Practical Completion and Partial Possession

Once contracts are awarded and the contractor is granted access, the ‘ownership’ of the site effectively becomes theirs to allow them to complete their works. Depending on the contract conditions, they may be liable for liquidated damages if they do not complete on time.

If the Employer wishes to access the site, which could be for a multitude of reasons such as the need to store materials or provide access to a tenant or occupier of the building to allow them to carry out their specific fit-out or similar, what options do they have and what the consequences are there for all parties concerning each option?

Also, what happens where unresolved, or ‘un-agreed’ events impact the programme?

What happens in the case let’s say, where the Employer wishes to access the site if they believe the Contractor is late in handing-over the project, but the Contractor’s position is that they are entitled to be granted an extension of time, and this should be awarded, with costs, before the Employer takes over or takes possession of the site. It may be that they can reach a compromise but knowing the options and understanding the consequences of decisions is essential if an equitable outcome is achieved.

Partial Possession vs Early Use

Considering the above, the JCT suite of contracts provides an option where the Contractor can allow the Employer early use of the site or a part of the site “for storage or otherwise.” Still, also the contract provides for the Employer to take possession or partial possession of the area before Practical Completion has occurred.

This is described in further detail in the specific clauses contained in the contract. For example, regarding early use, the relevant contractual wording is as follows:

“the Employer may, with the Contractor’s consent, use or occupy the site or the Works or part of them, whether for storage or otherwise, before the date of issue of the Practical Completion Certificate or relevant Section Completion Certificate. Before the Contractor gives his consent to such use or occupation, the Party responsible for the Works Insurance Policy and/or, where there are Existing Structures, for any insurance cover relating to them shall notify the insurers and obtain confirmation that such use or occupation will not prejudice the insurance.”

The key points above are that a) the use of the word “otherwise”, which is wide-ranging in the interpretation as to what the Employer’s needs are for early use, and b) the Contractor needs to consent to the Employer using or occupying the site or part of it for their purposes and that in the event such consent is provided they are required to check such use of the site does not invalidate their insurance. It should also be noted that such consent to use the works should not be unreasonably withheld.

Then if we look at the JCT clause referred to in regards to taking possession, the wording is as follows:

“If at any time or times before the date of issue by an Architect/Contract Administrator of the Practical Completion Certificate or relevant Sectional Completion Certificate, the Employer wishes to take possession of any part or parts of the Works or a Section and the Contractor’s consent has been obtained, then, notwithstanding anything expressed or implied elsewhere in this contract, the Employer make take possession of such part or parts. The Architect/Contract Administrator shall thereupon give the Contractor notice on behalf of the Employer identifying the part of parts taken into possession and giving the date when the Employer took possession (“the Relevant Part” and the “Relevant Date” respectively).

However, the ramifications of the Employer taking partial possession of the site is that the “Relevant Part” is then referred to in clauses relating to Practical Completion and liquidated damages in that it shall be deemed to have incurred in terms of Completion and concerning liquidated damages stated in the contract they shall reduce by the proportional value of the works against the contract sum they have taken possession of.

Depending on progress at the time of the request will undoubtedly factor into the decision required for both sides. Suppose the works are all but complete from the Contractor’s perspective. In that case, they may think the Employer should take over the works and acknowledge Practical Completion or by the Employer using the site, and it should be deemed Practical Completion. The reason for this is the relief from liquidated damages, the release of a sum of retention withheld from payments, and the start of the defect’s rectification period.

Conversely, suppose the Employer believes there are outstanding works such that Practical Completion cannot be acknowledged or certified. In that case, they will require early use. If successful in this, as opposed to partial possession, liquidated damages would remain in force. The Contractor’s obligation to complete the list of outstanding works for the defects rectification period commences.

However, for the Employer to adopt such a position is not without risk. That is to say that if the event occurred, they had early use of the site. Still, as part of this, conditions were applied such that specific access routes had to be used or a storage area was delineated. If they breached these terms, the Contractor would likely seek to recover damages of both cost and time depending on the individual circumstances.

Also, there are more practical considerations, such as managing that part of the works from a health and safety perspective when they are sited next to the rest of a live construction project, notwithstanding the need to protect what is contractually treated as completed works.

What if there is disagreement?

