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TCC issues guidance regarding the matters an independent tester should take into account when certifying practical completion

8 August 2014

In ORourke Construction Ltd v Healthcare Support (Newcastle) Ltd and Newcastle upon Tyne Hospitals NHS Foundation Trust [2014] EWHC 2595 (TCC), the Technology and Construction Court (TCC) gave guidance on the matters an independent tester or certifier should take into account when considering whether or not to certify practical completion under a Private Finance Initiative (PFI) scheme.

Background

The case related to the construction of facilities at two hospitals for Newcastle upon Tyne Hospitals NHS Foundation Trust (the Trust), built under a PFI scheme. The facilities were built by the claimant under an agreement with Healthcare Support (Newcastle) Ltd (HSN), which was entered into on the same day as HSN entered into an agreement with the Trust by which it agreed to design, build and finance the redevelopment of the facilities and to provide other related services. Both contracts made provision for an independent professional to act as the independent tester under a separate contract.

The dispute arose because the claimant contended that parts of the work were completed in mid-2012 but the independent tester had not certified completion. Accordingly, the claimant sought declarations regarding the manner in which the independent tester was to act when deciding whether or not to certify practical completion. The claimant contended that all that was required to achieve practical completion was compliance with certain completion criteria set out in the project agreement (the construction contract having materially the same terms). The Trust contended that any breach of contract relating to the quality or conformity of the works, no matter how small, required the independent tester to withhold the completion certificate.

Decision

The court held that the independent tester must exercise its professional judgment when deciding whether or not to certify practical completion. Based on what it considered to be the correct construction of the contracts, it agreed with the claimants interpretation and granted one declaration along the lines sought by the claimant.

Comment

The decision accords with what one might expect for a dispute regarding practical completion under a building contract (industry practice is for a snagging list to be issued at the same time as a practical completion certificate). Such disputes are common, since parties having different commercial interests as to when practical completion is achieved.

However, there remains a lack of clarity as to the meaning of practical completion under a building contract, particularly regarding the extent to which an architect is given discretion to certify where (similar to here) there are very minor items of work left incomplete.

ORourke provides some interesting comment in this regard (albeit within a PFI context). The TCC considered it relevant that the practical completion certificate was not conclusive evidence of the quality of the work or that the buildings were in accordance with the specification. Applying well-established principles of contractual construction, it held that it was important whether or not a non-conformity "has or is likely to have a materially adverse effect on the enjoyment and use of the building by the Trust in the manner contemplated by the agreements". If it did not, the independent tester could issue the completion certificate and leave the Trust to its remedy in damages for the non-conforming work. This was "quintessentially a matter of fact and degree". The independent tester had to exercise his professional judgement. It will be interesting to see if these comments are referred to in relation to building contracts.

The judgment suggests that there were other disputes between the parties which had resulted in them seeking commercial levers to improve their negotiating position. The TCC was clear the independent tester had to put such disputes to one side.

The judgment also reinforces the importance of clarity and precision in drafting. Here, the Trust submitted that if it "could identify any non-conformity with the terms of the contract and bring it to the attention of the Independent Tester, he would be bound to refuse to issue a completion certificate if he agreed that the nonconformity alleged did in fact exist … it did not matter whether the nonconformity would or would not adversely affect the amenity value or functional use of the offices." The Trust failed to persuade the court that this was the correct interpretation of the contract.

The lesson is clear - if a party wishes certain conditions to be fulfilled before a practical completion certificate is issued, they need to be clearly spelt out in the contract. This is especially important given the courts guidance regarding practical completion (see above). A related point is the importance of ensuring that a project agreement and construction contract are back to back in relation to completion requirements.

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