Most construction professionals know of the concept of 'Practical Completion' and know it marks the end of the substantive works and the start of the defects liability period, but this is a term that is known by many and understood by few as there is no authority, accepted or agreed across the industry, which actually establishes a standard definition of what constitutes 'Practical Completion'. However, rather helpfully, the end of 2018 gave us two cases which considered issues surrounding 'Practical Completion'.
This case involves the Claimant, University of Warwick, employing Balfour Beatty Group, the Defendant, as the Contractor under a JCT 2011 Design and Build Contract with bespoke negotiated amendments (the "Contract) for the design and construction of the National Automotive Innovation Centre ("NAIC") on the Claimant's campus.
The Contract provided for the Works to be divided into four Sections each of which had a Date for Possession of 20 April 2015. The Date for Completion for Sections 1-3 was 10 April 2017 and for Section 4 it was 05 July 2017.
A lengthy and detailed definition of Practical Completion was included in the Contract. The main thread of this definition required the work or section to reach “…a stage of completeness… which allows the Property to be occupied or used…”. Property was then in turn defined as “the property comprised of the completed Works.”
The Defendant argued that due to the definition it was not possible to separately achieve Practical Completion of a Section prior to Practical Completion of the whole of the Works. A stage of completeness that allowed the Property to be occupied and used could only occur when the whole of the Works were completed as Property was defined by reference to the whole works rather than Sections. This was key to the Defendant as it alleged this meant the liquidated damages provision relating to each section were inoperable.
Luckily for the Claimant, McKenna J disagreed with the Defendant and held that the Contract must be interpreted such that the requirements as to Practical Completion and the reference to Property meant in relation to that particular Section under consideration and not the whole of the Works. Further and in the alternative, business common sense required such a construction given the numerous other terms of the Contract which clearly provided for Sectional Completion.
Whilst this case itself does not delve into the depths of what it means for the Works to be practically complete, it nonetheless is a useful case for construction professionals to bear in mind. Drafting a definition of Practical Completion may seem like a helpful way to avoid any ambiguity or debate at a later date as to the status of the Works, however, such definitions need to be drafted very carefully or risk making other key provisions in the Contract inoperable. Fortunately for the Claimant here the Court found in their favour, but contract interpretation is fact specific and the same outcome may not be achieved in differing circumstances.
If you do not define 'Practical Completion' then you should take heed of the comments of Waksman J in the second case of 2018 to consider 'Practical Completion'.
In a rather fact specific case concerning an Agreement for Lease between the Claimant, Mears Limited and the Second Defendant, Plymouth (Notte) Street Limited for a 21 year lease of student accommodation constructed by the Third Defendant, J R Pickstock Limited, Waksman J gave some helpful comments and thoughts on what Practical Completion means. Practical Completion was key in this case as the failure to achieve Practical Completion by a specified longstop date permitted the Claimant to terminate the Agreement for Lease and simply walk away.
The Court was asked to give a declaration as to the ability to certify Practical Completion where, inter alia, there was an alleged material and substantial breach of the Agreement for Lease (namely, the bedrooms being smaller that they should have been, in breach of a particular contractual provision). Whilst the declaration was refused due to the nature of the alleged breaches, the Court made it clear that this was not the end of the road for the Claimant as the question remained: had Practical Completion actually been achieved? This was not an issue before Waksman J but Waksman J nonetheless gave commentary as to what is required to achieve Practical Completion.
In the absence of a definition of Practical Completion in the Building Contract or the Agreement for Lease, Waksman J adopted the statement in Keating on Construction Contracts (9th Edition). This states that Practical Completion means the completion of all the construction work that has to be done and can be certified notwithstanding latent defects, but not when there are patent defects. To this, Waksman J added the following additional observations:
In this case, the intention and purpose for the building was for it to be used as student accommodation and as such, the building must be able to be used as intended. However, merely because the building could now accommodate the students this did not necessarily mean that the works were practically complete - it had to be considered whether there was a real problem in some of the students not being able to use the rooms as intended or at all. This meant if there were defects that caused a real problem to occupation by the students, then this may be sufficient to prevent Practical Completion being certified.
Waksman J's comments regarding the meaning of Practical Completion are a helpful steer from the Court as to the issues to be considered and the nature of the concept that is Practical Completion. It is clear that the very specific nature of any defects or incomplete work will need to be given careful and detailed consideration before a decision is made to certify Practical Completion.
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