Whether the Employer has early use or partial possession of the site is not new ground, and there is some case law available on how the courts have interpreted the actions of the parties, the findings of which can then be considered for other situations.

Generally, the court deems the Employer to have partial possession of a site if it can be established that rather than simply having early use of part of the site, in reality, the Employer has exclusive access to a section of the works and is treating it as if it has taken possession. Also, if the Contractor has by giving the Employer early use in effect quarantined that area of the site for sole access by the Employer, they, in turn, have operated that part of the site in such a manner, thereby creating a working situation whereby they have partial possession of the site.

In the case of Impresa Castelli Spa v Cola Holdings Ltd [2002], the dispute arose whereby the Contractor’s position was the Employer had partial possession of the site. In contrast, the Employer’s position was one of early use. The court found it essential to consider the different states of possession available under the contract and draw distinctions between them. Following partial possession, the Contractor gives up the right to enter the site unless to make good defects. Therefore once the Employer secures partial possession, they have exclusive possession of that part of the works.

Upon consideration of this regarding the early use of the site by the Employer, the reasons for this could be far-ranging due to the wording “or otherwise” in the clause stated above and, therefore, based on the many scenarios that were possible for the early use of the site the position to be determined was if the Contractor had given up exclusive possession of the site but also noted that due to the broad parameters of the “or otherwise” wording partial possession could be construed as the Contractor retaining exclusive possession but granting the Employer in effect a sub-license to use or occupy that part of the site for the purpose the Employer intends.

How does the NEC deal with the same issue?

The NEC ECC contract states that the Client does not need to take over the works before the completion date if the contract data says it is unwilling to do so. However, it also goes on to state that upon Completion being achieved, the Client takes over the works “not later than two weeks after Completion”, with the logic here being that a short period is allowed for the Client to familiarise the site, arrange for support services such as security to come online and also to arrange insurance of the works.

The reference to “take over” concerns the Client starting to use the works and having beneficial use of the project. Therefore, they would be deemed to have, in effect, taken on the project and started operating it. The contractors’ obligations regarding delay damages are reduced or removed save for the commitment to complete any outstanding works or correct defects.

In terms of partial possession and early use, this is dealt with in clause 35.2, which states:

“The Client may use any part of the works before the Completion Date has been certified. The Client takes over the part of the works when it begins to use it except if the use is:

• For a reason stated in the Scope or to suit the Contractor’s method of working.”

The clause is arguably more explicit than the JCT. The Client can use the works, but if they do, they are deemed to take over that part of the whole of the works except for a specific reason stated in the scope.

Regarding the “Contractor’s method of working”, this could be the phasing of the works in which the Contractor’s programme operates, e.g., if the Contractor has divided the site up into quadrants, for example, it may be beneficial for the Contractor to hand back each one as they are completed on the basis, they need to move plant and equipment to the next one, and they no longer need to provide support services once the Client takes that section into use.

However, it is generally not favourable for contractors because they are still liable for damage to the works until the overall project is complete and the defects correction period starts. A more equitable set-up would be to have sectional completion dates and for the Client to take over each section as they are completed. Still, the individual contractual arrangements on a project-by-project basis would need to be considered.

Finally, as per the JCT contract clause in regard to partial possession, whereby the Contractor’s liability for liquidated damages reduces proportionally based on the value of works taken into possession by the Employer, the NEC, if secondary option clause X7: Delay Damages is selected, adopts a similar principle by reference to X7.3 which states:

“If the Client takes over a part of the works before Completion, the delay damages are reduced from the date on which the part of taken over. The Project Manager assesses the benefit to the Client of taking over the part of the works as a proportion of the benefit to the Client of taking over the whole of the works not previously taken over. The delay damages are reduced in this proportion.”

However, whereas the JCT assesses the reduction by calculating the value of the works taken over against the contract sum, the NEC Project Manager assesses the benefit of taking over and reduces the delay damages accordingly. The definition of the benefit is not stated; however, there are no implied terms to consult with the Contractor when making such an assessment, which may pose issues in terms of interpretation.

Photo by Jolan Wathelet on Unsplash

About Dean Suttling

A member of the Royal Institution of Chartered Surveyors, Dean has twenty years of experience in commercial management and quantity surveying, undertaking roles for contractors, clients, and consultants.