Possession by the contractor

4.4 Possession of the site is a fundamental term of the contract. Failure to give the contractor possession is a serious breach by the employer, which may amount to repudiation, and therefore give the contractor the right to treat the contract as at an end, or entitle it to terminate its employment (cl 8.9.2). Giving possession of only part of the site could amount to a breach unless this intention has been made clear in the contract documents (Whittal Builders v Chester-le-Street DC).

Figure 4.1 The SBC16 timeline

Credit: Lucy Murawski

4.5 SBC16 requires that the contractor is given possession of the site on the date of possession (cl 2.4). Under clause 1.1, a section is defined as a subdivision of the works, not the site, but clause 2.4 clarifies the position, stating ‘in the case of a Section, possession of the relevant part of the site shall be given’. In some cases, where the section is all pervasive (e.g. where the mechanical and electrical services have been defined as a section), access to the entire site may be required. Any proposed subdivision of the site in relation to the sections must be made completely clear in the contract documents, together with proposed arrangements for access to each subdivision.

4.6 The contract allows for the employer to defer the giving of possession of the site or of any relevant part under an optional clause (cl 2.5), for a period not exceeding six weeks. In practice this is a very useful provision, as it allows the employer to make small adjustments to the commencement date without having to renegotiate the contract with the contractor. The tender documents must have stated that the clause is to apply, and the relevant section of the contract particulars must be completed. If a period less than six weeks is to be allowed, this must be inserted in the contract particulars. Where the works are split into sections, it is possible to set different periods of deferment for each section, again up to a maximum of six weeks.

4.7 If it becomes necessary to defer possession, the employer must notify the contractor in writing. Although the contract does not require it, it would be wise to do this as far in advance of the planned commencement date as possible. The contractor will be entitled to an extension of time (cl 2.29.3) and loss and/or expense (cl 4.20), and early notification should keep the losses to a minimum. The clause must be operated strictly according to the conditions, and any delay beyond the periods stated in the contract particulars would be a breach of contract.

4.8 The parties are, of course, always free to renegotiate the terms of any contract. Therefore, if there is a delay in giving possession which is longer than the period stated in the contract particulars, or where the contract particulars have stated that clause 2.5 does not apply, the parties would have to agree a new date of possession, usually with a financial compensation to the contractor. Any further delay beyond the agreed date would, of course, be a breach.

4.9 Degree of possession is such that there must be no interference that prevents the contractor from working in whatever way or sequence it chooses. With most jobs this means that the contractor must be given clear possession of the whole site until practical completion. Clause 2.4 supports this by stating that ‘the Employer shall not be entitled to take possession of any part or parts of the Works’ until the date of issue of the practical completion certificate. Where clear possession is not intended then the tender documents should set out in detail the restrictions and the contract must be amended accordingly. Access to the site and to surrounding areas in the control of the employer should also be made clear, in case this leads to disputes (see The Queen in Rights of Canada v Walter Cabbott Construction Ltd). Should the employer wish to use any part of the works for any purpose during the time that the contractor has possession, this should also be made clear in the tender documents, otherwise it can only be with the agreement of the contractor (cl 2.6.1). Similarly, should the employer wish the contractor to allow access for others to carry out work, this should also be made clear (cl 2.7.1).

Progress

4.10 It would normally be implied into a construction contract that a contractor will proceed ‘regularly and diligently’ with the work, and this is an express term in SBC16 (cl 2.4). The contractor is free to organise its own working methods and sequence of operations, with the qualification that it must comply with statutory requirements and the construction phase plan (cl 2.1). This freedom has been held to be the case even where the contractor’s chosen sequencing may cause extra cost to the employer with the operation of fluctuation provisions (GLC v Cleveland Bridge and Engineering).

4.11 SBC16 requires the contractor to produce a ‘master programme’ (cl 2.9.1.2). The programme is not a contract document, and the clause expressly states that it does not impose any additional obligations on either party (e.g. it would not oblige the contractor to carry out the work in any particular sequence). The programme may nevertheless be useful to the contract administrator, particularly in regard to monitoring progress and assessing extensions of time. Clause 2.9.1 states that it should be provided ‘as soon as possible’ after the execution of the contract, if not previously provided. The contractor is also required to issue ‘an amendment or revision of the master programme’ each time a new completion date is fixed by the contract administrator under clause 2.28.1, or where there is a confirmed acceptance of a Schedule 2 quotation (termed a ‘Pre-agreed Adjustment’).

