Post Contract Procedures
This report has been compiled to inform and advise both parties on their rights under the contract (JCT SBC/Q) in respect of the request by the client (Brindley Developments Ltd) to take partial possession of the site (Brindley Retail Park) 1 calendar month before the proposed completion date by the contractor (Hazell Construction).
Assumptions and scenario settings
If this request were to be granted under the contract then certain assumptions would have to be made for the basis of this paper.
* That the contract has no amended clauses to the original contract
* That the current works are on programme and are not subject to delay at the current time.
* That there are no sectional completion dates specified ie the contract period is for the whole of the contract works.
* That by taking possession of the block the client would in no way obstruct or inhibit the contractors ability to use the common access road that would be shared with the still under construction second block of six units.
* That by taking possession of the block for early use the client would also require the use of the allocated car parking spaces for the units on a pro rata basis- thus this would mean the contractor handing over 400 completed car parking spaces for use.
* That the client is looking to gain partial possession to allow access to a proposed tenant early.
There are three basic paths this request could then follow.
One being that the works are handed over early and there are no delays, resulting in hitting the deadline of 12 months for remaining units.
The second being the successful handover of the initial block then contract complications resulting in the remaining block missing the deadline, financial overspend or both, and the third being that the contractor does not hand over the initial block due to demonstrating that it would be unreasonably costly to do and cause delays.
Although basic in the thought process both paths two and three could be further drilled down into to plot out potential areas of failure to deliver or overspend on the initial contract budget:
Sectional completion refers to multiple completion dates for various sections of the works. The clause is in JCT primarily for the benefit of the client as without it the contractor would be allowed to occupy the entire site for the duration of the contract thus posing a major financial risk to the client. There is however no mention of sectional completion within the specified brief and thus for the purpose of this paper is deemed to neither be relevant or applicable.
Partial possession under JCT occurs when the client takes possession of part of the works before the project has been fully completed. Section 2.33 states that 'if the client wishes to take possession of any parts of the site then as long as the contractor agrees (and he cannot unreasonably refuse this request) and that it does not specially contradict any expressed or implies terms elsewhere in the contract then the architect/contract administrator shall give notice on behalf of the client to the contractor.'
However a major misconception of partial possession is 'that they entitle the client to practical completion of any part of the works by any particular date or time.' (A Minogue) However this is not the case. Provided he achieves practical completion by the completion date he can proceed at whatever speed and by whatever work sequence he chooses. Therefore there is no guarantee that the part the tenant wants will be completed by any particular date.
So in theory Hazell could agree to the request but be under no obligation to actually fully complete the block in question. Upon arriving at month 11 if the client was desperate to take it over then he would be doing so on the contractual understanding that he was issuing practical completion on that part of the works as is explained below.
The JCT forms of contract provide for the Practical Completion of the Works.
Defining what constitutes Practical Completion is anything but a simple matter but R Silver in his work Practical Completion-What does it mean? sums it up best in the following bullet points
'The authorities provide no clear answer as to the meaning of the term. The following, however, provides useful guidance:
(a) even where there are latent defects the Works can nevertheless have reached practical completion;
(b) subject to (d) below, where patent defects remain a Certificate of Practical Completion ought not to be issued, for the Defects Liability Period is to give the Contract the opportunity to rectify defects not apparent at the date of Practical Completion;
(c) practical Completion means the completion of all the construction work that has to be done;
(d) where there are very minor items of work incomplete the Architect/Client's Agent is given a discretion to certify Practical Completion, on "de minimis" principles. '
Thus if the block of four units is handed over at the start of month 11 then in accordance with the contract under section 2.34 the client shall be deemed to have issued a notice of practical completion on that part of the works and thus the rectification period of that part of the works will commence from the relevant date. This means however that the works can be in any state (ie not complete) and the client cannot complain afterwards that things are not complete for example services not being fully operational.
The process of practical completion itself has big commercial benefits as Emily Busby states in her article. It automatically triggers the release of half of the retention monies (normally 3% under JCT),stops the contractors insurance obligations and his liability for liquidated and ascertained damages whilst also signifying the start of the defects period. In a tough economic climate, contractors are keen to finish and vacate the project but the risks for the client are significant in relation to the issue of defects.
Other issues in relation to operation of site and final completion
There are other issues to evaluate in relation to the continuing operation and final completion of the site once the Relevant Part has been released to the client which have been listed out below
* Defects- The defects period for the relevant part will run from the date of handover.
* Insurance- It is a duty of the contract that before the contractor gives his consent to early use by the client under section 2.6 that either the contractor or client notifies the insurers under whichever insurance option applies and obtains confirmation that such occupation or use will not prejudice the insurance. Another consideration is that during the contract the contractor holds insurance for the works. However once partial completion of the relevant part is taken it will then become the client's responsibility to insure.
