Article – Practical Completion: essential, but difficult to define
For the parties to a building project, achieving Practical Completion (or “PC”) is both a key objective and a commercial imperative. As the term implies, practically (if, not always actually), it means that the project is finished, and the Employer is able to take possession of the site and use the property which he has funded. For the contractor, typically, it means that he no longer has responsibility for the site and the property, no further risk of damages or incurring extra expense for late completion, he can re-deploy his personnel and supply chain elsewhere and pursue payment of his final account. Because, PC is a matter of such commercial importance, it has always been an issue liable to cause disagreement or dispute on a project.
There are many standard and bespoke forms terms and conditions of contract in which the authors have attempted to define PC, but a fail-safe definition still appears to allude the construction industry. The Court of Appeal last considered PC in 1969, in Westminster Corp v J Jarvis & Sons. Salmon LJ suggested that PC meant “…completion for all practical purposes, that is to say, for the purposes of allowing the employers to take possession of the works and use them as intended”.
These words have been interpreted differently by various parties, depending often upon their motivations at the time. It is commonly argued that if there are patent defects in the works (unless minor) the project is not at PC. However, deciding whether or not the work is finished and whether any defects are minor or “trifling”, is always where the problems arise.
50 years later, PC has again been considered by the Court of Appeal. In Mears Ltd v Costplan Services (South East) Ltd , Coulson LJ reviewed the case law applicable to PC and this can be summarised as follows:
- Practical completion is easier to recognise than define;
- Unless there is a specific contractual definition or condition(s) precedent, practical completion is a matter for the certifier;
- The existence of latent defects cannot prevent PC. Clearly, if the defect is latent, nobody knows about it so it cannot prevent the certifier from concluding that PC has been achieved;
- In relation to patent defects, there is no difference between an outstanding item of work (that is, one that is still to be completed) and an item of defective work that requires to be remedied;
- On a practical level, works must be free from patent defects, other than ones that can be ignored as ‘trifling’. Whether an item is ‘trifling’ is a matter of fact and degree, to be measured against the purpose of allowing the employer to take possession of the works and to use them as intended.
- If the works are capable of being used for their required purpose, minor deficiencies should not prevent the certifier issuing a PC certificate
- The fact that a defect cannot be remedied does not mean that PC cannot be achieved.
The matters above will, as ever turn on the facts. Coulson LJ noted that one factor to consider was ‘the purpose of allowing the employers to take possession of the works and to use them as intended’ (re Jarvis). For example: if there are to be fit-out works following the completion of the project, PC may be certified despite minor outstanding or defective items. This is justified because rectifying those defects may not prevent the fit-out works from proceeding.
Disputes as to whether or when PC has been achieved are all too frequent and notwithstanding the further clarifications provided in Mears v Costplan, it is probable that these will continue. Whilst the judgement offers some clarity, it does not, in our view assist in the perennial problem of specifying what is required for PC. This is always project-specific and is, in the first instance, a matter for the contract drafting stage.
Practical steps for a contractor
There are several practical steps a contractor can take to mitigate the risk of failing to complete, with all the damages and loss and expense this involves. Examples of such steps include:
Understanding the requirements in the contract
It is common practice for standard contracts to be amended (and for bespoke contracts to include) a definition of PC accompanied by various conditions precedent, for example: specific documents or information required before PC such as as-built drawings, executed collateral warranties, performance bonds and guarantees, provisions of spares, commissioning results etc. These conditions may be in the Preliminaries, the Specification, the Contract Conditions or (often), any combination of these.
Prior to entering into the contract, all the contract documents should be carefully reviewed by the contractor to ensure that the specified conditions precedent are understood and can be met. If bespoke conditions relating to PC are included in the various documents, they may often be contradictory or ambiguous. The contractor needs to ensure that any such conditions precedent are properly drafted so that it is clear from the wording when PC is achieved. Clarity is essential – can PC be referenced to specific tests, measurements or compliance with a specification or a clear state of affairs?
Further, it is vital that any interaction between main and sub-contracts in respect of PC are clear and known. There are often clauses that state that the sub-contractor must comply with terms of the main contract; therefore, if this is the case, any main contract conditions that apply to PC must be considered.
Ensuring compliance by the supply chain
It is to no avail if the contractor takes steps to meet the conditions precedent, only to find that it has not imposed the same on its supply chain. It is all too common to find at the end of the project that sub-contractors who are long finished, have not provided (for example) a collateral warranty and consequently, PC is being withheld.
All conditions precedent to PC should be included in the supply chain sub-contracts. For example, if it is a requirement that specific test results are provided for certain items of equipment, the equipment supplier must be similarly bound to comply as the contractor. Similarly, if certain sub-contractors are to provide collateral warranties, this requirement must be included in the sub-contracts.
Managing the process
It is essential to have detailed practices and procedures in place to ensure that all conditions precedent are met. It is frequently a requirement to give certain contractual notices prior to PC. Contractors need to ensure that these timescales are clearly identified in the programme and highlighted to the relevant personnel. It is also essential to diligently undertake the necessary ‘administrative’ procedures to ensure that all necessary documents, guarantees and collateral warranties are provided. Last, but not least, self-evidently the conditions precedent usually come into play towards the end of the project when time is at a premium. The conditions imposed may take additional time and contractors should ensure that specific time is allowed and identified in the programme.
In conclusion, we may not yet have a fail-safe definition of PC but, we are in an economic environment where it remains of vital importance to:
- Understand the obligations in the contract relating to PC;
- Ensure proper and binding engagement of the supply chain in respect of those obligations; and
- Diligently manage the timing and fulfilment of the contractual requirements to achieve PC.
It is, we suggest, vitally important to specify exactly what PC requires (be it overall or for sectional completion) and this starts at the contract drafting and negotiation stage.