4.12 The provisions relating to the programme are brief in comparison with those in many other standard forms, and the employer may wish to consider whether any additional requirements should be included in the tender documents. As in many projects, it is important to have a programme at an early stage and, as the form has no sanction for its non-provision, it may be wise to insist on the programme at tender stage or before executing the contract. Alternatively, if a more specific time limit were required, for example not less than two weeks before the date of possession, this would require an amendment to clause 2.9.1.2.

4.13 No particular format is required by SBC16 for the programme, but again requirements could be set out in the tender documents; for example, that it must show a critical path and/or allocation of resources. If the information release schedule is not used it would be open to the contractor to set out dates when key information will be required, although these would not be contractually binding. It is common practice to ask for a detailed programme indicating activities, a critical path and resources, and possibly key dates when information regarding the developing design will be supplied to the employer. SBC16 does not require the contractor to publish a revised programme when the contractor is in delay, so if regular updates are required a revision to clause 2.9.1.2 should be considered.

4.14 The contract administrator should be most careful never to ‘approve’ a programme in such a way that it becomes a contract document against which the contract administrator’s own performance in providing information will be judged. A programme which shows a large float period between the contractor’s estimated completion date and the date entered in the contract particulars should be queried. For example, if the contractor has tendered to carry out the work in 30 months but produces a programme showing estimated completion in 24 months, then the supply of information by the contract administrator might be judged on the 24-month period if the contract administrator appears to have agreed to this. Also, the early completion date may create difficulties for the employer. It is clear, however, that just because a contractor’s programme shows an intention to complete early, there is no implied duty on the employer to enable the contractor to achieve this early completion (Glenlion Construction v The Guinness Trust).

Completion

4.15 Building contracts normally stipulate a completion date for the works. The importance of this completion date is that it provides a fixed point from which damages may be payable in the event of non-completion. Generally in construction contracts the damages are ‘liquidated’, and typically are fixed at a rate per week of overrun.

4.16 The contractor is obliged to complete the works by the completion date, and in general accepts the risk of all events that might prevent completion by this date. The contractor is relieved of this obligation if the employer causes delays or in some way prevents completion. In addition, most contracts contain provisions allowing for the adjustment of the completion date in the event of certain delays caused by the employer, or neutral delaying events. The contract dates can, of course, always be adjusted by agreement.

Figure 4.2 Completion and liquidated damages

4.17 In contracts it is sometimes essential that completion is achieved by a particular date and failure would mean that the result is worthless. This is sometimes referred to as ‘time is of the essence’. Breach of such a term would be considered a fundamental breach, and would give the employer the right to terminate performance of the contract and treat all its own obligations as at an end. The expression ‘time is of the essence’ is seldom, if ever, applicable to building contracts such as SBC16, as the inclusion of extensions of time and liquidated damages provisions implies that the parties intended otherwise.

4.18 SBC16 uses the following terms:

• ‘Date for Completion’ – the date inserted in the contract particulars, which is the date agreed at the time of entering into the contract. Where the works are divided into sections, a separate date will be stated for each section;
• ‘Completion Date’ – the date for completion of the works or a section, or any later date consequent upon an extension of time or a pre-agreed adjustment;
• ‘practical completion’ – the date at which, in the opinion of the contract administrator, the works or a section are complete.

4.19 The form provides for the granting of extensions of time, which result in the fixing of a new completion date (for the works, or any section). However, the form makes no provision for the contract administrator to reduce the contract period to less than that stated in the contract particulars, even when work is omitted (cl 2.28.6.3). Under the Schedule 2 quotation procedure (see below) the employer may agree an extension or reduction to the contract period with the contractor, including reducing it to less than that stated in the contract particulars.

4.20 If the contractor fails to complete the works or any section by the relevant completion date, liquidated damages become payable (see Figure 4.2).

