What is Practical Completion?

The issue of whether a construction project has achieved Practical Completion has long been the source of many disputes within the construction industry. This is not surprising as many of the Standard Forms of Contract rely upon the issue of a Certificate of Practical Completion to trigger such matters as the release of the first moiety of retention, exclusion of liability for Liquidated and Ascertained Damages and Insurance of the Works.

Given the importance of this matter it is somewhat surprising that the Standard Forms used throughout the Construction Industry (with the exception of the process plant industry IChemeE, although still open to interpretation) do not define completion. Instead, they generally leave the matter to the discretion of the Architect, Engineer and Supervising Officer etc.

The following unhelpful entry is made in the JCT 1998 at Clause 1.3 (Interpretations, Definitions etc):-

‘Practical Completion: see Clause 17.1’

Clause 17.1 provides

‘When in the opinion of the Architect Practical Completion of the Works is achieved,……… he shall forthwith issue a Certificate to that effect and Practical Completion of the Works shall be deemed for the purposes of the Contract to have taken place on the day named in such Certificate’.

Various attempts have been made by the courts to form a definitive opinion for Practical Completion and the following cases are worth noting:-

Westminster Corporation v J. Jarvis and Sons (1970)

Here Lord Salmon LJ stated that “The obligation on the contractors under clause 21 to complete the works by the date fixed for completion must, in my view, be an obligation to complete the works in the sense in which the words ‘practically completed’ are used in clause 15 and cause 16 of the contract. I take these words to mean completion for practical purposes, i.e. for the purpose of allowing the council to take possession of the works and use them as intended. If completion in clause 21 meant down to the last detail, however trivial and unimportant, the clause 22 would be a penalty clause and unenforceable.”

However, in the same case a further definition was given by Lord Dilhorne who appeared to view practical completion as fault free completion of the works saying that:

“The contract does not define what is meant by Practical Completion. One would normally say that was practically completed when it was almost but not entirely finished, but practical completion suggests that this was not the intended meaning and what is meant is the completion of all the construction that has to be done…”

In 1982 this rather strict impression was diluted in the case of HW Neville (Sunblest Ltd) v William Press and Sons where it was said “I think the word practically …… gave the Architect a discretion to certify that the contractor had fulfilled it’s obligation ……. Where very minor deminimis work had not been carried out, but that if there were any patent defects in what the contractor had done the Architect could not have given a certificate of Practical Completion”.

Judge Newy in Emson Eastern v EME Developments (1991) further reinforced this view where he said that “because a building can seldom if ever be built as precisely as required by drawings and specification, the contract, realistically refers to ‘practical completion’ and not ‘completion’, but they mean the same. If contrary to my view, completion is something which occurs only after all defects, shrinkages and other faults have been remedied and a certificate to that effect has been given, it would make the liquidated damages provision unworkable”.

Whist Practical Completion seems to be generally understood by the industry, in practice there remains a difficulty in arriving at a formal definition that is accepted within the industry as a whole. Keating submits that the following represents the correct analysis:-

“1. The Works can be Practically Complete notwithstanding that there are latent defects;

2. A Certificate of Practical Completion may not be issued if there are patent defects. The Defects Liability Period is provided in order to enable defects not apparent at the date of Practical Completion to be remedied;

3. Practical Completion means the completion of all the construction work that has to be done;

4. However, the Architect is given discretion under clause 17.1 to certify Practical Completion where there are very minor items of work left incomplete, on ‘de minimus’ principles.”

Hudson’s approach, whilst not as simplistic, essentially follows the same principles i.e.

“It is desirable to be clear as to the precise meaning of ‘completion’ in a time obligation. There is surprisingly little English authority on the point, but it is clear that the requirement will be less rigorous than in other contractual contexts. Usually it will mean bona fide completion free of known or patent defects so as to enable the owner to enter into occupation. The words ‘practical’ or ‘substantial’ in the English standard forms probably do no more than indicate that trivial defects not affecting beneficial occupancy will not prevent completion (the more so, of course, if the contract provides for a maintenance or defects liability period).

Notwithstanding the “definitions” referred to above, it is often the case that individual circumstances can and do affect the issue of a Certificate of Practical Completion, irrespective of the condition of the works on site. Such circumstances may include the Employer’s willingness, or not, to accept the works which may be dependant upon whether he has a client to occupy them – why take on the cost of maintaining, securing and insuring the works when you have a Contractor in a position to do these works at no cost and you may be able to recover Liquidated and Ascertained Damages in addition?

Given the ambiguity in current case law and the currency at which this matter arises, it is surprising that the more frequently used standard forms of contract contain no clearer definition for Practical Completion. In the absence of such clear definition or persuasive case law either way, it is at the mercy of the Architect, Employer and Employer’s Agent and their interpretation of Practical Completion that the Main Contractor finds himself and against whom he has to argue his position accordingly.

Source: http://www.alway-associates.co.uk/legal-update/article.asp?id=10

INTERIM CERTIFICATE UNDER THE SIA CONTRACT: CHINA CONSTRUCTION (SOUTH PACIFIC) DEVELOPMENT CO. PTE LTD v LEISURE PARK (SINGAPORE) PTE LTD

INTRODUCTION

1. The courts had in earlier cases confirmed the intention of the Post-1980 Articles and Conditions of Building Contract published by the Singapore Institute of Architects ("SIA Contract") of providing a system of "temporary finality" regulated by the architect's certificates over a wide range of matters, which could be enforced immediately by summary judgment pending subsequent arbitration or litigation, if any.

