Substantial completion in Standard Forms & Case Laws

Contractor submit a Taking over request to Engineer (or Employer) when believes that the Work is ‘Substantially’ complete. Achieving Practical completion and receiving Taking over certificate generally trigger:

1.???Release of retention money;

2.???Defect Liability period begins to run;

3.???Liability of Liquidated damages ceases;

4.???Employer control the building and obliged to insure the facility;

As Judge Newey said, “…..they should bear in mind that construction work is not like manufacturing goods in a factory.”

Every Project is different and diverse factors on each project will dictate when it is practically complete.

Referring to RICS Practice Standard, Defining Completion of Construction Works

“The contractor will be keen to avoid any liability for delay damages and to limit its exposure to risk, insurance and security. On the other hand, if there are outstanding works to complete the contractor will usually prefer to complete those works whilst he has possession and control of the works rather than trying to complete works after the client has taken possession and occupation.

Equally the client may want to take possession of the works as soon as possible and to begin using the facility. However, the client will not want to take possession of the facility too early if that means that he has to suffer the contractor’s continued presence in completing outstanding works.

Usually a happy medium can be struck.”

?FIDIC Contracts provides that the Engineer or Employer shall:

“… within 28 days after receiving the Contractor’s Notice, either:

(i) issue the Taking-Over Certificate to the Contractor, stating the date on which the Works or Section were completed in accordance with the Contract,?except for any minor outstanding work and defects (as listed in the Taking-Over Certificate) which will not substantially affect the safe use of the Works or Section for their intended purpose?(either until or whilst this work is completed and these defects are remedied); or

?Definition of Substantial Completion or ‘Practical completion’ yet need to be precisely stated with clear terms to place control on the certifiers as Disputes may arise as to whether or not outstanding work or defects are?“minor”?and whether or not they?“substantially affect”?the safe use of the Works. Quite a few times, a minor but time-consuming rectification, which need not prevent the occupation of the building, can result in the Contractor being exposed to liquidated damages.

JCT 2011 Clause 2.30, provides:

“When in the Architect/Contract Administrator’s opinion practical completion of the Works is achieved . . . he shall forthwith issue a certificate of practical completion”

For many, Practical Completion also interpreted as ‘Beneficial Completion’, when the Client is physically able to take possession of the Facility for intended purpose. On the Contrary, the contract is not complete if there are still works to be done or repairs to be made or documents to be provided. In other words, the Client is not obliged to take possession if performance under the Contract is not complete.

?The Engineering and Construction Contract (NEC 3) provides a definition of ‘Completion’, which occurs when the contractor has done all the work which the Works Information states he is to do by the Completion Date, and has corrected notified Defects which would have prevented the Employer from using the works and others from doing their work.

?A comprehensive definition of ‘substantial completion’ as it applies to the ICE conditions appears in Engineering Law and the ICE Contracts, 4th edition, by Max W.Abrahamson,?as follows:

“The Concise Oxford Dictionary equates ‘substantial’ with ‘virtual’ which is defined as ‘that is such for practical purposes though not in name or according to strict definition’. It is at least clear on the one hand that the fact that the works are or are capable of being used by the Employer does not automatically mean that they are substantially complete (‘any substantial part of the Works which has both been completed . . . and occupied or used’) and on the other hand that the Engineer may not postpone his certificate under this clause until the works are absolutely completed and free of all defects. The many reported cases on the question of ‘substantial’ completion in relation to payment under an entire contract, a different legal problem, are of doubtful relevance. Obviously both the nature and extent of the uncompleted work or defects are relevant, and to say that substantial completion allows for minor deficiencies that can be readily remedied and which do not impair the structure as a whole is probably an accurate summary of what is a question of fact in each case.”

