In construction and engineering projects, whether works have, or have not, reached completion is a regular area for disagreement. Although the terms ‘practical completion’ or ‘take over’ are widely used in construction and engineering contracts, the standard form contracts do not provide clear enough definitions, and bespoke contracts often even less so.
The express provisions of a contract tend to leave the decision as to whether the works have reached completion entirely to the discretion of a certifier, or contract administrator. What both parties require, above all, is a clear set of obligations that the parties are required to complete; rather than a vague set of terms that are both subjective and open for contention.
Why does this matter? Well, because a construction or engineering contract is an “entire contract”, which means that full and complete performance is required to discharge contractual obligations and entitle the contractor to payment. However in construction contracts the purpose of signifying completion is not to release the contractor, as he will have other obligations both on and after completion, but to permit the employer to take possession of the works.
Some of the contractors obligations for completion may include the requirement to provide operation and maintenance manuals, demonstrations, health and safety files or training to the client, which unless the contract states otherwise will be required to be provided before the works are said to be complete.
The contractor’s overall obligation, under a construction or engineering contract, is to carry out and complete the works by a certain date, so technically he is in breach of contract if he doesn’t achieve that. The importance of completion is that it directly triggers a number of consequent actions or obligations, or marks the end of any further liabilities. Some common examples, depending on the contract involved, are:
- Possession and control of the building / plant transfers to the client
- The end of any further liability for delay damages
- The cost of securing and insuring the works transfers to the client
- The defects liability, rectification, maintenance or warranty period commences
- The works can no longer be varied
- Milestone payment and/or release of retention monies
- A final account of the works is to be prepared
- Obligations under third party agreements such as bonds or guarantees, etc. may need reviewing or updating;
- The six or twelve year limitation period for actions in contract and tort commences.
It is worth looking briefly at how a couple of the more common engineering standard forms manage completion:
Under the NEC form of contract, completion is defined as when all the work required by the Works Information is completed by the specified completion date, and all notified defects that would prevent the client from using the works are corrected. This implies that completion is achieved even if there are notified defects still present within the works, provided that those defects do not prevent the client from using the works.
Under the FIDIC forms of contract, which are becoming more popular on large engineering projects in the UK, completion is defined by tests and the completion of specified work. The Contractors obligation under the contract is to complete the whole of the Works including the passing of the Tests on Completion and all work stated in the Contract as being required, for the Works, to be considered to be completed for the purposes of Taking Over.
The contractor is required to carry out the Tests on Completion within 14 days of the date notified 21 days in advance. The contractor is required to issue a certified report of the results of the Tests.
FIDIC provides that the Employer takes over the Works when the Tests have been successfully completed, the specified work has been completed and a Taking Over Certificate has been issued by the Engineer or deemed to have been issued.
FIDIC completion is primarily determined by whether or not the works are sufficiently complete to be fit for their purpose from a functional perspective. Again, this can seem subjective; what the client may see as substantially complete is not what the contractor is submitting for completion.
As stated above, whilst most commercial contracts are entire contracts and require works to be complete before completion can be said to have been achieved, this approach comes as a surprise to many of those involved in the construction and engineering industries. This surprise can perhaps be explained as follows:
- Contract administrators have previously exercised discretion when certifying completion even though there are still works of a relatively minor nature outstanding
- Where there remains a small, yet insignificant amount of work to be completed and the client is in a position to occupy the building / plant; yet they still enforce the levying of liquidated damages for contract overruns which many contractors consider to be unfair in the circumstances; and
- The unique nature of construction and engineering projects (in contrast to manufacturing processes) which are at the mercy of other influences such as adverse weather and which involve the integration of huge numbers of separate processes, teams, products, and individuals.
It is advisable, for all of the above reasons, to have both parties, clarify and agree the basis upon which completion or take over of the works will be certified by the contract administrator. It should also be agreed that where a client takes into use part, or all of the works, then a deemed take over will occur and the obligations and actions at completion will commence. What you do not want to happen is the subjective argument as to what will and will not be required for take over, whilst the project is in delay, and days are being wasted away costing the contractor, upwards of, thousands of pounds per day in damages.
A little more effort and willingness from both sides at the outset could have been utilised to save this from happening. The clarity approach up front can only assist both parties leading to a higher degree of trust between them, benefitting both parties and the overall project as a whole.
Atkinson, D., (2002) Delay and Disruption – Completion, Atkinson Law
FIDIC, (1999) FIDIC Conditions for Contract for Plant and Design-Build Contract
Lal, H., (no date) Practical Completion, Trett Consulting (Digest issue 36)
NEC, (2005) NEC3 Engineering and Construction contract
RICS Guidance Note, (2011) Defining Completion of Construction Works (1st Ed.)
Starr, J. (no date) Practical Completion – The Great Divide, Boyes Turner
Uff, J., (2009) Construction Law (9th Ed) Thomson Sweet & Maxwell