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One of the most common questions asked currently is “What does practical completion mean?”  This is a very good question, because practical completion is probably the most important stage in a construction contract. This is because:

  1. Risk passes to the employer on practical completion
  2. Practical completion ends any right for LADS (liquidated damages) because of delays
  3. The employer must pay the first part of the retention (usually 50%)
  4. The defects liability period starts from practical completion
  5. A practical completion certificate is evidence that the contractor has satisfied its obligation to carry out and complete the works under the contract.

Given the importance of practical completion, you would have thought that it would be precisely defined in construction contracts. Sometimes it is, but more often than not it isn’t, not even in the JCT suite of contracts. The decision as to whether works have been practically complete very much rests with the contract administrator or architect who issues the certificate.

The fact that it is not precisely defined has led to many disputes as to when practical completion has occurred. As a result, the Courts have attempted to define the term. Broadly speaking, their view is that it occurs when:

  1. all construction work under the contract has been completed
  2. the work is free of patent defects (i.e. defects apparent on inspection), save for minor or ‘trifling’ defects.

Works can be practically complete, although there may be latent (i.e. hidden) defects.

The Technology and Construction Court confirmed that this is still the position in a very recent decision*.

The key question is likely to be whether a defect is minor (thus allowing practical completion), or something more (in which case it will prevent practical completion). This will, of course, depend on each case, but a useful test is to ask whether the building, with the defect, is fit for the use and occupation for which it has been designed and built. If it is, then the works can be said to be practically complete.

The Court’s definition leaves room for plenty of interpretation, and so it is important for the parties involved in a construction project to consider carefully what they mean by practical completion, and what sort of criteria they wish to include in its definition in the contract. On some projects, it will be crucial to include stringent criteria, where the building in question has to conform to strict criteria itself (for example, a prison or hospital). On the other hand, where the building does not have to conform to such strict criteria, it will probably not be worth imposing a host of criteria, as these will only serve to delay practical completion.

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*Laing O’Rourke Construction Limited v Healthcare Support (Newcastle) Limited [2014] EWHC 2595 (TCC)

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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.