Whether and/or when construction and building works have achieved practical completion is a common question which arises during the course of a project and one which often results in a dispute.
Practical completion is not defined in the standard JCT suite of building contracts. Still, the works are generally considered to be practically complete when there are no outstanding defects (except for minor items or snagging), and the building can be put to its intended use.
Both contractually and practically the date of practical completion is important as it typically means that:
- the contractor no longer has exclusive possession of the site;
- the contractor's obligation to ensure the works comes to an end;
- the contractor's liability for liquidated damages for delay ends;
- time starts running in respect of the rectification period;
- the contractor becomes entitled to part (often half) of the retention.
If an employer wants back part of the site before practical completion either to occupy a part of the site early or to sell off a part of it, then often the contract is drafted to provide for sectional completion.
Sometimes, however, it is not possible to predict this need and an employer may instead elect to take partial possession of the site. In JCT terms the part of the site taken into possession is known as the 'relevant part'.
This has consequences; however, for the relevant part in the same way that practical completion would have on the works as a whole. An employer and contractor must be alive to the fact that in relation to the relevant part, the contractor's obligation to ensure that part comes to an end, liquidated damages are reduced by the same proportion as the value of the relevant part has to the contract sum, the rectification period commences in respect of the relevant part, and the employer regains exclusive possession of the relevant part.
If an employer wants use of or to occupy the site or the works early, then the JCT provides for an option for this too. Crucially, the "early use" by an employer does not have the same monetary relief for a contractor as partial possession.
Not surprisingly, therefore, the question of whether or not an employer has taken early use or partial possession is a fertile ground of dispute. While some authorities on the matter may suggest that to answer that question one must look at whether or not the employer's physical possession was "exclusive" or whether it has a lesser presence, others point to the need for a definite handover – e.g. by way of a notice.
Applying the latter approach if a contractor does not issue the relevant notices, then even if the nature of the employer's use of the site/works which might otherwise arguably amount to that part of the works being practically complete the lack of clear intention of that may lead to the pre practical completion risks remaining with the contractor.
The need for certainty at the time cannot be underestimated. For example, a contractor who relies on the incorrect assumption that partial possession has occurred and duly cancels its insurance for that part of the works, such an error could prove fatal.
For both employers and contractors alike suitable amendments to standard form contracts such as the JCT forms of contract which are tailored to the project and which cater for the anticipated needs of the employer and the contractor during the course of the works will be of vital importance. This includes providing clear consequences for the employer's use or occupation and appropriate definitions of what constitutes partial possession. It is then up to the parties to ensure that they apply the terms of the contract strictly.