Our client, who is also the contractor, has asked us (the architect) to issue a practical completion certificate, but we have been advised by the building management systems consultant that the system is not complete. Although the installation is substantially complete, the testing and commissioning is far from finished.
Our client is arguing that the testing and commissioning forms such a minor part (about 0.5% of the contract value) that it should not hold up the certificate. The consultant has stated that until the system is fully tested he will not provide us with assurances that it would be safe for us to sign the certificate. Is it possible to issue a certificate excluding the testing and commissioning of the system?
Unfortunately, the term "practical completion" is generally not defined in the contract. One of the leading cases on the issue in 1970 took a strict view, finding that completion meant completion of all the work that had to be done.
In practice, a certificate of practical completion is issued with a snagging list of minor defects or uncompleted works. The key point in relation to the items on the list is that they must not prevent possession of the building being taken nor prevent the building from being used for the purpose for which it was designed.
Given the fact that the management system in your building is not fully installed, and that testing and commissioning is far from complete, it seems difficult to see how the certificate could be issued. Not only is the management system the key to the operation of the building, but nobody knows what defects might be identified during the testing and commissioning process, nor how severe they might be.
Proof of additional costs
We are presently settling our final account. The original contract period was 24 weeks. Actual time on site was 28 weeks. The client does not dispute that we are in order to claim for 28 weeks. He says that we should be paid 100% of the agreed tender/order value of the prelims for the first 24 weeks, but that the remaining four weeks are not to be paid pro rata to the time-related items in the original tender. We have to prove actual costs for our expenditure for the four weeks. Is this fair?
The answer to your question depends on the terms of your contract. Having conceded your entitlement to compensation, the employer is bound to value the additional costs incurred for the four-week overrun in accordance with the relevant clause of your contract – the variation or contractual loss and expense clause. If your contract states, for example, that preliminaries are payable based on the time rates in your original tender, you are entitled to be paid.
However, if your contract is silent on this issue, the employer is entitled to ask you to prove the actual additional costs incurred during the overrun period. The items in your tender are based on estimates rather than actual costs, so are strictly speaking irrelevant. If you've been keeping good records, you should be able to identify the actual costs incurred and supply proof to your employer. Of course, this may entitle you to a greater payment for those items than is indicated in your tender.
You be the judge
A construction company, Global Works, has procured the supply and installation of structural steelwork from a subcontractor, Readysteel. Eighteen months after completion, Global alleges that the installation was defective, and that it will cost about £30,000 to put it right. Readysteel denies responsibility and asserts that, in any case, the terms of the subcontract terms mean it isn’t liable. The contract contains an arbitration clause and Global commences proceedings.
Prior to the preliminary meeting, the arbitrator asked the parties to estimate their costs up to and including the hearing. Difficult issues of fact, law, and expert evidence are involved, and Global’s estimate is £80,000; Readysteel’s is £70,000. You, as arbitrator, consider that it might be appropriate to invoke your power – pursuant to section 65 of the Arbitration Act 1996 – to limit the recoverable costs of the arbitration so as to keep them in proportion with the amount of the claim.
Readysteel then informs you that, while it considers that it has excellent prospects of success, as a small company it cannot afford to proceed with its defence unless it could recover all or most of its costs. It argues that to make the order would stifle its defence. Global, on the other hand, welcomes the proposed order, asserting that arbitration is intended to be a cheaper than litigation, and it was to ensure that costs do not become disproportionate that section 65 was enacted.
How do you proceed?
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This week’s conundrum was devised by Julian Critchlow of Fenwick Elliott.
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