Contract Administration 341

opic 10

Completion

Topic 10 (Completion).doc

Table of Contents
TABLE OF CONTENTS ........................................................................................................................... 2
LECTURE OBJECTIVES. .......................................................................................................................3
INTRODUCTION ......................................................................................................................................3
COMPLETION (AS 4000 CLAUSES 34 & 37) .......................................................................................3
PRACTICAL COMPLETION .......................................................................................................................3
DETERMINATION OF THE CONTRACT .....................................................................................................6
REPUDIATION OF THE CONTRACT ..........................................................................................................7
SELF ASSESSMENT QUESTIONS ........................................................................................................8
BIBLIOGRAPHY ....................................................................................................................................10

Curtin University of Technology

School of Architecture, Construction and Planning

Page 2 of 10
(04/06/99)

Topic 10 (Completion).doc

Lecture Objectives.

Reinforce the concept of Practical Completion and Date of Practical Completion

and Date for Practical Completion;

Understand the Contractors contractual responsibilities to Making Good

Defects.

Understand Determination & Repudiation of a Contract.

Introduction
In law most construction projects are entire contracts, that is the Contractor
undertakes to construct the entire building and is bound to do everything required of it
to attain completion of the building as specified. In principle the Contract is not
complete and cannot be handed over until even the smallest items are complete. The
concept that a minor item of work or a single material component should preclude
hand over of a complicated building is however avoided in most standard forms of
contract with the use of the expression Practical Completion. AS 4000 is no exception.

Completion (AS 4000 Clauses 34 & 37)

Practical Completion
Practical Completion (PC) is a state in which any work outstanding is so minimal that
it will not affect the Principals use and enjoyment of the building. A house for
example will achieve PC when the building is immediately fit for occupation even
though there is perhaps some landscaping work to be completed.

The point at which a building achieves PC is a decision to be made by the

Superintendent, based on an inspection of the works and reasonable judgement. The
inspection by the Superintendent is a follow up to the Contractor having carried out
preliminary inspections and advising the Superintendent in writing that it considers
that the building has reached the stage of PC.

Curtin University of Technology

School of Architecture, Construction and Planning

Page 3 of 10
(04/06/99)

Topic 10 (Completion).doc

Completion Dates
The Date of Practical Completion is important to the parties to the contract for the
following reasons:
it signifies the Contractors relief from Liquidated Damages (LDs) if they are
accruing or potential liability if not commenced;
the Principal is entitled to take possession of the site, and accordingly is required
to take out necessary insurances; and,
the Defects Liability Period (DLP) commences.

The Superintendent upon request from the Contractor inspects the building and lists
any items that require attention to meet the specification. The Superintendent is also
required to ensure that the Contractor had fulfilled its obligations in terms of supply
and service arrangements of components in compliance with its contractual
obligations.

Once satisfied that these criteria have been met and that the building complies with the
contract documents and is substantially fit for the purpose of its design and intended
use, the Superintendent will issue a Certificate of Practical Completion to the
Contractor.

AS 4000 defines Practical Completion in Clause 1 Interpretation and construction of

contract. Essentially it as described previously when work is complete except for
minor issues that do not affect the use of the building, tests have been carried out and
passed as required and documentation as required has been supplied.

The resulting PC certificate means that the final instalment of the payment for work
carried out is due to the Contractor and part of the retention money (the % mentioned
in the Appendix at item 13 or 50% if no figure mentioned) is released to the Contractor.
This retention is represented by a cash adjustment to the payment certified or
confirmation to the bank that provided the guarantee that the first moiety (or half) of it
may be released to the Contractor.
Curtin University of Technology
School of Architecture, Construction and Planning

Page 4 of 10
(04/06/99)

Topic 10 (Completion).doc

The date of completion of the works is correctly referred to as the Date of Practical
Completion and often varies from the Date for Practical Completion for numerous
reasons. Typically, a delay due to the Contractors failure to perform is a cited reason
for the difference between the two dates. If the date of PC is later than the date for PC,
Liquidated Damages may become payable from the Contractor to the Principal.

The Date For Practical Completion is the specified completion date agreed at tender
time, or, failing the insertion of a date in the contract the works are required to be
completed in a reasonable period of time. The date for completion is therefore set at
the outset of the contract. It is a defined period that commences upon occupation of
the site by the Contractor (the date of possession). The Date For Practical Completion
may only be amended in writing by the Superintendent by the issue of an extension of
time (EoT). The new date becomes the revised Date For Practical Completion.

Liquidated Damages (LDs)

The Contractor is bound by the contract to do the work in the period set and is liable
for LDs if it fails to complete, subject to the entitlement of EOTs. Damages recoverable
by the Principal are usually limited to LDs. If a delay is caused by the Principal and
due recognition is withheld by not extending the date for completion, the Contractor
may be relieved from the application of LDs.

A common mistake of Principals and Superintendents is to not correctly assess what

the value of the LDs should be. They are not a penalty on the Contractor but rather
they are a reasonable pre-estimate of the damage likely to accrue to the Principal due
to the building being handed over late. If it is established that the LDs are in fact a
penalty then a court may remove them. Further the emphasis is on them being a preestimate. The wise Principal will have done a proper calculation of the expected loss as
a result of late completion and have it recorded so that it can be substantiated in the
event of recourse to it. It is too late to try and justify it after the event having thought
up a number. The Contractor is liable under AS 4000 LDs set at the daily rate in the
appendix item 24. It is required in the contract that the Superintendent notifies the
Contractor of the fact that it should have completed the works at a date earlier and the

Curtin University of Technology

School of Architecture, Construction and Planning

Page 5 of 10
(04/06/99)

Topic 10 (Completion).doc

Principal must also advise the Contractor that it intends to withhold LDs. The LDs
may be deducted progressively to ensure that an overpayment does not take place.

