CONSTRUCTION ALERT: Practical Completion: date that the certificate is issued versus the date that practical completion certified

25 October 2017

Publications

It is common practice for certificates of practical completion to certify a date of practical completion a short period before the date that the certificate is issued.  In other words, the actual date of practical completion is back-dated in the certificate.

In a recent judgment in Abergeldie Contractors Pty Ltd v Fairfield City Council [2017] NSWCA 113, the Court of Appeal of the Supreme Court of New South Wales considered the interaction between the date of practical completion and reference dates under a construction contract for the purpose of security of payment legislation.

The critical finding of the Court was that the date of practical completion is the date that the certificate of practical completion is physically issued to the contractor, and not some earlier date identified within the certificate of practical completion.

Court’s decision

The argument presented by Abergeldie included the following propositions:

  1. practical completion under the construction contract only occurred on the date that the Superintendent gave notice that it had occurred; and
  2. the certification of practical completion could not have retrospective effect.

The Court accepted these propositions.

The Court held that Abergeldie could not have known whether practical completion had been reached until it physically received the certificate of practical completion.  In other words, the date of the certificate itself will evidence the date of practical completion.

In coming to that conclusion, the Court noted that if practical completion was able to be reached without its knowledge, Abergeldie could be retrospectively denied the right to make a payment claim.  The Court observed that this outcome would have other effects which would be inconsistent with the commercial context in which the contract operated.

The Court further explained that any lack of certainty as to the precise date on which practical completion occurred could be commercially disastrous, and as practical matter, it is evident that both parties must know the date of practical completion for this purpose, both contemporaneously and simultaneously.

For example, the contract imposed responsibility on Abergeldie for care of the whole of the work under the contract up to 4.00pm on the date of practical completion, at which time responsibility for the finished works passed to the Council.  The insurance clause is consequential upon this imposition of responsibility.  To back date practical completion may result in a period of time where Abergeldie’s insurance coverage would not be available and the Council (having not known the date of practical completion) may not have insurance coverage for the completed works.  Accordingly, in the event of damage to, or the loss of, the completed works during this period, there would be uncertainty as to whether Abergeldie, the Council or their respective insurers would respond.

What does this mean?

The Court of Appeal’s decision is a victory for common sense.  From a contractual standpoint, the date of practical completion is pivotal to a number of contractual elements including the release of securities, the commencement of the defects liability period, the date upon which risk in and control over the site is returned to the Principal and the date upon which claims for payment may be made.  Where there is ambiguity or uncertainty as to the date of practical completion, the contractor may be exposed to unexpected costs.

It is important however, that in light of this decision, principals and contractors are aware of the consequences of a retrospectively issues certificate of practical completion.  For example, consider the circumstance where the date for practical completion is 7 October 2017, and there is a certificate of practical completion issued on 17 October 2017 which retrospectively certifies the date of practical completion as 7 October 2017.  Given the Court’s finding, the actual date of practical completion would be 17 October 2017.  Contractually therefore:

  • practical completion would be achieved 10 days late and the contractor becomes exposed to liquidated damages; unless
  • the contractor makes a claim for an extension of time based on the superintendent’s failure to certify practical completion on the date that it was actually achieved (depending on the terms of the contract, this may also entitle the contractor to delay costs).

Additionally, the date of practical completion is nearly always relevant to security of payment legislation because often the catalyst for a practical completion reference date under most construction contracts is the date of practical completion itself.

It is possible to amend standard form contracts to avoid these issues, and doing so is critical to protect both principals and contractors from unintended consequences of a tardy certificate of practical completion.

Written by:

Andrew Kelly | Partner | +61 7 3338 7550 | akelly@tglaw.com.au

Tom McKillop | Senior Associate | +61 7 3338 7530 | tmckillop@tglaw.com.au

Chris Woodhouse | Lawyer | +61 7 3338 7908 | cwoodhouse@tglaw.com.au