Pre-agreed adjustment

4.21 There are two processes that can result in a pre-agreed adjustment to the completion date (under clause 2.26.2 ‘Pre-agreed Adjustment’ is defined as ‘the fixing of a revised Completion Date for the Works or a Section by the Confirmed Acceptance of a Variation Quotation or an Acceleration Quotation’). Both of these processes are set out in Schedule 2 to the form. The first is where the employer operates the ‘Variation Quotation’ mechanism set out in paragraph 1.2 of the Schedule, whereby the contractor is required to estimate not only the addition to the contract sum, but also any extension of time appropriate for the proposed variation. If the employer and contractor can subsequently agree on an amount, then this is binding on the parties (see paragraph 6.14).

4.22 The second process is through the confirmed acceptance of an acceleration quotation (Schedule 2:2). This provision allows the employer to investigate the possibility of achieving practical completion before the completion date. If invited by the employer, the contractor must provide, within 21 days, a quotation identifying the time that can be saved and the required increase in the contract sum, or explain why any acceleration is impracticable. The employer must accept or reject the proposal within seven days, and a confirmed acceptance would be binding on the parties. If the employer does not accept the quotation, the contractor is paid a reasonable sum for the cost of its preparation.

Extensions of time

Procedure

4.24 In SBC16 the provisions for granting an extension of time are set out under clauses 2.26–2.29. The contractor gives written notice ‘forthwith’ to the contract administrator, when progress to the works or any section is being or is likely to be delayed (cl 2.27.1). The use of the terms ‘forthwith’ and ‘is likely’ suggests that the notice should be given as soon as a potential problem becomes apparent, without waiting to see whether it results in a measurable delay. The notice must be given whether or not completion is likely to be delayed, and whether or not the delay is caused by a ‘Relevant Event’ (i.e. the requirement to give a notice is not limited to circumstances where the contractor is claiming an extension of time).

4.25 The notice should set out the material circumstances and causes of the delay and identify any relevant events (cl 2.27.1). The notice must include or be followed by further particulars in respect of each and every relevant event, including the delay caused by each of those events and an estimate by the contractor of its effect on completion (cl 2.27.2). The contractor’s notice and particulars, including its estimate, appear to be a condition precedent for the granting of an extension of time (Multiplex Constructions (UK) Limited v Honeywell Control Systems Limited). The contract administrator is therefore not obliged to issue an extension until the contractor has properly complied with clause 2.27. The contractor is obliged to keep the contract administrator informed of any changes in the estimated delay and in the particulars provided, and to ‘supply such further information as the Architect/Contract Administrator may at any time reasonably require’ (cl 2.27.3). It is suggested that the contract administrator’s right to require further information is not restricted to any changes in the delay, but would include information relating to any of the matters raised in the notice.

Multiplex Constructions (UK) Limited v Honeywell Control Systems Limited (No. 2) [2007] EWHC 447

Wembley National Stadium Limited (WNSL) contracted with Multiplex Constructions (UK) Ltd (Multiplex), to construct the new Wembley National Stadium. Multiplex engaged Honeywell Control Systems Limited (Honeywell) under a sub-contract to design, supply and install various electronic systems. By the time Honeywell entered into the sub-contract, substantial delays to the project had already occurred. Multiplex issued three revised programmes to Honeywell, extending the completion date to 31 March 2006. The date passed without completion being achieved. No further programmes were issued by Multiplex. Honeywell maintained that the issue of the three programmes entitled it to claim prolongation costs and other financial relief. Honeywell argued that time had been set at large, due to its non-compliance with the conditions precedent. The judge decided that the contractor still had to comply with any notice provisions before an extension of time application could be entertained, even in relation to acts of prevention by the employer: ‘Contractual terms requiring a contractor to give prompt notice of delay serve a valuable purpose; such notice enables matters to be investigated while they are still current’.

4.26 The amount of detail required is sometimes disputed, but in order to give proper consideration to a notice there must be sufficient information. It is likely that clause 2.27.2 would be interpreted as an obligation to supply a reasonable level of detail, particularly in respect of information to which only the contractor has access. The contract administrator should ask for more information if this is necessary to make a fair and reasonable assessment. This must never be regarded as a delaying tactic, however. The contract administrator must reach a decision ‘on the balance of probability’, taking into account all information available, including matters of which the administrator has knowledge and matters that can be established through reasonable enquiry. An extension which later appears insufficient in the light of further information can always be adjusted at review.

