‘Practical Completion’ – Is your definition practically complete?

16 January 2019

‘Practical Completion’ (PC) plays an important role on construction projects, often signifying the release of retention monies, ending the contractor’s liability for liquidated damages, commencing the defects liability period and passing possession of the works to the employer.  The term is almost universally used in the construction industry, yet, despite its significance, is not legally defined and is readily left undefined in building contracts.  What then does the term PC actually mean?  This question was recently considered in Mears v Costplan.[1]

Facts and decision

A contractor was appointed under an amended JCT D&B 2011 Contract to construct student accommodation in Plymouth.  Costplan was appointed Employer’s Agent; Mears agreed to take a lease of the accommodation.  Completion under the agreement for lease (AFL) was linked to PC of the construction works with Mears being entitled to terminate the AFL if PC was not certified by 11 September 2018.

By June 2018, Costplan considered the works to be practically complete.  Mears however alleged that c.50 rooms had been constructed smaller than contractually permitted and, upon application, was granted an injunction restraining Costplan from certifying PC until the parties’ dispute had been determined in court.

Mears sought declarations to the effect that Costplan could not validly certify PC whilst there were known material and substantial subsisting defects in the works.  At trial however, Mears was unsuccessful in establishing a clear right to terminate the AFL and Costplan was entitled to certify PC.

What did Practical Completion mean?

In reaching his decision, Waksman J gave helpful guidance on the definition of PC.  In the absence of a contractual definition, he adopted principles set out in a leading construction law textbook, Keating on Construction Contracts.[2]  In summary:

  1. Works can be practically complete notwithstanding that there are latent defects; however, a certificate of PC may not be issued if there are patent defects.
  2. PC means the completion of all construction work; however, the certifier has discretion to certify PC where minor items of work are left incomplete on “de minimis”

The judgment observed that the term PC should not only be concerned with the extent of work done but also the quality of such work.  Waksman J added:

“works need not be in every respect in complete conformity with the contract in order to merit practical completion, provided that any non-conformity is insignificant, a matter which will usually be left to the professional judgment of the certifying entity.”

The judgment emphasises the purpose of the completed works as the key factor in determining whether PC has been achieved.  The purpose of the accommodation was to house students.  Although the accommodation did not fully conform to the contract, it was nonetheless “fit for occupation”; a term which Waksman J admitted is not itself legally defined and is to be determined on the facts in each case.

Analysis

Mears makes clear that the contract is definitive as to the meaning of PC.  In the absence of a specific definition, determination of PC is highly fact specific and particular attention should be given to the “intent and purpose” of the completed works.

Whilst Waksman J’s observations do not comprise a test for PC, when drafting and negotiating building contracts, parties should consider whether it would be prudent to include an express definition of PC.  To prevent ambiguity and avoid dispute, parties should take particular care to define PC in terms that accurately reflect their intention and the purpose of the completed works.


[1] Mears Ltd v Costplan Services (South East) Ltd and Others [2018] EWHC 3363 (TCC)

[2] 9th Edition, paragraph  20-120


 

Oliver Tobin Author
Oliver Tobin
Associate
About the author

Tags: