Construction: What is ‘Practical Completion’?
Construction projects can take a very long time to complete. Often on complex builds, the question of when a project is complete can be difficult to answer.
Therefore, no matter if it is a project involving the construction of a commercial office building, a highspeed railway or a private residence, the concept of ‘practical completion’ is an essential element of any construction contract.
But what does ‘practical completion’ mean and when is it achieved?
What is ‘Practical Completion?’
Practical completion refers to the point in which work on a construction project is substantially complete except for minor omissions or defects. In other words, it is ‘completion for all practical purposes’ of which the construction was intended.
For example, in the context of a residential home, practical completion could be the point in which the homeowner can move into the property while the builder may still be addressing any outstanding defects or omissions.
Generally, the concept of practical completion will be defined in the construction contract. You will have to check your own construction contract to determine exactly what practical completion requires.
There are two different contexts in which the term ‘practical completion’ is used. The first is the ‘date for practical completion’, which indicates an estimated date in which practical completion is to be achieved. Whilst the other is ‘date of practical completion’, which is the date in which practical completion is actually achieved.
Why is it important?
Most Australian Standard regulations and construction contracts use practical completion to indicate a significant milestone in a construction project. Therefore, it is important to know and make clear when practical completion is achieved for your construction project. Most notably, the ‘defect liability period’ (‘DLP’) usually commences once practical completion is acheived.
The DLP is a period of time in which the builder or contractor is obliged to correct any defects or omissions in the constructions job that have been identified or discovered. This effectively acts as a grace period for the principal to discover any defects in the build and for the builder to fix any defects without breaching the contract. The superintendent is often given the express right to instruct rectification of any defects they identify from the builder’s work. Within this period, the builder or contractor often bears the liability and costs of rectifying any defects identified. This allows for the builder to work to their obligations under the contract.
It is not until the end of the DLP can a builder or contractor be released from the liability to repair defects without further charge.
Another reason in which the date of practical completion is important is the risk of incurring liquidated damages as a builder or contractor. In some construction contracts, there may be a term that stipulates if the builder has not achieved practical completion by a specified date, then the builder must pay liquidated damages to the principal. The rate is usually calculated by an amount per day calculated by reference to a pre-estimate of the losses a principal may incur if work is not completed. For example, this may include extra storage fees or a loss of income.
How can I make sure I reach ‘practical completion’?
First of all, as doctors say, prevention is the best protection. Knowing at what stage of your construction contract when practical completion can be achieved is important.
Having clearly defined ‘stages’ or indicators of practical completion may prevent any disputes and litigation towards the end of construction. This should be seriously considered within the negotiation of a construction contract, or at least be clearly defined if the opportunity arises.
By having a clear indication of what would constitute practical completion for the job, it will be clearer for a builder to obtain a certificate of the date of practical completion from the Superintendent
The next best method to ensure practical completion is the proper planning of the construction job. Although sometimes there may be some unplanned for circumstances that may cause delay to the job reaching the date for practical completion.
An example that may require a request for an extension on the date for practical completion includes things out of the builder’s control such as sever weather or hazardous industrial conditions of work. Having a clause that allows the builder to make a request for an extension on the date for completion is invaluable to mitigating any risks that are outside the builder’s control.
This article was written by Pippin Barry, an Australian Lawyer (BA; JD Melb 2012) and Tom Xie, paralegal (BA Melb 2021).
If you would like to discuss your construction project with a lawyer from Dexterity Law, please reach out to contact us here.
