Possessive behaviour

Practical completion of the works is a defining moment on most construction contracts. Retention becomes due for release, liability for damage passes to the employer and any obligation on the contractor's part to pay liquidated and ascertained damages ceases.

Most standard forms of contract include a clause for practical completion of the whole of the works and also for the employer taking possession of part of the works. The wording normally states that if the employer during a period of overrun takes possession of part of the works before practical completion of the whole, then the contractor obligation to pay liquidated damages will be at a reduced level.

This all seems pretty straightforward. However, the decision in the case of Skanska Corporation v Anglo-Amsterdam Corporation 2002 shows that complications can arise. Skanska Corporation undertook to construct an office facility in Edinburgh for the Anglo-Amsterdam Corporation, employing a JCT 1981 With Contractors Design standard form of contract.

Clause 16 of the contract deals with practical completion and the process requires the employer's agent to provide a written statement to indicate when it has been achieved.

The standard wording had been amended to read that the statement will only be issued when the employer's agent is satisfied that any unfinished work is very minimal and of a minor nature.

A dispute arose between the parties as to the date by which the contractor had achieved practical completion. The matter was referred to an arbitrator who had to decide whether practical completion took place on 12 February 1996 or 25 April 1996.

Incomplete work
It seems that Anglo-Amsterdam had leased the premises to ICL, who were anxious to gain access to enable the fit-out to commence. By the time 12 February 1996 arrived work was still incomplete. The main problem was the air conditioning, which was not fully functioning, and Skanska's failure to produce operating and maintenance manuals.

For legal purposes...if practical completion is deemed to have occurred it would not matter if the building had no roof on

The seasoned observer may consider that this is not unusual. The situation, however, should not hold up the fit-out and therefore ICL moved in. Skanska did not finish off the incomplete items until 25 April 1996 and as a result Anglo-Amsterdam levied liquidated damages for a failure to complete on time. Skanska argued that as ICL had moved in on 12 February liquidated damages could not be deducted for the period after this date.

This called for a close examination of the wording in the contract. Clause 16 was stringent bearing in mind that there was no entitlement to an employer's agent's statement that practical completion had occurred if work, except for that of a very minimal and minor nature, was still outstanding. No help here for Skanska, as the air conditioning was not working by 12 February.

The wording of Clause 17 did not seem to apply either as it only deals with a situation where the employer takes possession of a part of the works, in other words partial possession. What appears to have occurred is that ICL took possession of the whole of the works before all operations were complete. It did not take full possession of the whole of the works as Skanska was still finishing off work while ICL was undertaking the fit-out.

Court's decision
The arbitrator took the line that as Clause 17 only dealt with partial possession it did not apply as ICL had possession of the whole works despite some operations being incomplete. This being the case, Clause 16 applied and as Skanska had not completed to the extent required by this clause it was obliged to pay liquidated damages in respect of the time spent on site up to 25 April 1996.

The arbitrator's award was the subject of an appeal to the Technical and Construction Court presided over by His Honour Judge Thornton QC. He took a mature and practical view of the situation, finding in favour of Skanska. Clause 17 states that if the employer takes over part of a building then, as far as that part of the works is concerned, the contractor is deemed to have achieved practical completion. Responsibility for the part taken over rests squarely with the employer for such matters as damage and health and safety. This would apply even if the Clause 16 definition of practical completion had not been achieved.

While the contract did not deal wityh the situation where the employer takes possession of the whole of the works before practical completion, the same principle should apply as where they take possession of part of the works. In other words, practical completion is deemed to have taken place. The word deemed is interesting in that it means that for all legal purposes an event has happened even if as a fact it has not. That is, if practical completion is deemed to have occurred it would not matter if the building had no roof on. In this case it was only the air conditioning that was not completed.