What is Practical Completion?
After the Court of Appeal recently added some clarity to the notoriously undefined concept, Cathrine Ripley in our Commercial Technology team, summarises the key points of ‘practical completion’.
Practical completion is a legally undefined point, towards the end of a construction project, when the contracted works are considered ‘complete’ even if minor defects remain. It is really the point at which the project is handed over from the contractor to the client, and so it has numerous contractual or legal implications. Not only, however, is ‘practical completion’ undefined in law; it is often undefined in the contract too.
The point at which practical completion is achieved lies with the discretion of the contract administrator or the employer (depending on the type of contract), and it is treated as a matter of opinion and fact respectively, depending on whose discretion it is.
It is of course an important moment, since it usually signifies when a building becomes useful, and it has numerous legal consequences:
- the right to liquidated damages for any delays comes to an end;
- some of the retention monies (usually 50%) must be repaid;
- the contractor becomes liable for defects, while risk and responsibility for the building are transferred from the contractor to the employer; and
- physical variations can no longer be made under the same contract, since the project is deemed ‘complete’ and therefore the contracted work has been performed.
Because of these consequences, whether ‘practical completion’ has been achieved can become a matter of dispute.
The recent case of Mears v Costplan Services (2019) EWCA Civ 502 in the Court of Appeal has helped to define practical completion. Lord Justice Coulson reasoned that small departures from contract drawings cannot all be regarded as breach of contract, since practical completion would become “commercially unworkable.”
He also made the following observations regarding practical completion:
- it is easier to recognise than to define;
- latent defects, by definition, cannot prevent practical completion;
- patent defects, on the other hand, amount to uncompleted work and would usually be included in a snagging list prepared prior to practical completion;
- although it is not a universally held view, most recent case-law has found that patent defects, if they are trifling, do not necessarily prevent practical completion (‘trifling’ defects generally meaning those which do not prevent possession and intended use of the building).
To head off the possibility of arguments arising as to whether practical completion has been achieved, it is always a good idea to keep records of matters such as whether and when the employer has taken possession of, or has started using, all or part of the building, and any other relevant matters.
If you would like advice in relation to practical completion of a contract for works, please do not hesitate to get in touch with our Commercial & Technology team.