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Why is practical completion important?

Table of Contents

Practical completion (PC) a concept used in the construction industry to represent the date on which:

  • construction/building works is complete, except for minor defects or omissions (i.e. practically complete); and
  • the building is reasonably capable of being used for its intended purpose.

In other words, PC does not mean that the contractor has finished all of the building works. Instead, it is the date on which the building can be used or occupied.

So why is PC important and what do you need to know before agreeing to a PC date?

How does practical completion impact you?

PC has several consequences under a construction contract. While it represents the date on which you can use and occupy a building, it also triggers a series of implications that affect you, namely:

Retention Amount

It represents the date on which retention amounts are released to the contractor.

A retention amount is a portion of the total payment due to the contractor, which you keep until PC of the project. On PC, you are often required to release the retention amount to the contractor.

For instance, you may keep $10,000 of a $200,000 project until PC, at which point you are required to release that amount to the contractor.

Limitation Period

It represents the date on which the limitation period on any claims will commence.

Generally, the limitation period for commencing a claim for defective building work is 6 years. This means that on and from PC, you have 6 years to bring any claims against the contractor for defective building work.

Defects Liability Period

It represents the date on which the defects liability period will commence.

The defects liability period is a set period of time after PC where the contractor has the right to return to the site to remedy any defects.

Where PC has occurred, you should not wait until the contractor has finished all of the building works before asking them to address a defect as the defects liability period is winding down.

Possession of Works

It represents the date on which the contractor releases possession of the works to you.

This means that on and from PC, a significant portion of risk will pass to you as:

  • the builder will cease to be responsible for any loss or damage to the construction/building works; and
  • you will be responsible for maintaining adequate insurance in respect to the building.

Variations

It represents the date on which your ability to request variation in the works comes to an end.

This means that if you require variations to the works, such requests should be made prior to PC.

Can practical completion be subject to specific criteria being met?

It is not uncommon for construction/building contracts to provide specific criteria which must be met before works are practically complete. This ensures that parties to the contract:

  • have certainty as to when practical completion will occur; and
  • can avoid any unnecessary disputes.

If you’ve received a construction/building works contract, you should consider the definition of PC and confirm that it specifically sets out the criteria which you expect are met before a project is practically complete.

For instance, a prerequisite for PC could be that the builder issues a ‘practical completion certificate’.

What is a practical completion certificate?

Practical completion certificates are commonly a requirement in Australian standard form contracts. Such contracts often require the builder to issue a “certificate of practical completion”. This can be helpful as:

  • it ensures the determination of practical completion is objective;
  • you can document any agreed (or non-agreed) minor defects or omission items to be rectified within an arranged timeframe.

If you agree that the works have reached practical completion, you will sign the certificate and pay the final progress claim in accordance with the contract.

However, you should not attend to payment until all construction/building works have been completed.

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How we can help

  • Advise you on issues related to retention amounts and the defects liability period

  • Draft tender documents and other procurement documents that are easy to understand

  • Draft and negotiate construction contracts to protect your interests and avoid disputes

  • Advise on all types of construction contracts (including standard form contracts and sub-contracts)

  • Resolve a dispute between principal and contractors