The concept of completion in construction contracts is an important one. It has significant effects upon the contractual relationship between the parties. When completion occurs, the contractor's licence to occupy the site ceases and the risk of damage to the works transfers from the contractor to the employer. Completion will trigger the start of the defects liability period. It will also bring to an end any right the employer may have to damages for delay.
What does "completion" mean in the context of construction contracts?
As His Honour Judge John Newey QC pointed out in Emson Eastern Limited (in receivership) v EME Developments Limited (July 1991):"building construction is not like the manufacture of goods in a factory. The size of the project, site conditions, use of many materials and employment of various types of operatives make it virtually impossible to achieve the same degree of perfection as can a manufacturer. It must be a rare new building in which every screw and every brush of paint is absolutely correct".
Completion cannot be precisely defined. In many forms of contract the architect or engineer is required to certify when completion has occurred. A cynic might say that in practice it therefore means what the employer wants it to mean when the employer wishes it.
Despite this, or perhaps because of this, it is nevertheless important for the construction contract to attempt to define what is meant by completion. Any independent person brought in to decide a dispute regarding completion will need some guidelines to enable him or her to reach a decision.
The JCT family of contracts adopts the concept of "practical completion" but does not define it. The leading case on the meaning of this expression is Westminster City Council v J Jarvis and Sons Limited (1970) where Viscount Dilhorne said, in the House of Lords:"One would normally say that a task was practically completed when it was almost, but not entirely finished, but "practical completion" suggests that this is not the intended meaning and what is meant is the completion of all the construction work that has to be done". In his opinion, "the defects liability period is provided in order to enable defects not apparent at the date of practical completion to be remedied". It followed from this that if any defects were apparent in the works at completion, the certificate of practical completion "would not have been issued". In other words, "practical completion" means that all the construction work must have been completed with no patent defects.
Don't the JCT contracts cover this?
In HW Nevill (Sunblest) Limited v William Press & Son Limited (1981), His Honour Judge John Newey QC followed the Jarvis case when he stated if there were any patent defects in the works the architect could not give a certificate of practical completion but he tempered this somewhat extreme position when he also said that the use of the word "practically" gave the architect a discretion to issue such a certificate where "very minor de minimis work had not been carried out".
The Judge did not say in what circumstances it would be appropriate for the architect to exercise his discretion, and the JCT contracts do not make express provision for the contractor to carry out minor outstanding items of work after practical completion. In this respect they do not seem to reflect the practice of the industry. It is very frequently the case, particularly on larger projects, that snagging items will continue during the first few weeks following completion. It can be argued that the underlying obligation on the contractor to carry out the works requires that these minor items still have to be done and the employer must permit the contractor to do them. However it seems odd that the JCT contracts do not set out specific provisions dealing with this.
So how does this fit in with "substantial completion"?
The ICE family of contracts adopts the concept of "substantial completion". Again, this is not defined. However these contracts do not suffer from the same difficulties as the JCT contracts because, unlike the JCT contracts, the ICE forms expressly contemplate that there may be outstanding work to be done, which would not prevent a certificate of substantial completion being issued. The contractor is required to give an undertaking to finish that work within a time agreed by the engineer, or as soon as practicable, during the defects correction period.
The cases described above would not therefore apply to "substantial completion" under the ICE forms. What the ICE forms do not do however, is provide any guidance as to the circumstances in which it might be appropriate for the engineer to exercise his discretion in favour of, or against, the issue of a certificate of substantial completion where the whole of the works had not been completed. Again, rather like the concept of completion itself, this is difficult to define.
The exercise of that discretion would be open to challenge through adjudication or arbitration. Despite the difficulty of defi- nition it may therefore sometimes be appropriate to describe the circumstances in which the engineer would be entitled to issue a certificate, notwithstanding the existence of outstanding items of work.
What does the NEC contract have to say about this?
The NEC contract has a definition of "Completion". It is:"the date, decided by the Project Manager, when the Contractor has done all the work which the Works Information states he is to do by the Completion Date and has corrected notified Defects which would have prevented the Employer using the works". This goes further than the JCT and ICE forms in defining what is meant by "completion". The presence of defects will not preclude the issue of a certificate of completion if those defects do not prevent the employer from using the works. However, the contract leaves other contract documents, drawn up on a project specific basis, to make clear what has to be done to achieve completion as defined. This could include for example the passing of tests and the submission of the health and safety file, operating manuals or preliminary as-built drawings, and the like. It could also stipulate that very minor outstanding items of work (as opposed to "Defects") will not prevent completion being achieved, provided that provisions are added stating when such work is required to be carried out.
What this all means
Given the importance of completion to the rights and obligations of the parties to the contract, it is perhaps surprising that the standard forms do not address it more comprehensively. This may in part be due to the fact that many issues related to completion are so project specific that it is not possible to deal with them in a standard form. In any event, this is a notoriously difficult concept to define. The following questions however could perhaps be considered:
- does completion mean completion of all the work including all tests, minor outstanding items and defects?
- if not, what tests, minor outstanding items and defects can be permitted (depending, for example, upon value, whether they will hamper the employer in making use of the works, whether the completion or making good of the outstanding works or defects will interfere with the employer's business, whether some tests cannot be carried out until after occupation or taking over by the employer)?
- when will the outstanding tests, works or defects at completion be completed or made good?
- what happens if they are not?
In many cases the parties may find this approach too prescriptive. However, there is much to be said for addressing these issues in the contract if it is possible and practicable to do so. It could, after all, reduce the scope for dispute at a later stage.
For further information please contact Peter Long at peter.long@cms-cmck.com or on +44 (0)20 7367 2507.
