 31 March 2005, i.e. the date of Practical Completion, on which date the 12 years limitation period started to run. The proceedings were issued on 4 April 2017 by which were time barred and rejected.

Conclusion and takeaway thoughts

Judgments in case law provide a reminder to the definitive effect and meaning of Practical Completion within a Construction Contract. Unless amended, Practical Completion is solely at the discretion of the Employers Agent or the Contract Administrator and it is awarded based on their professional opinion along with compliance of certain contract clauses.

When deciding whether Practical Completion has been achieved or not, start with the contract: does this explicitly provide a definition as to what Practical Completion is? If so, this is the basis for awarding Practical Completion.

Regardless of whether there is definition or implications of Practical Completion, be mindful of:

• The requirement for the release of half of the retention, which will be in addition to the latest application for payment
• The obligation to insure the works as this passes from Contractor to Employer upon Practical Completion
• Practical completion is the date at which the rectification countdown begins. Any “outstanding / Snagging” items are the responsibility of the Contractor to complete. However, there may be times, say when a retention bond is used, that the contractor has little or no “skin in the game” to warrant a return visit to complete any outstanding works.

There is a lot to consider when approaching Practical Completion of a project. As Practical Completion itself is essentially “a professional opinion,” this is open to challenge. The Contractor may apply pressure to issue Practical Completion in order to flatter their records and, in some circumstances, the client may agitate for issue of Practical Completion as they need to take control of the building.

In any event, issuing Practical Completion is the sole responsibility of the Employers Agent or Contract Administrator and should not be taken lightly due to the ramifications to the Building Contract.

About Jon Williams