PRM SEM 01 - 16. Practical Completion

Question 1

Tasks at Practical Completion

Answer 1

The main contract administration tasks at the end of the job are to: make a snag list of defects, analyse the final account, make the final payment, ensure warranties are in place, and perhaps arrange for the Certificate of Code Compliance.

• Final TA (Council) Inspection
• Practical Completion (and Retentions)
• Defects Liability (and Retentions)
• Warranties and Bond
• Code Compliance Certificate
• Final Payment

It’s handy to look at the project through sections of the NZIA SCC 2018 Standard Construction
Contract. These notes are based on that with an architect administering. If a project manager is
involved it is likely the contracts and architects obligations will be different.

Question 2

Target date of completion

Answer 2

The target date for completion (the end of the Contract Period) may have been adjusted by Extensions of Time (see lecture on Contract Administration: Section 11: Time for Completion)

Question 3

Final TA Inspection:

Answer 3

NZIA SCC 2018 doesn’t mention Territorial Authority (Council) Building and Resource Consent
inspections.

It’s a good idea to ensure the Contractor organises the Council’s Final Building Consent Inspection before Practical Completion as this can help identify defects.

In the Contract you could make a Final Inspection a condition of gaining Practical Completion.

As part of this the TA will want Producer Statements from those responsible as these help provide evidence of Code compliance. We usually always require one from the Engineer but there can be a wide range of people responsible (see earlier lecture).

Electricians and Gasfitters need to supply Certificates certifying their work.

The Final Inspection also triggers the issue of the Code Compliance Certificate (see later).

Question 4

In the SSC how long before Practical Completion must the contractor notify the architect?

Answer 4

The Contractor notifies the architect of Practical Completion “at least 10 working days before that date”. Section E1 in the Schedule contains a form for this.

Question 5

What does Practical Completion mean?

Answer 5

The architect must inspect the works and assess whether they are practically complete.

This means “everything has been done except for minor omissions and minor defects” that don’t prevent the building being used and that “essential warranties have been supplied”.

Question 6

If the architect deems the building not practically complete?

Answer 6

If the architect does not consider the building to be practically complete, the architect must explain why, work continues and the Contractor nominates another date.

Question 7

What needs to happen if the Architect deems the building Practically Complete?

Answer 7

If practically complete, the Architect issues a Certificate of Practical Completion.

Question 8

Practical Completion Separate sections of the Building

Answer 8

Separate Sections of the building works can be certified practically complete.
The Principal ( client) may occupy a section of the building before Practical Completion if 15 days notice is given to the Contractor and a Code of Compliance (or other approval if required) is obtained from the TA (Territorial Authority/ Council). The Contractor can claim additional costs or time as a Variation.

Question 9

Practical completion - Approval for temporary use

Answer 9

The TA can also issue an approval tor temporary use as well, such as an opening or dedication function.

Question 10

Practical completion Cleaning the site

Answer 10

As noted in Section 7 Site, the Contractor must clean and clear up at the end. Often cleaners need to go through twice!

Question 11

Practical completion - insurance

Answer 11

The architect should ensure their client has their insurance organised to take over from the Contractors. See 6.7 Duration in Section 6 Insurance in the lecture Contract Administration.

Question 12

Practical Completion Retentions

Answer 12

At Practical Completion the percentage of Retentions stated in Specific Conditions / Schedules are payable (Often 40%, in comparison the NZS 3910 contract releases 50% on Practical Completion.)

Question 13

Defects Liability

Answer 13

“On the date of Practical Completion the Defects Liability Period begins” (Section 19 Interpretation). This is also often called the Maintenance Period.

The architect makes a “snag list’’ which lists “defective work, materials or fittings” and a timeframe to fix them. This should be done before occupancy as the client moving in frequently causes damage that isn’t the Contractors responsibility!

The Principal (client) generally occupies the building at this date, Practical Completion.

The Contractor must have reasonable access but not inconvenience the Principal.

The length of the Defects Liability Period is stated in the Specific Conditions and 3 months is usual.

Often the client’s occupation results in more defects being discovered and these can be added to the snag list.

The architect issues a certificate when Defects Liability Period finishes. but this doesn’t absolve the Contractor of any “liability to fulfil any obligation in the Contract” (also in 14.9.5).

If the Contractor hasn’t remedied the defects, the architect can notify them that someone else will do it at the Contractor’s expense.

Note that in law builders or anyone generally have a “right to remedy’’, they should be given the opportunity to fix things.

Question 14

Defects Liability Period Retentions

Answer 14

At the end of the Defects Liability Period the rest of the Retentions (generally 60%) are released.

