Substantial and practical completion are terms commonly discussed once a contract reaches completion.
Standard contracts like FIDIC allow the Engineer to certify practical/substantial completion when works are substantially completed. Substantial completion is said to have been achieved in common law if completion justifies the doctrine of substantial performance of a contract.
The doctrine of substantial performance, in summary, allows the contractor to be paid under a contract and to retain the benefit of a contract even if he has technically failed to comply with the precise terms of the agreement. In other words, although substantial performance is not the complete performance, it is enough to satisfy an agreement as long as the deficiency was not willful and does not amount to a material breach of the contract.
One of the most accurate definitions provided for substantial or practical completion was of Lush J.
“the work … carried out in accordance with the contract … except for departures from the contract which were either latent or undiscovered or merely trivial”.[1]
Once practical completion is achieved, one of the most important effects of a substantial completion is that the contractor is discharged of his liabilities to pay delay damages, and according to most of the standard forms, the defect liability period begins.
This effect of a completion certificate leads to several disputes because the contractor believes he has completed the works substantially. In contrast, the Engineer insists that the works have not achieved practical completion. Whether the works have reached practical completion or not is a question of fact that has to be decided by the Engineer. If this power to issue a completion certificate is misused, then a dispute is most likely to ensue.
In the MENA region, the position is the same on practical completion, and the employer has a right to inspect the works for defects before accepting practical completion. Nevertheless, where a dispute arises on whether the project has achieved practical completion or not, the contractor has a right to appoint an independent expert to evaluate the status of the works if he is not satisfied with the Engineer’s evaluation.
This step at the right time can save unnecessary disputes where the contractor pushes for completion whereas the employer denies completion and asserts his right for delay damages.
We will discuss completion in next post.
𝐓𝐡𝐞 𝐅𝐢𝐧𝐚𝐥 𝐂𝐨𝐦𝐩𝐥𝐞𝐭𝐢𝐨𝐧 𝐨𝐟 𝐚 𝐂𝐨𝐧𝐭𝐫𝐚𝐜𝐭.
We had elaborated in yesterday’s post about substantial completion and what substantial completion means. Final completion is necessary because it ends the obligations of both the parties under the contract and terminates the contract.
Substantial completion is not the end of the parties’ performance. All modern construction contracts have a period after the practical completion certificate during which the contractor has to keep performing according to the contract terms.
A simple build-only contract usually requires the contractor to attend to defects and complete any remaining trivial works according to the contract. During this period, the contractor cannot be penalized for delays. Still, the Engineer has the authority to instruct the contractor to remedy defects that may arise during the defect liability period.
On the other hand, design and build contracts may require the contractor to test, commission, and test run accompanied with a strict liability of achieving performance according to the design. Nevertheless, nothing stops the Parties from agreeing on the responsibilities after practical completion.
The parties in design build or any other type of similar contract sometimes agree to more than two stages of completion; for example, after practical completion and before issuing a final completion, the contract may require the contractor to achieve certain other milestones like test runs and commissioning, in such cases the contractor will be obligated to complete this stage of performance before being entitled to final completion.
Depending upon the contract, final completion can take more than 12 months to achieve after practical completion. Parties are not relieved from their obligations nor waive their rights until the final completion is achieved. Hence if the contractor is in breach after the practical completion, the employer can claim damages for losses suffered due to such breach under the contract.
In English law, if a contract is silent on the performance period after the practical completion, the contractor can defend its position by relying on the contract terms if the employer claims to remedy defects later on.
In the MENA region, the position is different. The contractor is bound by law to remedy any latent defects that appear after completion up to a reasonable time, which is decided according to the standard of practice in the trade. Hence even if the contract is silent on the defect liability period, he will be liable for any hidden or latent defects which could not have been found through inspection by the Engineer.
The laws of the MENA region hold the contractor responsible for guarantees of material irrespective of what the contract provides.
𝐓𝐡𝐞 𝐌𝐢𝐬𝐜𝐨𝐧𝐜𝐞𝐩𝐭𝐢𝐨𝐧𝐬 𝐢𝐧 𝐂𝐨𝐦𝐩𝐥𝐞𝐭𝐢𝐨𝐧 𝐨𝐟 𝐚 𝐂𝐨𝐧𝐭𝐫𝐚𝐜𝐭.
We discussed practical completion and final completion in the last two posts and know that practical completion is not the final completion of a contract. The parties are still obliged to continue their performance according to the contract terms.
Here performance has not to be confused with full-fledged works; instead, the contractor will be required to complete any trivial works and attend to defects when instructed. The effect of a practical completion certificate is that the time stops running, and the contractor is released from any delay damages beyond this period.
Other effects will depend on the type of contract, like the contractor could claim a part of the retention amount and reduce the amount of the performance security. Also, he would be able to demobilize his workforce and machinery from the site but will be under an obligation to attend to defects whenever called upon.
If the contractor delays the remedying of defects, the Engineer can employ other contractors to attend to the defects and deduct the money spent from the contractor.
Here it has to be noted that the deduction of the cost paid will not depend on the BOQ rates but will be the deduction of the amount spent by the employer to remedy the defect; this amount can sometimes be far greater than the contractor would have spent if he had remedied the defects himself.
This is the most delicate period of the contract, as, on the one hand, the employer has only some part of the retention money and the performance bond left with him as a guarantee. On the other hand, the contractor is keen to reduce its overhead costs.
Most disputes arise around this contract period, either before practical completion or final completion. Also, many instances of calls on the performance bond happen during this period. Termination at this stage has practically no effect, except the employer will invite more trouble to his tables by doing this.
Disputes arise due to either the contractor showing no interest in remedying defects or the Engineer becoming overzealous in finding faults to keep the contractor on-site to save maintenance costs, especially in real estate projects.
Nevertheless, a final completion certificate is always not the end of the story for the contractor; as he is obliged under the law to attend to serious structural defects for up to 10 years, also he will be liable to remedy defects for which he has given guarantees which extend beyond the date of the final completion. In reality, a construction contract may not achieve financial closure until after ten years of completion.
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