Practical Law

…and does it matter?

Question: the employer on our construction project wants to start fitting out one part of a project before the rest is finished. Should it just take partial possession of that part when the time comes or should it provide for sectional completion from the start?

What is sectional completion?

Sectional completion can mean both:

• Practical completion of a section.
• The whole process of completing the works under a building contract in sections.

In this Ask the team, we adopt the second meaning. In summary, rather than requiring the contractor to complete the whole of the works on a given date, sectional completion allows the employer to require two or more sections to be delivered at different times. For example:

• The contractor could be required to deliver two identical blocks of flats, Block A and Block B, under a single building contract.
• It might deliver Block A (and access to Block A) as Section A, Block B (and access to Block B) as Section B, and the landscaping around both completed blocks as Section C.
• The completion dates could be 1 September, 1 November and 1 March, respectively.
• The sections could be priced at £750,000, £750,000 and £25,000 respectively, with separate agreed rates of liquidated damages (LDs) for a delay to any section.

What is partial possession?

A building contract may allow the employer to take partial possession of part of the works, before they have been formally completed. It is unusual (save in exceptional circumstances) to use both sectional completion and partial possession on a single project. Partial possession often requires the agreement of the contractor, but allows the employer to use part of the works for their intended purpose prior to completion of the whole of the works.

What is practical completion?

Despite the importance of practical completion in construction contracts, there is no precise legal definition of practical completion. A building contract can define what practical completion means under it, but often does not. As such, these general rules often apply:

• Practical completion means the completion of all the construction work that has to be done under the contract.
• Works can be practically complete even though there are latent (hidden) defects.
• Works are not practically complete if there are patent defects.
• A practical completion certificate can be issued where minor, de minimis, work is outstanding.

What does the JCT SBC11 say about partial possession?

Under clauses 2.33-2.37 of the JCT Standard Building Contract, 2011 edition (SBC11), the contractor needs to consent to the employer taking partial possession. If the contractor consents and the employer takes partial possession of part of the works (the “relevant part”), that counts as practical completion of the relevant part. From the deemed date of practical completion of the relevant part, the:

• Defects liability period (rectification period) commences for that part.
• Sum of LDs payable for delay in completion of the works (other than the relevant part) reduces proportionately.
• Risk of loss or damage to, and responsibility for, the relevant part transfers from the contractor to the employer (with consequent changes to the insurance regime).
• Employer releases half the retention sum, related to the relevant part, to the contractor.

Typically, the parties will not have pre-agreed what is a relevant part and how much that part is worth, compared the whole of the works.

What does the JCT SBC11 say about sectional completion?

The JCT SBC11 addresses sectional completion throughout its terms. It no longer uses a sectional completion supplement. (See, for example, clauses 2.26-2.32.) In addition, the parties set out the sections (or where they are defined) in the JCT Contract Particulars, which form part of the building contract.

Sectional completion of a section is not “deemed” practical completion of that section, it is practical completion of that section. In some senses the effects are similar to partial possession, in that the:

• Defects liability period (rectification period) for that section commences.
• Risk of loss or damage to, and responsibility for, the completed section transfers from the contractor to the employer (again, with consequent changes to the insurance regime).
• Employer pays half of the retention sum for that section to the contractor.

However, these effects are more certain, because the parties have already agreed:

• A distinct rate of LDs for each section, so there is no argument about what a proportionate reduction would be.
• A section sum, so there is no argument about what the release of retention should amount to (provided the interim certificates have kept track of sections sums).
• That there is no need for contractor consent: the architect or contract administrator certifies when a section has been completed.

In addition, if the works are delayed, the architect or contract administrator can assess whether any individual section has been delayed and by how much.

Usually use sectional completion

Typically, if an employer knows in advance that it wants one part of the works finished ahead of the rest, it should provide for sectional completion. There may be exceptions to this, such as if the employer and contractor cannot readily define what physically constitutes a section. In some circumstances, the employer may simply require access for a short period, perhaps to install a piece of equipment. In that case the parties may negotiate an early access agreement that is neither partial possession nor sectional completion.

Sectional completion leaves less to chance, because the parties have agreed many of the practical consequences of that completion in advance. If something does go wrong, it is also easier for the employer and architect or contract administrator to deal with delays, changes or even acceleration with sections in place. For example, if a project is already in delay, and then the employer takes partial possession of part of the works, it may be difficult to agree exactly what the reduced rate of LDs should be for the remainder.