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Practical completion is an important milestone in the building process. It determines when the risk for insuring the works passes, when the defects liability period starts and whether you are liable to pay liquidated damages. It also determines when you get final payment.
Reaching practical completion also “triggers” the commencement of both the statutory warranty period under the Home Building Act 1989 and insurance under the Home Building Compensation Fund (HBCF). This is a 2-year warranty period for minor defects and 6 years for major defects. These time frames commence from when the works are completed under the contract.
“Practical completion” means when the building works are complete except for minor omissions and defects that do not prevent the building works from being reasonably capable of being used for their usual purpose.
If you are not sure whether any omissions and defects are “minor” or may prevent the works from being used for their usual purpose, you should contact your HIA workplace adviser or building and technical advisor for guidance.
At least 5 days before you actually reach practical completion you must give your client a notice of practical completion. The notice must:
When you meet your client on site to inspect the works, your client must either:
If your client pays the final progress claim, the date of practical completion is that stated in your notice is deemed to be the date of practical completion.
If your client gives you a list of items they think need to be done for the works to reach practical completion you can either:
If the client does not pay the final progress claim and does not provide you with a notice that disputes practical completion:
Final payment is due and payable upon practical completion of the scope of works under the contract.
HIA contracts do not require the builder to obtain the final Occupancy Certificate (OC). While the builder may be undertaking the majority of the project, you may not necessarily be responsible for all things required to obtain OC. For example, the owner may want to do their own painting or landscaping. In this case, the builder would not include obtaining OC as part of their scope of works as they will not be able to reach practical completion and claim final payment until all this additional work is completed.
In the event that the builder is undertaking responsibility for all the works and has agreed to obtain OC, then the clause can be amended by a special condition.
Under the HIA contract, handover occurs once practical completion has been reached.
It is only after payment of the final progress claim that the keys and other relevant documents to the building works are provided to the owner. Examples of what may be required to be provided include:
HIA also provides a Complete Home Owner’s Manual and Checklist that you can provide to your clients that outlines the owners’ duty of care and maintenance requirements.
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No matter the size of the job, a watertight building contract is critical to protect your business, and the current climate presents a great opportunity to go digital with your contracts.