4.27 In regard to relevant events, the following points should be noted:

• The contractor will be entitled to an extension if compliance with cl 3.22 (antiquities) is necessary.
• The contractor will be entitled to an extension following any exercise of its right of suspension arising from non-payment of amounts due by the employer (cl 2.29.6).
• ‘Any impediment, prevention or default … ’ (cl 2.29.7) covers a very wide range of possible acts by the employer, contract administrator, quantity surveyor or any ‘Employer’s Person’, and would include, for example, failure to provide a drawing at the time shown on the information release schedule.
• Clause 2.29.8 applies only to statutory undertakers operating independently. Work carried out by a statutory undertaker under a contract with the employer would fall under clause 2.29.7, and if under a contract with the contractor, any delays would be at the contractor’s risk.
• ‘Weather’ is to be exceptional and adverse (i.e. not that which would be expected at the time of year in question) (cl 2.29.9). The effect of the weather is assessed at the time the work is actually carried out, not when it should have been, according to the contractor’s programme. The contractor will normally provide weather records to support its claim.
• ‘Specified Perils’ (cl 2.29.10) can, under certain circumstances, include events caused by the contractor’s own negligence.
• Civil commotion and terrorism under 2.29.11 includes the threat of terrorism, and activities of local authorities in dealing with such threats.
• There is very wide protection afforded with respect to strikes, and not simply those directly affecting the works, but also those causing difficulties in preparation and transportation of goods and materials, or the preparation of the design for the contractor’s designed portion. Such strikes will not necessarily be confined to the UK and, given the current extent of overseas imports, the effects could be considerable (cl 2.29.12).
• SB16 includes two new relevant events: instructions where the contractor makes reasonable objection to a named specialist (cl 2.29.2.3), and a named specialist becoming insolvent (cl 2.29.14, see paragraph 5.70).
• ‘Force majeure’ (cl 2.29.15) is a French term used ‘with reference to all circumstances independent of the will of man, and which it is not in his power to control’. It includes Acts of God and other matters outside the control of the parties. However, many items under this category, for example strikes, fire and weather, are dealt with elsewhere in the contract.

4.28 The contract administrator must respond ‘as soon as is reasonably practicable’ and within 12 weeks from receipt of the ‘required particulars’ (cl 2.28.2) (see Figure 4.3). It is not clear whether this phrase is referring to the particulars given in the contractor’s notice or subsequently (cl 2.27.2), or any particulars requested by the contract administrator (cl 2.27.3). It is likely, however, that time would start to run from the point where sufficient information has been provided, and if this occurred with the first notice then time would run from that date. In any event, the requirement to respond ‘as soon as is reasonably practicable’ should not be overlooked. What time period is ‘reasonably practicable’ will depend on the nature of the delay, and the complexity of the information to be assessed, but once sufficient information is available the contract administrator should proceed to making a decision, and not wait until the end of the 12-week period. If the completion date is less than 12 weeks away the contract administrator must endeavour to respond by the completion date. This is not stated to be an absolute obligation, but as discussed above the contract administrator should proceed as soon as is practicable – any undue delay may result in the contractor claiming that it is no longer bound to finish by the current completion date.

Figure 4.3 Extensions of time

4.29 The contract administrator must either fix a new completion date for the works or section, or notify the contractor that no extension of time is due (cl 2.28.2). It is important to note that SBC16 requires the contract administrator to state in the decision the amount of extension attributed to each relevant event, in other words the contract administrator must apportion the decision (cl 2.28.3.1).

4.30 The contract administrator may reduce a previous extension of time by fixing an earlier completion date having regard to ‘Relevant Omissions’, i.e. where work has been omitted through a variation instruction (cl 2.28.4), in which case the contractor must be notified of the reduction attributed to each relevant omission (cl 2.28.3.2). An extension or reduction may also result from a pre-agreed adjustment. The contract administrator may not, however, fix a date earlier than the date for completion entered in the contract particulars (cl 2.28.6.3), nor alter the length of a pre-agreed adjustment unless the work which was the subject of the pre-agreed adjustment is itself subject to a relevant omission (cl 2.28.6.4).