Making Good Defects

The Defects Liability or maintenance Period (DLP) as it is often known is the time in
which the Contractor is obliged to rectify faults as they appear. The period is specified
in the appendix of AS 4000 and is usually 6 or 12 months. It commences at 4:00pm on
the Date of Practical Completion. The Contractor is obliged within the defects period
to make good defects within a reasonable time and the Superintendent may issue
instruction regarding defects at any time up until the expiration of the defects liability
period.

Legally when a defect occurs the Contractor is in breach of contract but the Defects
Liability clause (35) allows the Contractor to mitigate the effect of the breach and
permit it to carry out the making good itself. The Contractor may elect to not carry out
a specific defect, in which case a deduction may be made to the contract sum for an
appropriate amount of money, usually the cost of having someone else rectify the
defect.

Determination of the Contract

Determination of the contract merely means the cessation of the contractors
employment under the terms of the contract. It usually arises out of the effects of a
forfeiture clause whereby the Principal or the Contractor forfeit their rights to have the
work done or to carry out the work. Clauses 33 and 39 are the effective clauses in AS
4000 wherein it refers to Suspension and Cancellation of the work and the Contract.

Either party may determine the contract under certain circumstances that are defined
within the standard forms of contract but it must be seen as a last resort as it leads to
financial cost and lost time to all parties concerned. If determination should take place
for whatever reason the Superintendent is required to establish the full scope of the
work that has been carried out. A thorough survey of the work is required so as to
have a complete record in the likely event of litigation. All site and building levels
must be checked and photographs of the completed works should be taken as a record.
Curtin University of Technology
School of Architecture, Construction and Planning

Page 6 of 10
(04/06/99)

Topic 10 (Completion).doc

Other problems to be considered would be those of insurances and the viability of subcontractors.

Repudiation of the Contract

The right to repudiate a contract can occur in one of two ways:
One party to a contract makes it clear that it has no desire to continue with the
contract.
A serious breach may occur by one party making it clear that they have no
intention of continuing with the contract.

In both cases the other party has a choice to make:

Affirm the Contract this is a positive action declaring that they do not consider
the contract to be at an end. They may then insist on the work being done or claim
for damages. Once done the party affirming cannot rescind.

Or

Rescind the contract this effectively annuls or cancels the contract.

If repudiation is opted for then both parties are released from the contract. Certain
terms do remain liabilities, liquidated damages and arbitration for example. Most
contracts make provision for determination.

The innocent party must elect to adopt one remedy or the other it is not permitted to
combine the best elements of the two.

Curtin University of Technology

School of Architecture, Construction and Planning

Page 7 of 10
(04/06/99)

Topic 10 (Completion).doc

SELF ASSESSMENT QUESTIONS

1. Would the following buildings be assessed as Practically Complete (PC)?

a) A house with the cooker outstanding?

b) A house with incomplete roof insulation?

c) A school with a fifteen page long list of painting items to be completed?

d) An office with the reception counter not completely installed?

e) An office building with temporary power but no permanent power.

f) A fifteen-storey office building with substantial works to be completed on

the top three floors?

2. How would you define the Date for Practical Completion?

_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
______________________________

3. What is your definition of the Date of Practical Completion? How does this differ
from the above, Q2?
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
______________________________

Curtin University of Technology

School of Architecture, Construction and Planning

Page 8 of 10
(04/06/99)

Topic 10 (Completion).doc

4. What reasons do you think could account for the difference between the dates as
defined in Q2 and Q3?
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
______________________________

5. Is it reasonable to consider LDs as a penalty? What is your definition of LDs?

6. The innocent party must elect to adopt one remedy or the other it is not permitted
to combine the best elements of the two.
A person who seeks the favourable remedies provided by a contractual
determination clause must follow the specified procedures. In failing to do
so it may have to rely on common law rights instead. This can only be done
if the breach is a repudiatory one.
Where a clause in a contract provides for determination in circumstances
where the common law does not, the innocent party can only take
whatever remedy the contract offers.
Thomas Feather & Co. (Bradford) Ltd. v. Keighley Corporation (1953) 53 LGR 30
provides a further example of this;
The local authority provided that in the event that unauthorised subcontracting took place the authority could either determine the contract or
claim $100.00 liquidated damages. When Feather & Co breached this
condition the authority determined the contract and employed another to
complete the work. It then sued the Feathers for the additional expense
which amounted to $21,000.00. Feathers counter claimed that only LDs
should apply for such a minor breach.
What decision do think the court arrive at[GAH1]?

Curtin University of Technology

School of Architecture, Construction and Planning

Page 9 of 10
(04/06/99)

Topic 10 (Completion).doc

Bibliography
Bailey, I. H. Construction law in Australia 2nd edition, North Ryde, N.S.W. LBC
Information Services, 1998.

Cremean, D. J.,Brooking on Building Contracts: the law and practice relating to

building and engineering agreements, 3rd edition, Sydney: Butterworths, 1995.

James, J. F. 1998, Contract Management in Australia, Longman, Melbourne.

Standen, D,. Construction Industry Terminology 3rd edition Melbourne RAIA Practice
Services. 1993.

Curtin University of Technology

School of Architecture, Construction and Planning

Page 10 of 10
(04/06/99)