Practical completion has huge significance in the construction industry however it does not have a specific legal meaning and as such has given rise to a number of disputes.
Standard Form of Contracts
Difficulties arise with ascertaining practical completion due to the failure of standard form of contracts to define practical completion.
Although JCT contracts are often amended to include a definition of practical completion, The JCT Major Project Construction Contract 2011 edition is the only contract in the JCT suite that defines practical completion as follows:
‘Practical Completion takes place when the project is complete for all practical purposes and, in particular:
- The relevant statutory requirements have been complied with and any necessary consents and approvals obtained
- Neither the existence nor the execution of any minor outstanding works would affect its use
- Any stipulations identified by the employer’s requirements as being essential for practical completion to take place have been satisfied; and
- The health and safety file and all ‘as built’ information and operating and maintenance information required by this contract to be delivered at practical completion has been delivered to the employer.’
As the term practical completion has no specific legal meaning, its meaning can be derived from case law:
- HW Nevill v William Press – Practical completion can be certified where there are very minor, ‘de minimis’ items of work left incomplete.
- Mariner International Hotels v Atlas – Practical completion is a state of affairs in which the works have been completed free from patent defects, other than ones which can be ignored as ‘trifling’.
- Westminster Corp v Jarvis – Practical completion means completion of all construction work that has to be done.
Why does it Matter?
Practical completion triggers the following events under a construction contract:
- LADs in respect of delay to the works – Practical completion ends any right to liquidated damages
- Retention monies – The first part of the contractor’s retention monies is released
- Defects liability period commences
- Possession of the works by the employer
- Responsibility for the damage to the works passes to the employer, along with the risk of insurance
- Legal limitation period for claims begins to run
- The contractor’s right to instruct variations finishes
There is useful guidance to determine practical completion, but no specific meaning of practical completion. A simple solution is to define practical completion at the beginning of the project. If certain elements are required, set them out to avoid potential disputes later on.