4.31 It appears that the contract administrator may not issue an extension of time before the completion date unless a notice of delay under clause 2.27 has been given by the contractor, and may not award one except in respect of relevant events identified by the contractor. If the contract administrator becomes aware of such matters, he or she could alert the contractor, but would be under no obligation to do so.

4.32 After the completion date of the works or any section has passed, the contract administrator may review the extensions of time given, and must do so prior to 12 weeks after practical completion (cl 2.28.5). The review may extend or bring forward the completion date, or confirm the date previously fixed and must be notified to the contractor together with the apportionment required by clause 2.28.3. At this point the contract administrator must take into account relevant events not notified by the contractor (cl 2.28.5.1). As above, the contract administrator can only reduce the extensions of time already given if a reduction or omission of work instructed after the last completion date was fixed would justify this (cl 2.28.5.2), and may not fix a date earlier than the original ‘Date for Completion’.

4.33 If the contract administrator awards a further extension of time in respect of relevant events which occur after the date for completion or any extended completion date, i.e. when the contractor is in ‘culpable delay’ (Balfour Beatty v Chestermont Properties), the extension is added onto the date that has passed, referred to as the ‘net’ method of extension. It should be noted that this only operates under clause 2.28.5, discussed above. Contractors’ applications under clause 2.27.1 can only relate to relevant events that occur before the practical completion date (implied by the wording of clause 2.28.1.2 ‘is likely to be’).

Balfour Beatty Building Ltd v Chestermont Properties Ltd (1993) 62 BLR 1

In a contract on JCT80 the works were not completed by the revised completion date and the architect issued a non-completion certificate. The architect then issued a series of variation instructions and a further extension of time, which had the effect of fixing a completion date two-and-a-half months before the first of the variation instructions. He then issued a further non-completion certificate and the employer proceeded to deduct liquidated damages. The contractor took the matter to arbitration, and then appealed certain decisions on preliminary questions given by the arbitrator. The court held that the architect’s power to grant an extension of time pursuant to clause 25.3.1.1 (equivalent to SBC16 cl 2.21.1) could only operate in respect of relevant events that occurred before the original or the previously fixed completion date, but the power to grant an extension under clause 25.3.3 (equivalent to SBC16 cl 2.28.5) applied to any relevant event. The architect was right to add the extension of time retrospectively (termed the ‘net’ method).

Partial possession

4.39 Possession by the employer of completed parts of the works (or any section) ahead of practical completion of the whole works is provided for under clauses 2.33–2.37. This ‘partial possession’ requires the agreement of the contractor, which cannot be unreasonably withheld (cl 2.33 and 1.11). The contract administrator must issue a notice to the contractor identifying precisely the extent of the ‘Relevant Part’ and the date of possession (the ‘Relevant Date’). This statement should be prepared with great care, if necessary using a drawing to illustrate the extent. The insurers should be notified where relevant.

4.40 The statement must be issued immediately after the part is taken into possession but, in practice, it would be wise to circulate the drawings and information in advance, so that the details of what will occur are clear to all parties. The partial possession may affect other operations on site, in which case it could constitute an ‘impediment’ (e.g. if access to other parts is affected and causes disruption to the programme), therefore it would be wise to clarify the position with the contractor before a decision is made, and the employer should consider all possible contractual consequences in terms of delay and claims for loss and/or expense.

4.41 Practical completion is ‘deemed to have occurred’ for the ‘Relevant Part’ of the works on the relevant date (cl 2.34). The rectification period for that part is deemed to have commenced (cl 2.34) and the certificate of making good defects has to be issued for that part separately (cl 2.35). However, it would appear that this remains part of the works and is still to be included under the practical completion certificate.

4.42 Liquidated damages are reduced by the proportion of the value of the possessed part of the works to the contract sum (cl 2.37). The effect of clause 4.19.2.2 is that half of the retention is released for that proportion of the works. If Insurance Option A, B or C2 applies, the employer may wish to consider insuring the part as the contractor’s obligation to insure the works will cease (cl 2.36).

4.43 It is important to note that the fact that significant work remains outstanding has not prevented the courts from finding that ‘partial possession’ has been taken of the whole works, in situations where a tenant has effectively occupied the whole building, allowing access to the contractor for remedial work (see Skanska Construction (Regions) Ltd v Anglo-Amsterdam Corporation Ltd). If the employer wishes to occupy the building, but parties do not intend clause 2.33 to take effect for the whole project, they must make it clear, under a carefully worded agreement, what the contractual consequences of the occupation are intended to be (see below).