Question 15

Practical Completion: Bonds

Answer 15

Uncommon these days (see lecture on Contract Administration), but if there are bonds then:
A Contractors Bond finishes at Practical Completion.
A Contractors Bond in lieu of Retentions lasts until Defects Liability obligations are met.
A Principals Bond finishes at Final Payment.

Question 16

Practical Completion Warranties

Answer 16

A warranty guarantees good materials and workmanship, that things have been built in accordance with the Building Code and Contract, that reasonable skill and care have been used etc

The government Consumer Protection website www.consumerprotection.govt.nz has more information on what warranties and guarantees are.

The Consumer Institute website consumer.org.nz is also helpful.

Generally a warranty means that the item will be repaired or replaced free of charge during the warranty period. However beware of new materials with long warranty periods: a warranty is useless if the company/manufacturer has gone out of business!

Section G1 in the Schedule covers a general building warranty and you would fill in a period of time .

The New Zealand Building Code (BIA B2.3.1 Durability) also stipulates time periods eg nonstructural roofing shall have a minimum durability of 15 years with maintenance.

The Building Act 2004 ensures that homes are automatically covered by an implied warranty on the builders work whether it is stated in the Contract or not.

The Consumer Guarantees Act 1993 also covers buildings.

Section 12 Practical Completion requires “essential warranties (be) supplied” at Practical
Completion.

All guarantees and warranties should be collected before Final Payment.

These are often for roofing, cladding, benchtops, whiteware (ovens, fridges etc.), machinery (lifts, HVAC etc). For example a Colorsteel roof often has a warranty for 15 years, varying with exposure to sea salt.

You need to check you have warranties for both materials and workmanship. Make a copy and pass the original to the building owner.

Generally in NZ builders and architects are liable for a period of 10 years.

However building owners often neglect maintenance. This can cause problems and sometimes
void a warranty eg the glazing on a certain new University building must be washed four times a
year to maintain the warranty!

If there is a dispute over the terms of a warranty one may have to go to the Disputes Tribunal (if its a small amount) or court or to adjudication under the Construction Contracts Act 2002. See the lecture Contract Law.

Question 17

Code Compliance Certificates:

Answer 17

This is “a formal statement issued by the TA under the Building Act 2004 that the building work complies with the Building Consent” (https://www.building.govt.nz/building-officials/guides-for-building-officials/code-compliance-certificates-cccs/)

There is a time period of 2 years (from issue of Building Consent) to apply for one. It’s usually no
problem if the Final Inspection has been done and passed.

The TA has 20 working days to issue it, so usually it happens during the Defects Liability Period.

Home owners often neglect to do this and wait until they want to sell their house, then phone you! It can be hard to gather up the certificates, producer statements etc a year or two later.

For other buildings “it is an offence to use … public premises affected by building work that has no Code Compliance Certificate or Certificate for Public Use” (https://www.building.govt.nz/building-officials/guides-for-building-officials/code-compliance-certificates-cccs/ at the government’s
Building Performance website www.building.govt.nz ).

Generally for public buildings the architect does not apply for the CCC. This is because those buildings require yearly Warrant of Fitness inspections and these are generally done by an IQP, an Independent Qualified Person. Best to get them to apply for the CCC as this will involve issue of a Compliance Schedule to set up the WOF.

More on this in the next lecture on Post Project. (Note the IQP name may change under the
Licensed Building Practitioner regime)

Question 18

Section 15: Final Payment:

Answer 18

After Practical Completion is certified and within a time nominated in the Schedules / Specific
Conditions the Contractor must submit a Final Payment Claim with sufficient information for the
architect to assess it. The claim must include and summarise the cost of Variations (and any
Fluctuations if they have been part of the Contract).

The architect assesses the claim, deducts Retentions, takes into account any previous payments and issues a Provisional Final Payment Schedule and after input from the Principal a Final
Payment Schedule. Time limits apply similar to Progress Payments discussed in the lecture on
Progress Payments.

In reality there is usually a lot of argument and negotiation over costs at this stage and a Quantity Surveyor is very useful. Remember the architect has a duty to be impartial.

If Liquidated Damages apply and have been stated in the Specific Conditions, this money can be
deducted from the final payment. Liquidated damages should be a genuine estimate of actual loss suffered, not a penalty, estimated in advance and agreed on in the terms of the contract (eg $500 a day for every day past the agreed date of completion).

Remember too the NZIA SCC 2014 Section 14.11 does allow a bonus for early completion if
previously agreed, or a bond instead of Retentions (see Section 3).

The Contract ends section 15.6 when the final payment or last retentions are paid out
whichever is last.

But a dispute can still arise after this and result in mediation or adjudication that can involve further payments eg leaks discovered well after the Contract ends.