ÂÂ· Liquidated damages- Once the relevant part is handed over any liquidated damages specified in the contract will be reduced by the same proportion as the value that they bear in relation to the main contract as per clause 2.37
ÂÂ· Retention- As stated in clause 4.20.2-3 half the retention percentage may be deducted from so much of the total amount as relates to work where the Works have reached practical completion.
Another point that has to be addressed is If the client does allow access to the site for a tenant (and thus his contractors) then he has to be aware that under JCT these are the 'clients persons', and if the contractor can argue successfully that they have either caused him delay or damaged any other part of the works then he is entitled to claim for an extension of time as well as either a loss or expense claim.
Conclusion to contractor
The main risk for the contractor by allowing partial possession to the client is in the way of delay and disruption to the rest of the works. If the contractor could then successfully argue that due to the early partial possession he was impeded or delayed in his works then he would be able to claim an extension of time and due costs/expenses incurred however if he could not then he could be liable for liquidated damages.
Whilst the JCT states that the contractor cannot unreasonably withhold consent for partial possession in this case due to the closeness of the requested release date to that of practical completion (1 month) the contractor could argue that he believes this release would prevent him from achieving practical completion in the contract period and thus on that basis withhold consent.
By allowing shared use of the access road and servicing yard, we believe that this could result in delays to the rest of the contracted works on the other block.
As a result, we believe that it could be argued successfully that this equates to reasonable grounds to withhold consent for partial possession.
Conclusion to client
As the requested date for access is only 1 calendar month short of the total contract period we believe the risks of taking on the liabilities for the block of four units and any future delay and disruption far outweighs any perceived financial advantage that would be achieved. This is due to the reasons set out below:
Due to the fact that the contractor would be handing over a certain part of the works this would then be classed as practical completion and thus the client would then be liable for these works
In addition, liquidated damages will reduce proportionally following partial possession. This could mean that any damages due are in theory reduced (which in effect could be a 40% reduction) and may due to being such a small amount offer very little incentive for the contractor to finish the rest of the works within the 12 month timeframe.
Another is seen in the case law of Skanska Construction (Regions) Ltd v Anglo-Amsterdam Corporation Ltd . Through taking on partial possession and allowing a tenant to start fitting out works the client (Anglo-Amsterdam) was deemed to have taken partial possession on the entirety of the works and as a result the contract (Skanska) no longer had to pay liquated damages for delay on the whole contract.
This could mean that Hazell could run over the original 12 month contract period and argue that due to the partial possession they were not liable to pay any liquidated damages on any of the works.
However, it has been noted that the proposed possession would be taking place in the run up to the busiest time of the retail year (namely Christmas) then there is the option of isolating the unit and paying for a new temporary access road to be built into the block.
This may prove costly but if you as the client are determined to have use of the unit by the Christmas period this could be tabled to the contractor as a viable option for which he could offer you a price for the extra works.
Murdock & Hughes (2008) "Construction Contracts Law and Management 4th Ed, Taylor & Francis
Minogue, A. (16th January 2009) Whatever possessed you?: Early partial possession <http://www.building.co.uk/story.asp?storycode=3131407> [Accessed 13th December 2009]
Author not stated. (28th November 2007) Legal Q&A: The pitfalls of sectional completion under JCT <http://www.contractjournal.com/Articles/2007/11/28/56936/legal-q.html>
[Accessed 13th December 2009]
Grant, A. (5th October 2009) Partial posession can have unintended consequences <http://www.contractjournal.com/Articles/2009/10/05/72311/partial-posession-can-have-unintended-consequences.html> [Accessed 13th December 2009]
Busby, E. (11th April 2008) Defining 'practical completion'
< http://www.propertyweek.com/story.asp?storycode=3110900l> [Accessed 13th December 2009]
Silver, R. (May 2006) Definition of practical completion in a construction project
<http://www.silvershemmings.co.uk/documents/Definitionofpracticalcompletioninaconstructionproject.pdf> [Accessed 13th December 2009]
Silver, R. (May 2006) The need to clearly define the Works within each Section when agreeing Sectional Completion of a contract <http://www.silver-shemmings.co.uk/documents/JCTcontractwithcontractorsdesign-sectionalcompletion.pdf> [Accessed 13th December 2009]
Silver, R. (May 2006) Practical Completion - What does it mean? <http://www.alway-associates.co.uk/legal-update/article.asp?id=117>[Accessed 13th December 2009]
05340275 18th December 2009