Practical Completion: What Does it Mean?
Introduction
At some point near the end of a build, most homeowners get a call or an email from their builder saying the home has reached practical completion. For many people, that sounds like a simple statement: the house is finished. But when you walk through the property and start noticing defects, unfinished items, or things that don’t work properly, it can be confusing.
This is one of the most common times where expectations between homeowners and builders don’t match. From the homeowner’s perspective, the home doesn’t feel complete. From the builder’s perspective, a milestone has been reached and the house is close to handover. The problem is that the phrase practical completion doesn’t mean what most people think it means.
What is Practical Completion?
Practical completion is not really a milestone per se, and it’s more like a trigger for completion and the handover procedure. The term is used predominantly in commercial construction contracts, and has a definite meaning in that context. However, the Domestic Building Contracts Act 1995 (Vic) (‘DBCA’) doesn’t actually define ‘practical completion’, nor do the standard HIA or MBAV contracts.
We’ll go through the handover procedure in a later blog, but it suffices to say that the builder determines that practical completion has been reached subjectively, and there is usually no objective determination.
Why do Builders use the term Practical Completion and Practical Completion Inspection?
Builders use the term as a way to signify that the majority of the works are complete, and that completion is imminent. It also triggers the start of the handover procedure. The term PCI (Practical Completion Inspection) is used ubiquitously throughout Victoria, and may also be known as a pre-handover inspection. At this stage of the build, the owner usually walks through the property and checks for defects and provides a list to the builder. This may seem very similar to the completion and handover procedure in the contracts, but it actually occurs prior to that milestone.
A main reason why builders prefer to use PCI is that is saves them the cost of having to do multiple rounds of ‘touch-ups’ and other defects. It’s easy to understand why, because if the builder was to finish everything to what it thinks is completion without the owner’s input, including having the final clean done, the owner may come through after that and find a big list of defects which have to be fixed in any event. That would mean the builder has to get all the same tradies back more than once (and pay them for doing so) and then re-clean the house. This obviously cost more and delays the handover, and hence the Practical Completion Inspection is done prior to the true Completion stage. It is simply a cost and time saving device.
What happens at Practical Completion?
There is no guarantee of quality once the project reaches practical completion. In fact, it triggers an inspection process where the owner has a chance, and is encouraged, to give the builder a written list of defects. The builder then completes those defects before the handover. This is the stage where many owners will have their independent inspector assess the house and provide the final inspection report to the builder as their final list of defects.
The most important thing for homeowners to understand is that practical completion is not the end of the project, and you should not pay the final claim until you are content that there are no more defects and the house is actually complete. This is usually the point where the builder will want to lock you into a timeframe for the handover. However, perhaps for the first time since the contract was signed, the homeowner usually has the leverage, as the builder will want the final payment paid.
When homeowners understand this stage early, it becomes far less stressful when it arrives. Instead of feeling rushed or pressured, they’re able to recognise what practical completion actually means, what it doesn’t mean, and what steps should come next.