Practical Completion: The New Context for Certifying Higher-Risk Buildings in England

J.S. Held
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J.S. Held

[Author: Magdalena Prus]

INTRODUCTION

The decision to certify as to when the works under construction contracts in the United Kingdom (“UK”) have reached ‘Practical Completion’ (“PC”) can often cause difficulties for the Contract Administrator (“CA”), as the party typically responsible for certification.

Standard forms of building contracts in the UK rarely define ‘Practical Completion’, leaving it to the discretion of the certifier to decide when PC on the project has occurred.1 In ‘traditional’ building contracts, for example the Joint Contracts Tribunal (“JCT”) standard forms, PC is an important milestone for all the parties for a number of reasons, including:

  • the acceptance by the CA that the works under the contract are deemed to be complete,

  • the release of 50% of the retention to the Contractor,

  • the commencement of the Rectification Period,

  • transfer of the insurance obligations from the Contractor to the Employer (in UK building contracts this is the party procuring the project work and is typically the client, land owner, or developer),

  • the end of the Contractor’s liability for liquidated damages.

Significant consequences may arise from a premature certification, particularly where there are still works or repairs to be done, because “completion of a construction project… marks the end of any further liabilities”.2 Put another way, the certification of PC “would effectively be granting the contractor a release from the works contract3 while there are still outstanding or defective items of works to be addressed. CAs need to exercise discretion when certifying a construction project as practically complete and “with caution”,4 including in common circumstances where the Contractor generally wants off-site, and the Employer is often desperate to get in.

The most recent analysis and guidance on the meaning of PC has been provided by England and Wales Court of Appeal in Mears Ltd v Costplan Services (South East) Ltd & Others [2019] EWCA Civ 502 (“Mears v Costplan”). This paper discusses the Court’s interpretation of PC and how provisions of the recently passed Building Safety Act may affect the certification requirements and procedures for higher-risk buildings from the perspective of an architect acting as the CA.

The case concerned the construction of two blocks of student accommodation in the port city of Plymouth in England. Initially, Mears Ltd. (“Mears”), a provider of student housing, argued that a reduction of more than 3% of the size of certain rooms constituted grounds to terminate the lease agreement with Plymouth (Notte Street) Limited who was the Employer under the building contract (“PNSL”), and prevent the Employer’s Agent, Costplan Services (South East) Limited (“Costplan”), from issuing the PC Certificate.5 The judge in declaratory proceedings and, subsequently, the Court of Appeal,6 rejected Mears’ arguments on the basis that Mears’ interpretation of the contract would be “commercially unworkable.7

In the appeal, referencing English case law and the Keating construction law and building contracts text,8 Lord Justice Peter Coulson provided the following guidance regarding criteria for a proper PC certification:

  • PC “is easier to recognise than define.

  • The presence of latent defects cannot prevent PC because those defects are unknown / hidden by nature.

  • Regarding patent defects, there is no difference between an ‘outstanding’ and ‘defective’ item of work.

  • Patent defects can prevent PC except where such defects are “trifling.

  • Whether or not an item is trifling is a matter of fact and degree.”

  • There is no “proposition that the mere fact that the defect was irremediable meant that the works were not practically complete.

Although the above points are helpful, the Court did not provide a workable definition of PC. Nor did the Court provide a test that must be met, or procedures that should be put in place, to determine Practical Completion. Instead, the Court concluded that “in the absence of any express contractual definition or control, practical completion is, at least in the first instance, a question for the certifier.9 So, what does the Court’s ruling mean in practice for the industry in England?

A proper PC certification in the UK requires that all the construction works under a building contract must be complete and free from patent defects (other than minor items).10 Patent defects are generally those issues which would be expected to be reasonably apparent during the course of inspections as part of the CA’s duties. If the construction items or elements relate to specialist building work, the CA should take appropriate steps to ensure that there was sufficient information to confirm the adequacy of the work. This would include evidence of any commissioning or testing to show compliance of the as-installed works with the applicable requirements.

Factors To Be Considered Prior to PC Certification

Different projects may have different standards, and what ‘completion’ entails may depend “upon nature, scope and contractual definition.11 Consequently, it is important for the parties to agree upon parameters to guide the certifier as well as procedures that must be undertaken for proper PC certification, including the aforementioned commissioning and testing processes to demonstrate compliance.

The CA in the UK should consider key questions prior to the certification of PC including the following:

  • Are there any issues that are more than ‘trifling’ which can affect ‘beneficial occupancy';12

  • Are there any health and safety issues (including outstanding information);13

  • Are there any outstanding issues that may affect life and building safety, including those relating to building control and fire safety certification / approval; or

  • Are there any significant non-compliance issues with the requirements of the building contract, British Standards, and Codes of Practice?

