Why professionals should be wary of practical completion

Practical completion is often easier to recognise than it is to define. Despite its importance, there is no precise legal interpretation of the term.

Indeed, most standard form contracts do not define practical completion in detail, and if they do it is via an amendment.

Some common actions that are triggered or powers and obligations that end include:

• the start of the final account process
• release of 50% retention monies
• the client taking possession and control of the building
• commencement of defects liability, rectification or maintenance period
• cessation of any further liability for delay damages, whether liquidated or unliquidated
• risk of loss or damage to the works passing to the client, terminating any further requirement for the contractor to insure and secure the works
• the last milestone payment
• obligations under third-party agreements, such as funding arrangements, bonds, guarantees, leases, sale agreements and so on
• the contract administrator may not instruct the contractor to carry out variations after practical completion.

The principles can often be applied to other forms of contract even if the terminology differs. A brief summary of what the standard forms say is as follows.

• JCT: completion of the works is referred to as 'practical completion'. This term is not defined except in the Major Project construction contract 2016 edition. This definition makes reference to completing all statutory requirements, works, requirements under the contract and health and safety file.
• NEC: NEC refers to 'completion'. This is defined as the point when all the work required by the works information or scope is completed by the specified completion date, and all notified defects that would prevent the client from using the works are remedied. If the works required are not clearly stated in the Works Information, then 'completion' is defined by the catch all in the last part of clause 11.2(2), which is that the works are sufficiently complete for the employer/client and others to do their work.
• FIDIC: the engineer or employer takes over the works when they achieve 'substantial completion', which is primarily determined by whether or not the works are sufficiently complete from a functional perspective.

• Fault-free completion: all construction work to be done is completed, as in P&M Kaye Ltd v Hosier & Dickinson Ltd [1972] 1 WLR 146. This case considered the distinction between patent and latent defects in assessing whether or not the works have achieved practical completion.
• Completion for all practical purposes: in Walter Lilly & Company Ltd v Mackay & Anor [2012] EWHC 1773 (TCC), the court found that completion down to the last detail, however trivial and unimportant, would constitute a penalty clause and as such would be unenforceable.
• The de minimis principle: completion is achieved notwithstanding minor defects, and there are no patent defects; this was the definition in H W Neville (Sunblest) Ltd v William Press & Sons Ltd [1982] 20 BLR 78.
• Impossibility of perfection: in Emson Eastern Ltd v EME Developments Ltd [1991] 55 BLR 114, the court found that perfection in the construction industry is impossible.
• Defects should be trifling: Hong Kong Court of Final Appeal in Mariner International Hotels Ltd v Atlas Ltd [2007] 10 HKCFAR 1 held that practical completion was a state of affairs in which the works have been completed 'free from patent defects, other than ones to be ignored as trifling'.
• Remedying defects: another factor that affects completion is the extent of disruption an employer would incur by allowing access to a contractor to remedy defects or complete works outstanding after the issue of a completion certificate.

The works in this case, which started in the middle of 2016, were delayed. In late summer 2018, the tenant, Mears, alleged that some of the rooms in a block of flats it was leasing were more than 3% smaller than specified in the contract.

However, by then the rooms had been built and the works were complete. Notwithstanding Mears' complaints, the employer's agent, Costplan, indicated that it intended to issue a certificate of practical completion.

Mears sued and sought an injunction restraining Costplan from doing so and claimed any reduction in room size exceeding 3% was a breach of contract that prevented practical completion from being certified. The original judge did not grant the declaration sought by Mears.  

This was challenged in the Court of Appeal which upheld the original decision, but helpfully the Court of Appeal reviewed the case law applicable to practical completion and summarised it as follows.

• Practical completion is 'easier to recognise than define'.
• The existence of latent defects cannot prevent practical completion as it is unknown at the time completion is awarded (Westminster Corp v J Jarvis & Sons Ltd [1970] 1 W.L.R. 637).
• In relation to patent defects, there is no distinction between an unfinished item (one that still needs to be completed) and a defective item that requires correction. Snagging lists typically identify both types of items without differentiating between them. Practically the works must be free from patent defects, other than those that can be considered as 'trifling' (HW Nevill (Sunblest) Ltd v William Press & Sons Ltd (1981) 20 BLR 78 and Emson Eastern v EME Developments (1991) 55 BLR 114).
• Whether an item is trifling is a matter of fact and degree and should be measured against 'the purpose of allowing the employer to take possession of the works and to use them as intended' (Westminster Corp v J Jarvis & Sons Ltd [1970] 1 W.L.R. 637).

Practical completion comes in various shades. As there is no common definition of the term you need to consider the specific wording in your contract, as well as considering the principles from wider case law.

This lack of definition leads to disputes as to whether or when practical completion has been achieved. Some practical considerations you should identify when seeking or awarding completion include the following.

1. What does your contract say about completion? Abide by definitions and mechanisms for issuing completion certificates.
2. Ensure any required documentation is provided.
3. Are there any statutory or contractual requirements that are relevant to completion that may, in practice, operate as conditions precedent to completion?
4. Are defects of a 'trifling' nature and 'de minimis'?
5. Check who has the authority to review quality under the contract. This will be the architect or contract administrator under JCT, or the supervisor under an NEC contract.
6. Check that any defects or snagging lists are being issued by the correct person. Often these lists are issued by numerous interested parties who do not have the authority under the contract.
7. What are the insurance obligations and do they finish at practical completion, different commencement dates for rectification or defect liability periods, retention release and, where relevant, the client's application of liquidated damages?
8. Keep a paper trail documenting acceptance of possession, partial possession or agreement for early access.

RICS provides further guidance on completion in Defining completion of construction works.