?Lord Justice Salmon in?J. Jarvis & Sons v. Westminster Corporation (1978) the House of Lords define the meaning of Practical Completion as:

I take these words [practical completion] to mean completion for all practical purposes, that is to say for the purposes of allowing the employer to take possession of the works and use them as intended. If completion in clause 21 meant completion down to the last detail, however trivial and unimportant, then clause 22 would be a penalty clause and as such unenforceable.

?In the same case, Lord Dilhorne defined Practical completion as:

The contract does not define what is meant by practical completion. One would normally say that a task was practically completed when it was almost but not entirely finished, but practical completion suggests that that is not the intended meaning and what is meant is the completion of all the construction that has to be done. ?

?In H W Nevill (Sunblest) v William Press; under JCT1963 Standard form, certificate of Practical Completion was issued by the Architect. Defects occurred after achieving the Practical Completion for Enabling works by William; that consequently delayed Trenthams (Main Contractor) for 4 weeks., the Judge held:

the word 'practically' in Clause 15(1) gave the architect a discretion to certify that William Press had fulfilled its obligation under Clause 21(1) (to complete the works) where very minor?de minimis?work had not been carried out, but that if there were any patent defects in what William Press had done, the architect could not have given a certificate of practical completion. The judge found that defects in the drains discovered after the certificate of practical completion had been issued undoubtedly constituted breaches of contract.

In J Jarvis and Sons v. Westminster Corporation (1978), the Judge concluded:

Practical completion is perhaps easier to recognise than to define. No clear answer emerges from the authorities as to the meaning of the term.

In?Ruxley Electronics & Construction Limited v. Forsyth?[1996] Client refused to pay as Swimming pool was built to a depth of 6’ instead of 7’6”. The first instance judge noted that the pool was quite capable of being used, and dived into, without difficulty despite the defect – and found that the works were substantially complete notwithstanding the existence of the irremediable defect.

In Mears Ltd v. Costplan Services (South East) Ltd andothers [2019] Coulson LJ reviewed the precedents dealing with the issue and set out the law on practical completion?as below

"In relation to patent defects, the cases show that there is no difference between an item of work that has yet to be completed (i.e. an outstanding item) and an item of defective work which requires to be remedied. Snagging lists can and will usually identify both types of item without distinction."

There is some discrepancy in the precedents about whether the very existence of a patent defect prevents practical completion. The courts have developed a practical approach over time to the effect that practical completion is effectively "a state of affairs in which the works have been completed free from patent defects, other than ones to be ignored as trifling".

Most standard forms of contract include both a clause for practical completion of the whole of the works and also for the employer taking possession of part of the works. The wording normally states that if the employer, during a period of overrun, takes possession of part of the works before practical completion of the whole of the works, then the contractor’s obligation to pay liquidated damages will be at a reduced level.

Judge Thornton QC took a very mature approach in Skanska Corporation v. Anglo-Amsterdam Corporation (2002) where the Air conditioning works was delayed by Skanska beyond the Contractual Completion date while Employer moved in the Fit-out Contractor on time as situation didn’t holdup their works. The Judge stated that if the employer takes over a part of the building, then as far as that part of the works is concerned the contractor is deemed to have achieved practical completion.

?In Impresa Castelli SpA v. Cola Holdings Ltd (2002), the Judge signified the difference between an employer taking partial possession of the building and one who merely is allowed by the contractor to have access. Quite opposite to Skanska decision, the Judge believe that Cola had merely gained access to the site, as envisaged by JCT clause 23.3.2, and therefore liquidated damages were payable.

?Conclusion

The contract conditions to be amended to state that the practical completion deemed to have taken place, should the Employer at any time take possession before the Practical Completion. However, it shouldn’t be confused with the Employer gaining access only which doesn’t deem to have achieved Practical Completion. Certifying is something of an art: most certifiers can recognise practical completion when they see it but might have more trouble exercising their skills if restrained contractually. The most sensible approach by Judge Newey that when issuing a certificate of practical completion, they should bear in mind that construction work is not like manufacturing goods in a factory.

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