Michael Gerard & Co. Chartered Building Consultancy
Michael Gerard & Co. Chartered Building Consultancy

Practical Completion

July 2007 | Posted in Briefings

The effect of a Practical Completion Certificate under the JCT

All standard forms of contract provide for the issuing of a notification when practical completion has been achieved. The JCT 2005 suite of contracts provide for the certification of practical completion of the Works when in the opinion of the Architect or Contract Administrator it has been achieved. But once issued under the Contract, can the Certificate of Practical Completion be withdrawn? This was a recent dilemma faced by one of our clients.

In essence, an Architect or Contract Administrator (“CA”) must act within the Terms and Conditions of the Contract and hence, if a contract does not include any provisions to revoke the Certificate of Practical Completion once issued, then the CA has no power to revoke the Certificate. Chitty on Contracts, Volume II, 29th Edition, at paragraph 37-107, provides a reasoning for this: “Completion. Standard Form contracts will usually be found to stipulate the degree of completion required to bring the construction period to an end. This may be referred to as “practical” completion360 or “substantial” completion which may also be subject to passing any final testing or commissioning prescribed by the contract.361 There may also be provisions entitling the contractor to achieve completion notwithstanding outstanding work.362. Footnote 361 refers to the ICE 7th Edition, Clause 48(1), which provides for “Notification of substantial completion” and inter alia states that: “…Such notice shall be accompanied by an undertaking to finish any outstanding work in accordance with the provisions of Clause 49(1).” The JCT does not contain such wording as the ICE 7th Edition and hence, without amendment, the JCT is even more strict on the powers of the CA post certification of practical completion.

It is established authority that once the Certificate of Practical Completion has been issued, it remains final and binding on the Employer and cannot be revoked. Keating on Building Contracts, 6th Edition, page 114, states that: “When is a certificate binding and conclusive? It is a question of construction in each case to determine whether it was intended that a particular certificate should be conclusive upon the matter with which it purports to deal. Beyond this, it is not possible to formulate a comprehensive test to determine whether a certificate is binding and conclusive. Express words are frequently used such as, for example, that “the certificate of the engineer…shall be binding and conclusive on both parties”. It seems that prima facie a final certificate which is condition precedent to payment is conclusive.” Hudson’s Building and Engineering Contracts, 11th Edition, at paragraph 6-169, states that: “If the effect of the contract is to confer finality upon the certificate, it has been held that a certificate validly issued cannot, in the absence of a contractual provision to the contrary, or agreement or waiver by the parties, be withdrawn in order to correct mistakes of fact or value in it. Having issued the certificate, the certifier has on this theory discharged his function, and unless an arbitration or other clause empowers him to decide a dispute arising upon the certificate, or to amend it, he has no jurisdiction to alter it or issue another”.

Under the JCT, release and payment of half of the retention monies and the issue of the Penultimate Certificate for Payment, is condition precedent to the issue of the Certificate of Practical Completion; hence, the Certificate of Practical Completion is condition precedent for payment of half of the retention fund and the issue of the Penultimate Certificate for Payment, thus the intention of the Certificate of Practical Completion is finality and binding.

There is no contractual provision under the JCT Contract that allows a contract administrator to issue a certificate of practical completion and then withdraw the same: the Certificate is either issued under the relevant clause in the Contract or it is not – there is no ‘half-way house’.

Once the Certificate of Practical Completion has been issued under the Contract, it cannot simply be withdrawn or revoked as there are contractual procedures that are condition precedent upon the issue of the Certificate and these cannot be reversed:
1. The contractor’s liability for liquidated damages ceases
2. The Defects Liability Period begins
3. The Contractor’s licence to occupy the site ceases
4. The Employer takes possession of the Works
5. The Employer takes over the insurances
6. The limitation period begins
7. The Penultimate Certificate for Payment is issued and hence the payment procedures under the Contract are commenced including contractual notification periods
8. Half of the retention is money is released

In addition, once the Certificate of Practical Completion has been issued, the contractor’s obligations are terminated subject only to the maintenance period provisions (Ata Ul Haq v. City Council of Nairobi [1962] 28 BLR 76 at 96 [PC]) and the Contract Administrator’s powers come to an end, save for matters relating to the Defects Liability Period: “(3) The issue by the Engineer of a certificate under clause 7(iv), certifying both that the work complied with the specification and that it had been completed to his satisfaction, terminated the Contractor’s liability subject only to the maintenance period provisions.” Emdens Construction Law, Part II, Chapter 5, paragraphs 507 and 508 states that:
“[507]
Time

A contract may restrict the stages of the works at which variations can be instructed, or stipulate different provisions depending upon when variations are instructed. ICE 7th edition, cl 51(1) expressly provides that variations may be ordered during the Defects Correction Period. ICE 7th edition, cl 47(6) makes provision for variations being instructed after liquidated damages have become payable.”
“[508]
In contrast it appears unlikely that variations can be instructed under JCT 98 after practical completion.
There is no express provision to that effect. Further, cl 30.6.1.1 provides a maximum period of six months after practical completion in which the contractor can submit all documents necessary for the final adjustment of the contract sum. The combined effect of IFC 84 and the RIBA standard conditions of engagement has been held to be that the architect is empowered to issue variation instructions up to practical completion1.
1 New Islington and Hackney Housing Association v Pollard Thomas and Edwards Ltd [2001] BLR 74, Dyson J (IFC 84).”

It can be seen therefore, that under the standard form of the JCT Forms of Contract, once the Certificate of Practical Completion has been issued, the Architect or Contract Administrator’s duties under the Contract are restricted (for example, the CA can no longer issue instructions under the Contract) and further, the Certificate of Practical Completion triggers completion of the Works in respect of the licence to occupy the site, it enables the Employer to take beneficial occupation of the site, it stops liquidated damages being levied, it defines the date when, 6/12 months on, defects liability ceases. It also brings to an end the special insurance requirements. Certainty is therefore required for such important circumstances and the Certificate of Practical Completion, which is merely an opinion of the CA at the moment of giving that certificate, cannot be rescinded. The reason for that is the Certificate of Practical Completion alters the parties’ positions to an extent that cannot readily be contemplated for reversal, merely on a change of mind or for some mistake.

If you are an Architect or Contract Administrator somewhere out there, make sure that the project has indeed reached practical completion, as there is no going back!

© Michael Gerard Consulting Limited
July 2007

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