2. In China Construction, the defendants/employers contended that the architect has not certified an interim payment certificate in accordance with the provisions of the contract and hence, it should not be given the "temporary finality". This case illustrates the typical problems faced by contractors arising from the late and under-certification of architects.

Brief Facts

3. The plaintiffs were the main contractors engaged by the defendant owners under a
contract in the SIA standard form of contract for the building of a theme park on Sentosa Island at a lump sum of S$8.146m. The provisions for the issue of interim certificates were contained in clause 31 as modified by the parties. By an addendum to the contract, a new clause 31(13) was added which provides " the issuance of each and every Interim Certificate by the Architect is conditional upon the Contractor having sent to the Quantity Surveyor a detailed statement and breakdown of the approximate value of the work executed and of unfixed materials on site, at least ten days before the date of each relevant certificate".

4. The practical completion of the Works was certified on 15 January 1995. On 7 October 1995, the plaintiffs submitted progress claim no. 20, described as the "penultimate" claim, for the (cumulative) sum of $6,568,910.27. The architect would, in the normal course, have issued one interim certificate in respect of the claim. However, he did not do so. Instead, he issued one interim certificate (no. 20) on 27 June 1996 for the cumulative sum interim of $4,621,575.75 and a net sum of $43,690.00. He issued another interim certificate (no. 21) on 13 January 1997 for a cumulative sum of $4,815,928.50 and a net sum of $194,352.75.

Then, nearly two years later, on 10 December 1998, he issued interim certificate no. 22 for the cumulative sum of $5,136,664.29 and a net sum of $320,735.79. The last certification was based on the project quantity surveyor's valuation made on 31 July 1997. The plaintiffs commenced legal proceedings and applied for summary judgment in respect of the net sum of $320,735.79. The plaintiffs succeeded before the learned assistant registrar. The defendants appealed.

DEFENDANTS' CONTENTIONS

5. The defendants' main contentions are summarised as follows:

Firstly, contrary to clause 31(2), the interim certificate no. 22 does not show the valuation date. The defendants refer to the Tropicon case in which interim certificates were struck down on the ground, inter alia, that they did not show the valuation date.

Secondly, only one interim certificate can be issued on one progress claim. There was no progress claim in respect of interim certificate no. 22. The defendants relied on clauses 31(2) and 31(13).

Thirdly, interim certificates are intended to be issued during the progress of the work, and not after the contract has been completed. Thus the defendants said interim certificate no. 22 was contrary to the scheme and provisions of the contract. The defendants again referred to the Tropicon case in which interim certificates were held to be invalid on account of having been issued more than 2 years after completion.

Fourthly, the interim certificate no. 22 was not in form or in content a correction certificate under clause 31(4).

DECISIONS

6. Warren Khoo J gave summary judgment for the plaintiffs. He pointed out,
inter alia that:

(a) When considering the question of validity of interim certificate no. 22, it is
appropriate to take into account the conduct of the parties and the architect in the
matter of certifications and payments. He added that "it is quite apparent that it is
not in regard to interim certificate no. 22 alone that the architect and the parties
have not followed the provisions of the contract. ... Indeed they have been
habitually ignored". On the evidence, the learned judge held that "it seems to me
that in view of these apparently habitual departures from the contract, all in
relation to certifications of payments to the contractor, the defendants' criticisms
about the form and timing of the certificates cannot be taken seriously. There has
been a general waiver of the strict requirements of the contract, and it is
inequitable for the employer to go back on it when it suits them".

(b) A correction certificate (under clause 31(4)) may be issued at any time. It can be issued before completion of the contract; between two interim certificates;
notwithstanding that an interim certificate has already been issued on the same
progress claim.

(c) After analysing the Tropicon case and clause 31(4), the learned judge said "that
there is nothing in that case to support the view that a correction certificate, in the absence of vitiating factors such as those present in that case, should be
invalidated merely on the ground that it was issued long after the completion
date".

(d) The delay in this case was probably consistent with a pattern of grudging and
belated certifications, as manifested in the manner in which the previous two
certificates referred to were issued. It seemed evident that what happened was
that the architect having certified certain sums, did not consider that he had
certified enough and proceeded to issue a further certificate or certificates on the
basis of the same progress claim made on 7 October 1995.

(e) "An interim certificate for payment issued by the architect under the SIA contract, like other certificates issued by him, is prima facie to be honoured. It enjoys "temporary finality"; i.e. finality pending resolution of any underlying disputes between the parties by review in arbitration or court proceedings. Summary
judgment is to be given in the meantime on the certificate unless it can be shown
in a summary way that the certificate has not been issued in the proper exercise of
the architect's certification powers under the contract. All this is provided in
clause 31(11) of the general conditions. The burden of showing that the power has
not been properly exercised in respect of any certificate is on the party challenging
its validity. On the facts of this case, I am not prepared to find that the architect
has not acted properly in the exercise of his power under clause 31(4). The interim
certificate in question must be honoured".

COMMENTS

It is submitted that this case illustrated the following important aspects of the SIA contract:

(a) The architect must exercise his certification powers in accordance with the
provisions of the contract.

(b) The Tropicon case is no authority for the proposition that an interim payment
certificate is in all cases to be invalidated merely on the ground that the
requirements of the contract are not met. Further, in considering the question of
validity of interim certificates, the courts take into consideration the conduct of the parties and the architect.

(c) Clause 31(4) allows the architect to issue further interim certificates to correct earlier interim certificates at any time (but it of course must be before the Final Certificate).

(d) In the absence of vitiating factors, the court will give "temporary finality" to an interim certificate by way of summary judgment.

Sumber: http://www.drewnapier.com/publications/Dnpub10.pdf