Use or occupation before practical completion

4.44 When the contractor is still in possession of the site, and the employer wishes to ‘use or occupy the site or the Works or part of them’, then clause 2.6 provides for this. The purposes for which the employer might require this are described simply as ‘storage or otherwise’, so, in theory at least, the clause places no limits on what form the use might take. The consent of the contractor in writing is required, and the contractor would not be unreasonable in withholding permission unless the intervention and inconvenience are likely to be minimal, or unless an agreement is reached over granting an extension of time and/or compensating the contractor for any losses. Before the contractor is required to give consent, the employer or the contractor as appropriate must notify the insurers (cl 2.6.1). If under Insurance Option A any additional premium is required, the contractor notifies the employer of the amount and this is added to the contract sum (cl 2.6.2).

Figure 4.4 ‘Practice’ section, RIBA Journal (February 1992)

4.45 Towards the end of a project the situation often arises where the contractor has not completed by the date for completion and, although no sections of the works are sufficiently complete to allow the employer to take possession of those parts under clauses 2.33–2.37, the employer is nevertheless anxious to occupy at least part of the works. Clause 2.6 appears to cover early occupation, but great care must be taken to agree to all the contractual consequences before the occupation takes place. A suggestion was put forward in the ‘Practice’ section of the RIBA Journal (February 1992), which has frequently proved useful in practice (see Figure 4.4). In this arrangement, in return for being allowed to occupy the premises, the employer agrees not to claim liquidated damages during the period of occupation. Practical completion obviously cannot be certified, and there is no release of retention money until it is. Matters of insuring the works will need to be settled with the insurers.

4.46 Because such an arrangement would be outside the terms of the contract it should be covered by a properly drafted agreement which is signed by both parties. (The cases of Skanska v Anglo-Amsterdam Corporation above and Impresa Castelli v Cola illustrate the importance of drafting a clear agreement.) It may also be sensible to agree that in the event that the contractor still fails to achieve practical completion by the end of an agreed period, liquidated damages would run again, possibly at a reduced rate. In most circumstances this arrangement would be of benefit to both parties, and is far preferable to issuing a heavily qualified practical completion certificate listing ‘except for’ items.

Practical completion

4.47 The contract administrator is obliged to certify practical completion of the works or a section (cl 2.30) when, in the contract administrator’s opinion, the following criteria are fulfilled:

• practical completion of the works or the section is achieved (see below);
• the contractor has complied ‘sufficiently’ with clauses 2.40 and 3.23 in respect of the supply of documents and information (i.e. as-built drawings and information required for the health and safety file).

4.48 The wording of clause 2.30 is not as clear as it might be, in that the first part appears to be stating that the contract administrator is certifying three separate things: ‘practical completion of the Works or a Section’ plus compliance with two other clauses. However, it must be remembered that this wording is the result of later insertions being placed into a clause which originally referred solely to practical completion of the works. It is suggested that a correct analysis of this clause is that practical completion only occurs when all three conditions are met, the principal argument for this being that only one date is entered on the certificate. This should be the date when the last condition is fulfilled; in other words, if there is a delay before receiving the as-built drawings, the date of their receipt should be the date on the certificate, irrespective of the fact that the works were complete days or even weeks earlier.

4.49 It should be noted that the use of the term ‘complied sufficiently’ may allow the contract administrator to use its discretion in issuing the certificate with some very minor information missing. The contract administrator should, however, be very careful not to place the employer in a position where it would be in breach of the CDM Regulations.

4.50 Deciding when the works have reached practical completion often causes some difficulty. In the leading commentary Keating on Construction Contracts¹, the editors submitted that the following is the correct analysis:

• (a) the works can be practically complete notwithstanding that there are latent defects;
• (b) a practical completion certificate may not be issued if there are patent defects. The rectification period is provided in order to enable defects not apparent at the date of practical completion to be remedied (City of Westminster v Jarvis & Sons Ltd and H W Nevill (Sunblest) v William Press);
• (c) practical completion means the completion of all the construction that has to be done (City of Westminster v Jarvis & Sons Ltd);
• (d) however, the contract administrator is given a discretion under clause 2.30 to certify practical completion where there are very minor items of work left incomplete, on de minimis principles (H W Nevill (Sunblest) v William Press).

