Spindogs
21 January 2016 | Comment | Article by Iwan Jenkins

The 3 minute guide: what is practical completion?

Practical completion confirms the completion of construction works on a project, although there is no precise legal definition of the phrase.

Generally, it is the point at which a building project is complete, save for minor defects. Some construction practitioners describe this point as when the building project is "capable of beneficial occupation and use".

The phrase can also refer to the point at which an employer’s agent/architect/contract administrator confirms that the building contractor has achieved "practical completion" under the building contract. As many standard form building contracts do not define practical completion, this is frequently left to the professional judgement of the certifier.

Why is it so important?

Practical completion of a project is of huge commercial and legal importance. The date of practical completion (usually stated in a practical completion certificate) is the date on which the operational period of a project will start.

It also has a number of contractual and legal implications:

  • it ends any right to liquidated damages in respect of a delay to the works;
  • the employer must pay a percentage of any retention monies (usually 50%) to the contractor;
  • the “defects liability period” commences from practical completion;
  • the risk of loss or damage to (and responsibility for) the works usually transfers from the contractor to the employer;
  • the contract administrator may not instruct the contractor to carry out variations after practical completion; and
  • it may trigger other consequences under the contract (such as the “final account” provisions under a JCT contract).

So, what practical issues do I need to consider?

The requirements for practical completion vary from project to project. Disputes as to whether or when practical completion has been achieved are common but can be avoided by:

  • checking that the building contract is clear on when practical completion has occurred (including where practical completion is deemed to have occurred); and
  • keeping a paper trail documenting acceptance of possession, partial possession or agreement for early access, as appropriate.

Finally, if you are amending a standard form building contract to make the test for achieving practical completion more stringent, you should consider whether this is in the best interests of the employer; a stringent mechanism can sometimes backfire.

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