Staged practical completion

Reasons to complete part of the works

With the increasing pressure on construction time and the complexities of building finance, more and more clients are examining with their architects ways of completing projects more quickly. One such option may be a decision for the contract documents to require the contractor to complete one part of the works, allow the owner to take possession and obtain the use of this part of the project while the contractor continues to complete one or more further stages of the works. This has the benefit for the owner of utilising the completed stage, generating income etc, while awaiting completion of the next stage. This approach is particularly suitable, for example, in a shopping-centre development where a series of completely separate fit-out contracts cannot commence until completion of the main works contract, but are nonetheless, a vital component in the overall completion of the project.

Another common example of staged completion would be a major hotel complex that has, as part of its design, five basement levels of public car park. By careful construction programming and clear definition of the various dates for stages of practical completion, the car park could achieve practical completion, be open to the public and earning a return for the owner while construction of the hotel and the more detailed fit-out is completed and handed over at a later date.

Contractual adjustments

Any particular condition of a contract may be altered by agreement of both parties. For a building contract this would normally mean agreement between contractor and owner.

Where the client requires possession of part of the works before the whole of the works have reached a stage of practical completion there is provision in section M of ABIC MW 2018 for the architect to advise the parties by notice of the division of the works into separable parts. The current Australian Standard AS 4000 and the AS 2124 contain similar provision for staged practical completion but for other forms of building contract it is necessary for the owner and their legal advisors to prepare such an amendment. Architects should never attempt to draft amendments to a contract.

Guidelines

Where some form of staged practical completion is being considered, the following guidelines may be of assistance.

• Wherever possible recommend use of a standard-building contract such as the ABIC MW 2018 contract, which contains suitable provisions for this arrangement. Where this is not possible advise your client to obtain legal advice on any amendments proposed for the form of contract selected.
• Advise your client to consider carefully the relationship between time performance and completion. If there is to be a number of finishing dates, there may need to be a different approach to the administration of the contract time-performance clauses.
• In any contractual amendment for staged practical completion, consideration should be given to any current authority requirements. Occupation of even part of a building is not possible without light, power, ventilation, etc. In the example quoted previously, if the car park is complete but the substation is not, approval from relevant authorities to use this part of the building will be extremely difficult, if not impossible, to obtain.
• Careful consideration will need to be given to the location of plant rooms at the design stage. Rooftop areas would not normally be completed until well after completion of basement car-parking spaces.
• In any form of staged practical completion, consideration will also need to be given to access and insurance requirements. In a shopping-centre project, for example, the tenants' contractor and the main contractor both require coverage for access through the (insured) works area of the other party.
• In most standard form building contracts insurance clauses assume the 'works' can be defined as a physical object with legally definable boundaries, etc. Projects involving staged practical completion may not fit such an assumption in the standard wording of a typical insurance clause.
• Consideration of any form of staged practical completion will also require a thorough analysis of any current industrial-relations issues. If there are agreements in place, any new party entering the site will normally be required to observe those agreements.

Any agreement applicable to the project is likely to be enforced by the unions irrespective of the contract conditions, but in a situation where all work stops on the entire site because a new and separate contractor has not observed some condition, the cost may be borne by the client.

Insurance

Under most standard-form building contracts insurance cover for the works is normally the responsibility of the contractor. ABIC contracts allow an alternative situation for the insurance to be arranged by the owner. When selecting a contract without provision for staged practical completion, the difficulty arises with the introduction of a number of separate contracts with many different 'works' to ensure sufficient cover is maintained for all relevant risks.

Retention, guarantees and warranties

In most standard forms of building contract, requirements for release of security and operation of guarantees and warranties, are normally linked to the date of practical completion.

In a project where some form of staged practical completion applies, the commencement dates for a particular warranty and the impact on security held will require further consideration. This matter will become more difficult where a part of the complete works is finished at the end of a particular stage and then used by the contractor for completion of the remaining stages. This may be the case with a lift installation, mechanical ventilation or other services for a building.

Conventional inspection and acceptance procedures for various building components and services installations will need to be reconsidered to suit each particular project and the relevant conditions on the site need to be modified, to accommodate the intended staging of hand-over.

In a conventional construction project, the requirements of both parties at practical completion are generally understood and directly reflected in the relevant contract clauses.