What is Sectional Completion?
As the name suggests, Sectional Completion refers to construction projects with multiple completion dates for the different parts of work being undertaken. This contrasts to a more traditional set up where there is a single completion date for an entire development.
Why is this needed?
The clause is in place for the benefit of the client. Without it, the contractor maintains the right to occupy the entire site for as long as there is contracted work that requires completion. This poses a major financial risk to the client. Without the implementation of sectional completion on a major development of flats for example, the client would be unable to take possession of any of the completed flats, and begin to recoup his investment until all of the works reached practical completion.
How do JCT Contracts deal with multiple completion dates?
The recitals to the 2005 JCT major contract forms deal with sectional completion. The contract particulars allow the dates for completion of sections to be detailed and the amount of delay damages for each section to be specified. Prior to the 2005 suite of contracts a separate sectional completion supplement had to be completed and incorporated into the contract.
What issues can arise from Sectional Completion?
Issues post-contract are not uncommon, and normally arise if the client has failed to make the Sectional Completion requirements an express term of the contract, instead only listing them in the bill of quantities or pre-award minutes, with just one main completion date in the Contract Particulars. In this instance, it is the date in the Contract Particulars that is binding – something that has the potential to lead to a major breakdown in client - contractor relationships.
At a practical level, varying completion dates mean that contractors are likely to find themselves sharing the site with other parties, be it the client, his operatives or other contractors employed by the client. This presents significant concerns relating to logistics, insurance and health and safety, all of which require adequate consideration from the contractor.
So what can contractors do to protect themselves?
Prior to submitting a price, a contractor must ensure that the proposed sections are clearly defined and the logic behind the sectional possession and completion dates is viable in relation to the programme for the works. Full consideration must be given to the effect of a delay to one section on the commencement and completion of other sections. Adequate allowances within the tender for the requirement of such interfaces are therefore critical.
Are any other issues likely?
Probably the biggest consideration for the client will be the effect of delay in completion of each section when estimating liquidated damages.
A provision for liquidated damages will be enforceable if the amount fixed is a genuine pre-estimate of the loss likely to arise from the anticipated breach, judged at the time the contract is entered into. But whilst the client does not need to prove actual losses, liquidated damages are not enforceable if they are deemed a penalty.
Two cases, Dunlop Pneumatic Tyre Co. Ltd v New Garage and Motor Co. Ltd (1915) AC 79 and Philips Hong Kong Ltd v The Attorney General of Hong Kong (1993) 61 BLR 41, provide some guidelines for distinguishing between liquidated damages and a penalty. In short, it is a penalty if the sum is “extravagant or unconscionable in amount in comparison with the greatest loss which could conceivably be proved to have followed from the breach”.
In such circumstances the liquidated damages provision should confirm how the sums payable for delay are apportioned between the different stages of work. A failure to correctly do so can be fatal to any claim for liquidated damages.
So what are the key points to remember?
Sectional Completion provisions in contracts should be carefully drafted. Both clients and contractors need to have a clear understanding of the specific risks and obligations that arise as a result of any agreement to complete works in sections. In this regard, robust contract management throughout the entire process is essential.