What is practical completion?

Practical completion must be reached by a date nominated in the building contract or an agreed extended date.

The requirements for a building project to reach practical completion will vary from project to project and is dependent on the nature of the construction project, as well as any specific requirements of the contract.

The Queensland Building and Construction Commission Act 1991 (Qld) defines practical completion, for a domestic building contract, to be the day the contracted work is completed:

a)    in compliance with the contract, including all plans and specifications for the work and all statutory requirements applying to the work; and

b)    without any defects or omissions, other than minor defects or minor omissions that will not unreasonably affect occupation; and

c)     if the building owner claims there are minor defects or minor omissions – the building contractor gives the building owner a defects document for them.

Why is practical completion important?

The concept of practical completion is important because there are several legal consequences under the contract, including:

• the release of securities;
• compensation for breach of contract due to delay;
• the start of the defects liability period;
• the responsibility for insurance passing to the owner;
• the end of the owner’s ability to order variations in the work; and
• the end of the building contractor’s ability to claim a time extension for delay.

Responsibilities at practical completion

The building contractor must give the owner five days written notice of the date on which practical completion is expected to be reached. Written notice must also be given when the works have reached practical completion. On a date specified in the second notice, or within two business days of the notice, an inspection of the work should be carried out.

The owner should:

• inspect the work with the building contractor to ensure the practical completion stage has been reached;
• compile a defects document with the contractor, sign it, and retain a copy; and
• pay the contractor as soon as all requirements under the Certificate of Practical Completion are met. (Learn about payment claims here).

The building contractor should:

• inspect the work with the owner to ensure the practical completion stage has been reached;
• compile a defects document with the owner, sign it, and give a copy to the owner;
• give copies of any remaining certificates of inspection to the owner;
• give the owner a completed and signed Certificate of Practical Completion;
• present a payment claim for the practical completion to the owner, and when paid, hand over the property and keys.

If the owner, acting reasonably, believes the work has not reached practical completion, they must give written notice to the building contractor of work that needs to be done.

Defects document

This form identifies agreed and non-agreed minor defects and omissions that will not unreasonably affect occupation, and when the building contractor will remedy them.

If defects are found after practical completion, a claim can be made within the defects liability period, which is usually stated in the contract. If not period is stated, a statutory period of 12 months applies.

The owner must give the building contractor written notice of the defect or omission as soon as practicable after becoming aware of it.

The building contractor then has 20 business days to rectify the defect or omission during usual business hours, subject to the owner providing reasonable access. If the rectification cannot be reasonably done within that period, it may be done within an agreed time, or absent an agreement, within a reasonable time.

Liquidated damages

If the building contractor fails to achieve practical completion by the specified date, the contractor must pay liquidated damages calculated at the rate provided in the contract.

The rate should be a genuine pre-estimate of the costs and/or losses the owner will incur if the work is not completed by the date for practical completion.

This can include extra rental and storage costs, finance costs, and lost income on a rental property. If no rate is provided, a default amount of $50 a day applies.

Practical completion case study: Abergeldie Contractors Pty Ltd v Fairfield City Council [2017] NSWCA 113

This case had implications for building contracts nationally because it considered the definition of practical completion in an Australian Standard contract, which has terms similar to those used on most building projects in Australia.

Fairfield City Council engaged Abergeldie to perform roadworks. On 16 September 2016, Abergeldie claimed practical completion had been reached and asked the project’s superintendent to issue a Practical Completion certificate. The certificate was issued on 25 November, 2016, and stated that practical completion had been reached on 16 September.

Abergeldie made payment claims to the council on 28 October and 25 November. The issue was that the contract prevented more than one payment claim from being made between the practical completion date and the end of the defects liability period. The council obtained an order from the Supreme Court on the basis that practical completion was reached on 16 September, and so the second claim was invalid. Abergeldie successfully appealed, claiming 25 November was the date of practical completion because it was the date the certificate was issued (and the company could not otherwise know whether practical completion had been reached), and so the November claim was the first claim and therefore valid.

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