4.51 In Keating on Construction Contracts it is also advised that the discretion of the contract administrator should be exercised with caution, and this is undoubtedly sound advice. The decision as to when practical completion has occurred is one of the most critical decisions that the contract administrator has to make in administering the contract, as the consequences to the employer are significant. The author frequently encounters instances of contract administrators certifying practical completion qualified by long lists of ‘snagging’ items. Even though the employer, anxious to move into the newly completed works, may initially agree to the early certification, the following contractual problems will remain unresolved:

• half of the retention will be released for that section or the whole works, leaving only 1.5 per cent retention in hand (cl 4.19.2). This puts the employer at considerable risk, as the 1.5 per cent is only intended to cover latent, not patent, defects;
• the relevant rectification period begins (cl 2.38);
• the onus shifts to the contract administrator to instruct all necessary outstanding work under clause 2.38.1. If the contract administrator fails to instruct something, the contractor would have no authority to enter the site to carry it out – therefore, the contract administrator will inevitably become involved in managing and programming the outstanding work;
• the contractor’s liability for negligent damage to the works commences (cl 6.3.4);
• possession of the site passes to the employer and, depending on the insurance arrangements, the contractor might no longer cover the insurance of the works. The insurers will need to be informed about the programme for the outstanding works;
• the contractor’s liability for liquidated damages ends (cl 2.32.2);
• the employer will be the ‘occupier’ for the purposes of the Occupiers Liability Acts 1957 and 1984 and also may be subject to claims regarding health and safety.

4.52 A certificate must be issued as soon as the criteria in clause 2.30 are met for each section (termed a ‘Section Completion Certificate’) and for the whole works (the ‘Practical Completion Certificate’). It is sufficient that the contractor complies with the technical standards and requirements set out in the contract; it does not have to satisfy any other unstated general employer requirements (Laing O’Rourke v Healthcare Support). Once practical completion is certified the employer is obliged to accept the works. Employers who have additional requirements or who may wish to accept the works only on the date in the contract would need to amend the wording.

4.53 If the employer wishes to move in before the works are complete, rather than issuing a practical completion certificate prematurely it would be better to arrange for partial possession or for a special agreement to be reached, as set out above in paragraphs 44–4.46. It should be noted that simply because the employer moves in, this does not necessarily mean that ‘practical completion’ has been achieved, nor that liquidated damages would no longer be applicable (e.g. see BFI Group of Companies Ltd v DCB Integration Systems Ltd, at paragraph 4.58), although should the occupation interfere with the carrying out of the works this may give rise to claims.

Failure to complete by the completion date

4.57 In the event of failure to complete a section or the works by the relevant date, the contract administrator is required to certify this fact by means of a ‘Non-Completion Certificate’ (cl 2.31). As this certificate is a condition precedent to deduction of liquidated damages (cl 2.32.1.1), it is important that it is issued promptly. Once the certificate has been issued, the contractor is said to be in ‘culpable delay’. The employer, provided that it has issued the necessary notices (see paragraphs 4.60–4.62), may then deduct the damages from the next interim certificate, or reclaim the sum as a debt. Note that fluctuations provisions are frozen from this point. If a new completion date is later set, this has the effect of cancelling the non-completion certificate and no additional written cancellation is needed (cl 2.32.3).

Liquidated damages

4.58 The agreed rate for liquidated damages for each section or for the works is entered in the contract particulars. This is normally expressed as a specific sum per week (or other unit) of delay, to be allowed by the contractor in the event of failure to complete by the completion date (note there may be several different rates where the works are divided into sections). As a result of two decisions in the Supreme Court, it is no longer considered essential that the amount is calculated on the basis of a genuine pre-estimate of the loss likely to be suffered (Cavendish Square Holdings v El Makdessi and ParkingEye Limited v Beavis; see also Alfred McAlpine Capital Projects v Tilebox). Provided that the amount is not ‘out of all proportion’ to the likely losses, the damages will be recoverable without the need to prove the actual loss suffered, irrespective of whether the actual loss is significantly less or more than the recoverable sum (BFI Group of Companies v DCB Integration Systems). In other words, once the rate has been agreed, both parties are bound by it. Of course, for practical reasons, the rate should always be discussed with the employer before inclusion in the tender documents, and an amount that will provide adequate compensation included to cover, among other things, any additional professional fees that may be charged during this period. If ‘nil’ is inserted then this may preclude the employer from claiming any damages at all (Temloc v Errill), whereas if the contract particulars are left blank the employer may be able to claim general damages.

