We examine the following terms namely ‘practical completion’, ‘works completion’ and ‘final completion’ as set out in the JBCC 2000, Principal Building Agreement, 6th edition and provide commentary on achieving each stage, the consequences of having achieved each stage and the general problem areas for each stage of completion.
This is defined as the stage when the works, as certified by the principal agent, are substantially complete and can be used for the purposes intended. On the face of it, is very open-ended and denotes a subjective assessment.
Nevertheless, the latter part of the assessment criteria, “...can be used for the purposes intended...” does provide some guidance in that there are some general criteria that would apply to a house, a factory or even a hospital for example. In order to narrow these down it is suggested that at the outset (at tender stage) the contractor establish the following:-
• Specific requirements
In the case of the construction of a house, as an example, the requirements may differ from one project to another. Whilst certain obvious requirements are common to all projects, things such as perimeter walls, garages and others are not. The solution is for the contractor to make the necessary enquiries and to agree upon such criteria with the principal agent. The purpose hereof is to try and remove the subjectivity associated with this stage.
• Quality standards
The contractor should establish such standards in relation to things such as plastering and paintwork if possible by reference to samples.
• Inspection period
The contractor must establish the number of days the principal agent will need in order to carry out his inspection. He must then allow sufficient time for this to be done prior to the stated practical completion date and for any remedial work that may be required. The contractor should make provision for this in his programme and include a period for rectification of the works, if any, in order to achieve practical completion.
Once work commences the principal agent is obliged to carry out periodic inspections and guide the contractor on these requirements. At the appropriate time the contractor must notify the principal agent of the anticipated practical completion date and to inspect the works in order to meet such date. Should the principal agent be satisfied, upon such inspection, that practical completion has been reached he shall then issue the practical completion certificate, provided that this may not be done prior to the date stated in the contract data unless the parties agree. The reason for this is that the employer may not yet have made suitable arrangements regarding things such as early occupation and insurance. Where the principal agent is not satisfied he is to issue a practical completion list of defective and incomplete items to be attended to as required for practical completion whereafter the process is to be repeated until the principal agent is satisfied. Contractors argue that this process is frequently abused and that the list should be limited to incomplete items and leave out defective items which can be attended to during the subsequent completion stages. The incentive herein is to avoid a delay in the commencement of the defects liability period.
The consequences of practical completion are as follows:-
• The contractor is no longer obliged to carry out a contract instruction in relation to additional work;
• The employer takes possession of the works subject to any right of retention (lien); and
• Risk passes to the employer and the contractor’s insurance obligations are terminated.
It is important to note that where the employer takes possession, whether in part or wholly, by agreement with the contractor prior to the practical completion date then practical completion shall be deemed to have been achieved and the principal agent must issue the practical completion certificate. However in what is another inconsistency the agreement is silent on the consequences of the employer taking possession without agreement with the contractor and this needs to be addressed at the outset of the contract.
This concept is not defined nor is there any set date but it follows from practical completion. The process starts with the principal agent issuing a works completion list to the contractor which details defective and incomplete work present at practical completion but which are not required to achieve practical completion. The contractor must remedy the defects in this list in order to achieve works completion.
Once the contractor has addressed all incomplete and defective items on the ‘works completion list’ he must notify the principal agent to inspect these items, and if satisfied, issue a certificate of works completion . If the principal agent remains unsatisfied then he is required to identify which items have not been completed or rectified to his satisfaction and the contractor must carry out the rectification and completion procedure again in accordance with sub-clause 25.2 . This procedure may be repeated several times until the principal agent is satisfied that all the items on the work completion list have been appropriately addressed.
Alternatively, should the principal agent not issue a works completion list within 5 working days of the date of practical completion the contractor is obliged to notify both the employer and principal agent in this regard and the principal agent is required to submit a works completion list within 5 working days of receipt of the contractor’s notice. Should the principal agent fail to submit the works completion list thereafter, works completion shall be deemed to have been achieved on the expiry of the initial 5 working day period after the issue of the certificate of practical completion.
The only evident incentives that exist for the contractor in relation to works completion is that the contractor has 20 working days to complete and / or rectify the items on the works completion list in order not to forego compensatory interest on the value of outstanding work . The issue of the works completion certificate marks the commencement of the 90 calendar day defects liability period. (NB The Contractor is not entitled to compensatory interest on the value of outstanding work , see clause 25.4)
At the end of the defects liability period, or when the contractor believes the defects liability period has come to an end, he must submit a notice to the principal agent who is obliged to inspect the works within the period specified in order to determine whether any defects are present. Should any defects be identified, the principal agent is obliged to provide the contractor with a defects list, which have arisen during the defects liability period and which the contractor must rectify in order to achieve final completion of the works.
Similarly, as provided for under works completion, if the principal agent does not issue a defects list within the period prescribed of 5 working days from the end of the defects liability period, the contractor is obliged to notify both the employer and principal agent in this regard and the principal agent is required to submit the defects list within 5 working days of receipt of the contractor’s notice. Should the principal agent fail to submit the works completion list thereafter, final completion shall be deemed to have been achieved on the expiry of the initial 5 working day period after the end of the defects liability period.
The achievement of final completion by the contractor has the following consequences:
• all the contractor’s liabilities and obligations in relation to a subcontractor’s defects comes to an end and any remaining portion of the subcontractor’s defects period is agreed and assumed by the employer ;
• all guarantees, warranties and indemnities provided by the contractor, subcontractors and suppliers are ceded to the employer on the date which the certificate of final completion is issued ; and
• the certificate of final completion constitutes conclusive evidence as to the sufficiency of the works and that the contractors obligations have been fulfilled other than latent defects.
Practical completion, works completion and final completion deal exclusively with the construction period. Once the contractor has achieved final completion he still retains certain obligations in relation to the latent defects liability period. The latent defects liability period commences when construction begins and ends 5 years after the date when final completion was achieved.
Written by Niel Coertse, Associate at MDA Consulting