POSSESSION AMOUNTS TO PRACTICAL COMPLETION

Construction legal adviceLate Completion

Practical Completion of the works is a defining moment on most construction contracts. Retention becomes due for release, liability for damage passes to the employer and of course any obligation on the contractor's part to pay liquidated and ascertained damages ceases. Most standard forms of contract include a clause for practical completion of the whole of the works and also for the employer taking possession of part of the works. The wording normally states that if the employer during a period of overrun takes possession of part of the works before practical completion of the whole of the works then the contractor's obligation to pay liquidated damages will be at a reduced level.

This all seem pretty straightforward, however the decision in the case of Skanska Corporation v Anglo-Amsterdam Corporation 2002 shows that complications can arise. Skanska Corporation undertook to construct an office facility in Edinburgh for the Anglo-Amsterdam Corporation employing a JCT 1981 With Contractors Design standard form of contract. Clause 16 of the contract deals with practical completion and the process requires the Employers Agent to provide a written statement to indicate when it has been achieved. The standard wording had been amended to read that the statement will only be issued when the Employers Agent is satisfied that any unfinished work is very minimal and of a minor nature. A dispute arose between the parties as to the date by which the contractor had achieved practical completion. The matter was referred to an arbitrator who had to decide whether practical completion took place on 12th February 1996 or 25th April 1996.

Incomplete Work - Practical Completion?

It seems that Anglo-Amsterdam had leased the premises to ICL who were anxious to gain access to enable the fit-out to commence. By the time 12th February 1996 had arrived work was still incomplete. The main problem was the air conditioning which was not fully functioning and Skanska's failure to produce operating and maintenance manuals. The seasoned observer may consider that this is not unusual. The situation however should not hold up the fit-out and therefore ICL moved in. Skanska didn't finish off the incomplete items until 25th April 1996 and as a result Anglo-Amsterdam levied liquidated damages for a failure to complete on time. Skanska argued that as ICL had moved in on 12th February 1996 liquidated damages could not be deducted for the period after this date. This called for a close examination of the wording in the contract. Clause 16 was stringent bearing in mind that there was no entitlement to an Employers Agent's statement that practical completion had occurred if work, except for that of a very minimal and minor nature, was still outstanding.

No help here for Skanska, as the air-conditioning wasn't working by 12th February 1996. The wording of clause 17 didn't seem to apply either as it only deals with a situation where the employer takes possession of a part of the works, in other words partial possession. What appears to have occurred is that ICL took partial possession of the whole of the works. They didn't take full possession of the whole of the works as Skanska were engaged in finishing off the work whilst ICL were undertaking the fit-out.

Courts Decision

The arbitrator took the line that as clause 17 only dealt with partial possession it didn't apply as ICL had full possession of the whole works. This being the case clause 16 applied and as clearly Skanska hadn't completed to the extent required by the clause they were obliged to pay liquidated damages in respect of the time spent on site up to 25th April 1996. The arbitrator's award was the subject of an appeal to the TCC court presided over by His Honour Judge Thornton QC. He took a very mature and practical view of the situation in finding in favour of Skanska. Clause 17 which deals with partial possession states that if the employer takes over a part of the building then as far as that part of the works is concerned the contractor is deemed to have achieved practical completion.

Responsibility for the part taken over rests squarely with the employer for such matters as damage and health and safety. This would apply even if the clause16 definition of practical completion hadn't been achieved. Whilst the contract didn't deal with the situation where the employer takes possession of the whole of the works before practical completion, the same principle should apply as where the employer takes possession of part of the works. In other words practical completion is deemed to have taken place. The word deemed is an interesting one in that it means that for all legal purposes an event has happened even if as a fact it hasn't. In other words if practical completion is deemed to have occurred it wouldn't matter if the building had no roof on. In this case it was only the air conditioning which wasn't completed.

Need for an Amendment

It would make the situation clearer if in the light of this decision the JCT were to introduce an amendment to clause 17. It should state that if the employer at any time before practical completion of the works occurs takes possession of a part of or the whole of the works then practical completion of the part or the whole of the works taken into possession is deemed to have taken place.

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