Ava Zadkhorvash, Alastair Dale and Jonathan Hart (pictured in order top-bottom) of award-winning infrastructure law firm Pinsent Masons LLP take a look at a recent Court of Appeal decision, which concerned the definition of ‘practical completion’, and what this might mean for transport authorities and contractors.
Although the term ‘practical completion’ is frequently used by stakeholders in the construction industry, there is no generally accepted legal definition as to what this expression actually means.
Many standard highways agreements do not include a definition, often leaving it to the contract administrator to decide when it has taken place. Unsurprisingly, practical completion is a frequent source of disputes.
It has been 50 years since judicial consideration by the Court of Appeal of the meaning of practical completion and, like many sequels, it appears to be a close re-run of the original plot. The case in question is Mears Ltd v Costplan Services, reported at the end of March this year. Although the facts of the case are not highways-related, it has important implications applicable to the highway construction industry.
So, what is the big deal about practical completion?
If you’ve had to look at highways contracts, you will have probably come across the term ‘practical completion’. In general terms, you might understand that this occurs when work under the contract has been completed and is defect-free. You may also have learned that at this point a certifier (usually appointed by the employer or the employer itself) will inspect the works and issue a ‘certificate of practical completion’, if it is satisfied that the works are complete.
This is a significant moment for any project, since it triggers various things for contractors and employers alike. In many contracts, practical completion will mark:
- the start of the defects liability period (during which the contractor is typically entitled to return to site to rectify defects that appear after practical completion)
- the end of a contractor’s liability for liquidated damages or lane occupation charges
- the release of retention monies from an employer
- the end to the employer’s rights to require changes to the works in question; and
- the passing of risk to the employer, given that the employer will be taking ‘possession’ (a potentially unusual concept for many highways schemes, but for example, the trigger for entitling the public to resume use of affected carriageways or footways).
For these reasons, the summary of the law on practical completion in the Mears case should (hopefully) help provide greater clarity to certifiers to recognise when practical completion has taken place, as well as providing more certainty for both contractors and employers.
What does the Mears case tell us about practical completion?
Perhaps, unsurprisingly, the term ‘practical completion’ was not defined in the contract that was the subject of the Mears case. If it had been, then the parties would probably have been able to exercise their energies elsewhere. In considering the case, the court made the following points, which are worth reflecting upon:
- Practical completion is easier to recognise than define (thanks!).
- Works can be practically complete even if there are latent defects (a defect not detectable at completion) ‘since nobody knows about them’.
- There is no difference between work that has yet to be completed (an ‘outstanding item’) and defective work, which has to be remedied. Both will be dealt with in the same way under the practical completion certificate (eg, by issuing a ‘snagging list’).
- A practical completion certificate should not be issued if there are ‘patent defects’ (but this should not include ‘trifling’ or insignificant defects).
- Whether an item is trifling or not is a matter of fact and degree. This should be considered against the purpose of allowing the employers to take possession of the works and to use them as intended. The nature of the work that remains to be completed or remedied must be taken into consideration.
- If a defect is irremediable, it does not automatically justify the prevention of practical completion.
So, what’s new and what does this mean in practice?
Many of you more legally inclined folk may know that some of the points above are not entirely new. It’s quite common for practical completion to be certified, even if there are outstanding or insignificant defects. These are usually included in a schedule of defects attached to the practical completion certificate. However, the case highlights other factors that should be considered.
Importantly (rejecting previous legal authority), Mears sets out the principle that although defects may not affect the use of works, they might nonetheless prevent practical completion. The issue to be flagged here was whether a defect in question could be described as ‘trifling’.
Arguments around this could give rise to uncertainty for employers, contractors (and certifiers) alike – especially given pressures being placed on re-opening affected highways, certifiers ‘sampling’ a range of work across a network that is supposed to have been completed, or disagreement as to whether an outstanding item can properly be treated as a minor snagging matter, which is later argued to have an adverse effect upon a road user.
This case reiterates the importance for those involved in highway matters of carefully considering how the term practical completion is being used and defined in their contracts and how this can be interpreted. If your current contracts are silent on the contractual definition of practical completion, it may be up to a certifier to decide whether or not defects are ‘trifling’ and, therefore, whether or not this will prevent practical completion.
For those currently negotiating terms, or involved at the early stages of project procurement, there may be real advantage in taking the time and trouble to ensure all parties involved in the matter have a shared (express!) understanding of the definition of practical completion, and the contract helps specify the framework within which a certifier might be operating.
Is the contract clear as to what exactly has to be achieved, specific to the relevant project asset and the intent and purpose of the works? It may even be worth looking to describe expressly what might be considered to be trifling or snagging matters that should not – on their own – hold up practical completion.
Contracts are often criticised as being too wordy. Lawyers and drafting people are often accused of using three sentences when one will do. On this occasion, however, it may be worth considering whether less really is more?