While this list is non-exhaustive and typically fact-sensitive, if any of these issues are unresolved, then it is likely that PC has not yet been achieved and thus, the project should not be certified.14

In the UK building industry, recording defects on ‘snagging’ lists, is a widespread practice. These lists occasionally use a scale or grade which helps to prioritize each defect based on their materiality and extent. While it is not unusual for the CA to prepare such schedules or lists, for example, to assist the Contractor to prioritize the most significant defects and / or outstanding items that must be rectified and / or completed before the PC can be granted, such lists are not commonly a contract requirement.

Nevertheless, in traditional JCT building contracts in the UK, the Contractor is responsible to complete the works, including quality control and snagging.15 As a result, the CA’s involvement and assistance in the preparation of ‘snagging’ lists should be carefully considered to avoid “the confusion over the liability position”.16

The Building Safety Act

Certifying PC and thus commencing occupation of a higher-risk building17 will require further consideration under the Building Safety Act, which became law in England in April 2022 (“the Act”). Among a host of other provisions, the new legislation establishes three new Gateways at key stages of the design and construction process. Gateway 3 mandates certain post-completion / pre-occupation requirements for higher-risk buildings.

To ensure that a building (or parts of the building) is safe to occupy, applications18 under Gateway 3 must demonstrate, through plans and documents, that the ‘as-built’ construction meets the functional requirements of the Building Regulations. Only when Gateway 3 applications are approved, will a Completion Certificate be issued, and the building can be registered with the Building Safety Regulator19 for occupation.

Although the intention of the three-part regime is to “deliver culture change as building regulations compliance and building safety are considered throughout design and construction rather than late in the process…”,20 the requirements of Gateway 3 are likely to inform the CA’s decision as to whether and when a higher-risk building should receive PC certification.

CONCLUSION

Although perhaps somewhat lacking in providing firm direction on the issue of proper PC certification in England, Mears v Costplan provides the most recent authoritative view on the subject. Whether or not this is the end of the road in the UK court system on the subject of PC remains to be seen. In the meantime, certifiers need to be mindful of the context when certifying a construction project as practically complete, particularly on the projects involving higher-risk buildings, which are now subject to a more rigorous regulatory framework under the Act.

1For example, in the UK, Clause 2.30 of a JCT Standard Building Contract with Quantities 2016 states that the Architect/Contract Administrator should issue ‘the Practical Completion Certificate’ when in his/her “opinion [my emphasis] practical completion of the Works or a Section is achieved…”, while Clause 11.1(2) of NEC3 defines ‘Completion’ as when “all the work” required by the Works Information is completed by the Contractor by the ‘Completion Date’ and notified defects are corrected.

2‘Defining completion of construction works’ 1st edition dated 2011, published by the Royal Institution of Chartered Surveyors, Paragraph 2.1.

3https://www.architecture.com/knowledge-and-resources/knowledge-landing-page/how-to-avoid-pressure-to-sign-off-early-on-practical-completion

4Paragraph 20-171 of Chapter 20 ‘The JCT Standard Form of Building Contract, 2011 Edition’, ‘Keating on Construction Contracts’, 10th edition (“Keating”).

5[2018] EWHC 3363 (TCC).

6[2019] EWCA Civ 502.

7[2019] EWCA Civ 502, Para. 38.

8[2019] EWCA Civ 502, Para. 74.

9[2019] EWCA Civ 502, Para. 74.

10As noted above, Lord Justice Coulson referred to those items as ‘trifling’.

11Paragraph 20-170, Keating.

12A common term used to describe a building that is capable of being used for its intended purpose, where any minor incomplete items can be put right without disturbance to occupants.

13For example, in the UK, a JCT Standard Building Contract with Quantities 2016 requires the Contractor to supply as-built drawings and information for the health and safety file before PC is certified.

14Waksman J in declaratory proceeding stated that “there will be practical completion if to all intents and purposes the building is complete… the intent and the purpose of the building is key. When the building is intended to house people, that has led to an emphasis on it being fit for occupation by such people” and that “what amounts to being sufficiently ready for occupation is highly-fact sensitive… Context, therefore, is everything”, [2018] EWHC 3363 (TCC), Paragraph 79 and 80.

15‘Guide to JCT Standard Building Contract 2016’, published by RIBA in 2017, Paragraph 4.55

16‘Guide to JCT Standard Building Contract 2016’, published by RIBA in 2017, Paragraph 4.55.

17Residential buildings, care homes and hospitals which are 18m or more in height, or at least seven storeys

18Submitted to the Building Safety Regulator once construction of the building is completed.

19The Act names Health and Safety Executive as the new Building Safety Regulator in England, whose main functions are overseeing the safety and standards of all buildings, including those relating to fire, and leading implementation of the new regulatory framework for high-rise buildings.

20https://www.gov.uk/government/publications/building-safety-bill-factsheets/building-control-regime-for-higher-risk-buildings-gateways-2-and-3-factsheet#what-are-the-gateways-requirements

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