Episode 38:

Hello and Welcome to the Part3 with me podcast, 

The show that helps part 3 students jump start into their careers as qualified architects and also to provide refresher episodes for practicing architects. I am your host Maria Skoutari and this week we will be talking about Practical Completion, Sectional & Partial Possession — PC3 - Legal Framework & Processes & PC5 - Building Procurement of the Part 3 Criteria.

Let’s start with Practical Completion and what it means:

Practical Completion, in essence is a point in the process that marks the point at which a building project is certified as practically complete, except for minor defects that can be put right without disturbing the occupier and the Contractor hands over the building project to the client. The Practical Completion Certificate signifies that all the necessary construction work has been down without any obvious defects but does not exclude the existence of latent defects, which in essence means that the contractor may be recalled back to site to rectify defects which were not apparent at practical completion, any defects that are apparent before practical completion then these should be rectified before the certificate is issued. Practical Completion can also be referred to as the point at which an architect or Contract Administrator confirms that the contractor has achieved ‘practical completion’ under the building contract. It’s essential an agreement is made from the outset on the liquidated damages to be paid by the contractor if the works aren’t completed on time. 

So what occurs once Practical Completion has been established: 

• The Practical Completion Certificate issued
• The Contractor gives up possession of the site to the client
• The Client becomes the ‘building owner’ and becomes responsible for insurance, security and maintenance
• A proportion of the retention monies are released
• The period for the final adjustment of the contract sum is fixed
• Liability for liquidated damages ends
• It marks the end of liability for frost damage
• The Defects Liability period begins

What processes and documents should have been finalised and provided at Practical Completion:

• The Contractor should have met and completed each of the statutory approvals required
• The Health & Safety file handed over to the client
• The Operations & Maintenance manuals handed over to the client
• A record of the final construction drawings handed over to the client
• All testing and system data completed and accepted and handed over to the client
• Building Log Book handed over to the client 
• The building owner should have a full understanding on how the building operates and user training has been provided
• All keys handed over
• Used consumables replaced and spares handed over (e.g filters, fuel)
• No patent defects
• No outstanding issues

Now lets look at Sectional Completion:

Sectional completion in essence, is a provision within the construction contract allowing for different completion dates to be set for different sections of the work. This method is most common on larger projects where completing the works in sections allows the client to take possession of the completed parts while construction continues on the other parts, e.g. if constructing multiple buildings with various uses. In addition to setting the completion dates for each section within the contract documents, the liquidated damages for each section will need to be clearly defines alongside the amount of the retention monies to be released for each section. 

Then the same items as mentioned for Practical Completion will be valid for provision for the part of the works that has been completed, which in essence means that, that section has achieved Practical Completion. Key difference is that separate liquidated damages can be agreed for each section of the works and a date for completion for each section will need to be set and that the Contract Particulars of the relevant form is properly completed to allow for Sectional Completion.

So the same items occur in that:

• The Defects Liability Period commences for that section
• Liability for Liquidates Damages ends for that section
• The client pays a proportion of the retention monies for that section to the contractor

And the same processes and documents as practical completion will need to be handed over to the client. 

A few items to consider and be wary of for Sectional Completion:

• Are the difficulties with logistics on site when different sections are in the possession from different parties.
• Protecting the completed sections from ongoing work
• Insurance provision at all times for all sections
• Health and safety measures to deal with risks resulting from occupation of areas adjacent to, or only accessible through ongoing construction works
• Appropriate security measures

Now lets look at Partial Possession:

Under certain forms, this process allows the employer to take partial possession of some of the works before achieving practical completion of the whole of the works or a section of them. This process can only be done with the contractor’s consent. For example, if the client wishes to use a part of the works to be used for their business and there is a need for it to be delivered on a certain date, they may agree with the contractor that they will take possession of that area. Under such cases the Liquidated Damages will need to be reevaluated and apportioned accordingly to exclude that element of the works. The client will also need to notify the works insurers and receive confirmation that the insurance will not be biased.

So once Partial Possession has been agreed between the client and contractor, then the process followed is the same as Practical and Section completion in that:

• The Defects Liability Period commences for that section
• Liability for Liquidates Damages ends for that section
• The client pays a proportion of the retention monies for that section to the contractor

And the same potential issues may arise as mentioned under Sectional Completion.

One quick item to cover, I mentioned Liquidated Damages a few times, and I just wanted to outline what Liquidated Damages are. Liquidated damages are in essence ‘delay damages’, so if the contractor fails to complete the works on the agreed completion dates, then the client is entitled to a daily sum from the contractor on an agreed sum outlined in the Building Contract from the outset to cover the damages incurred to the client due to the contractor not being able to complete on time. So damages will be payable daily from the contractual completion date until either the actual completion or the client taking over the works. If the completion date is revised after liquidated damages have been deducted then the client will need to repay the amount in the next interim payment. The client will also be obliged to pay interest calculated at a rate provided in the contract between the date of payment of the damages and the date of the interim payment. If the client takes over part of the works, the liquidated damages are reduced. Liquidated damages will need to be pre-determined and set at the time the contract was drafted based on the agreed sum between the client and contractor if the contractor fails to meet the completion date. 

So what do the three methods have in common and how do they differ:

All three processes require liquidated damages to be agreed between the client and contractor in case works are delayed or the client takes partial or full possession of the site before the agreed completion date. When it comes to Practical and Sectional Completion, both require the same processes and documents to be made available when the agreed completion date has been achieved since through sectional completion, the section that reaches the completion stage is deemed to be practically complete and is handed over from the contractor to the client. 

Now when it comes to, Sectional Completion has similarities with Practical Completion in that the section of the works that has been complete is in essence practically complete but of course the key difference is that only part of the works have been practically completed and not the whole of the works.  

Now when it comes to Sectional Completion and Partial Possession, Sectional Completion can be pre-planned and defined in the contract documents and leaves less to chance because the parties have to agree many of the practical consequences of that completion in advance and the Contractor will have an obligation to achieve the sectional completion date. Whereas with Partial Possession, is most commonly agreed during the progress of the works and is more disruptive to the contractor who will be required to delay other aspects of the works to provide possession of a part of the works to the client. The contractor does have the option to refuse partial possession if they deem it to interrupt the progress of the works too much and cause issues with insurance and pose a health and safety risk. The client can pay the additional monies required to obtain partial possession but it is often more expensive than agreeing sectional completion from the outset. So Sectional Completion is pre-planned and outlined in the contract documents, whereas partial possession is not. 

So sum up what I discussed today:

• Practical Completion is the point in the process that marks the completion of a building project and is certified as practically complete, except for minor defects that can be put right without disturbing the occupier and the Contractor hands over the building project to the client
• Sectional Completion is similar to Practical Completion but only for a section of the works and the requirement for sectional completion will need to be stated in the contract documents alongside the completion dates and liquidated damages for each section
• Partial Possession, with the consent of the contractor, enables the employer to take possession of any part of the works before practical completion without it being pre-stated within the contract documents, but note that the contractor may refuse to give over possession of the part of the works required.