4.59 Before liquidated damages may be claimed, the following preconditions must have been met:

• the contractor must have failed to complete the works by the completion date;
• the contract administrator must have fulfilled all duties with respect to the award of an extension of time;
• the contract administrator must have issued a non-completion certificate (cl 2.32.1.1);
• the employer must have informed the contractor before the date of the final certificate that it may require the payment of liquidated damages or deduct liquidated damages from monies due (cl 2.32.1.2).

4.60 If these preconditions are met then the employer may, not later than five days before the final date for payment of ‘the amount payable under clause 4.26’ (i.e. the final certificate), issue a notice in accordance with clause 2.32.2 (cl 2.32.1). It should be noted that, although clause 2.32.1 states the employer ‘may’ give this notice, in effect the notice must be issued if the employer wishes to claim liquidated damages.

4.61 Clause 2.32.1 therefore requires two types of notice: a general notice of intention that the employer ‘may require’ damages (cl 2.32.1.2) and a notice at the time a payment is required or a deduction is to be made (cl 2.32.1). This second notice requires more detail than the first; it must state that ‘for the period between the Completion Date and the date of practical completion’ the employer requires the contractor to pay the sum to the employer and/or intends to deduct liquidated damages from monies due, and whether the rate will be the contractual one or a lesser sum (cl 2.32.2). The requirement and notification must be reasonably clear, but there is no need for a great deal of detail (Finnegan v Community Housing Association).

4.62 It may be possible for the clause 2.32.1.2 notice of intention and the clause 2.32.2 notice to be dealt with together, provided the document contains the necessary information and is issued at the right time. If the employer wishes to withhold or deduct all or any of the liquidated damages payable, footnote [38] to clause 2.32.2.2 explains that, in addition to the notice under clause 2.32.1, the employer must give the appropriate pay less notice under clause 4.11. This notice will explain the calculation for that particular deduction, i.e. the period over which the damages are claimed, and the rate applied. In effect, if a deduction from a certificate is intended, then all three notices will be needed prior to the first deduction being made; subsequent certificates will require only a pay less notice.

4.63 If an extension of time is given following the issue of a non-completion certificate then this has the effect of cancelling that certificate. A new non-completion certificate must be issued if the contractor then fails to complete by the new completion date (cl 2.31). The contract states that the employer does not need to inform the contractor again that it may claim damages, as clause 2.32.1.2 remains satisfied (cl 2.32.4). The contract does not address the question of whether a new clause 2.32.2 notice is required, but for the sake of clarity it may be wise to do this.

4.64 Once the completion date is adjusted the employer must, if necessary, repay any liquidated damages recovered for the period up to the new completion date (cl 2.32.3) and must do so within a reasonable period of time (Reinwood v L Brown & Sons). Clause 2.32.4 states that any notice which has previously been issued in accordance with clause 2.32.1.2 shall remain effective ‘unless the Employer states otherwise in writing’, notwithstanding that a further extension of time has been granted.

4.65 In Department of Environment for Northern Ireland v Farrans, it was decided that the contractor has the right to interest on any repaid liquidated damages. This decision, however, was on JCT63; given that the SBC16 clauses expressly refer to repayment without stipulating that interest is due, it would appear that interest would not now be due in this situation. This was the view taken by His Honour Judge Carr in the first instance decision of Finnegan v Community Housing Association (1993) 65 BLR 103 (at page 114).

4.66 Certificates should always show the full amount due to the contractor. It is the employer alone that makes the deduction of liquidated damages. The employer would not be considered to have waived its claim by a failure to deduct damages from the first or any certificate under which this could validly be done, and would always be able to reclaim them as a debt at any point up until the final certificate.