Standard forms of contract in Singapore such as SIA, PSSCOC and REDAS typically include contractual dates as part of express requirements imposed by the Employer on the main contractor. These contractual dates are deadline obligations to be fulfilled by the main contractor. This article focuses on different types of contractual dates, where the main contractor shall achieve certain objectively defined physical status of construction works no later than an agreed date or even dates. There may be associated financial consequences for any delay such as being liable for liquidated damages that may be imposed by the Employer.

There are various commercial imperatives behind the desire to impose such contractual dates. From the Employer’s perspective, timely completion of its project could mean timely receipt of rental revenue, ability to sell completed development or avoidance of unnecessary extended financing costs.

Some of these contractual dates should be taken seriously because it carries the metaphorical “teeth” in its enforcement when validly administered. It is usually enforced with the support of various accompanying provisions under the contract. These contractual mechanism ought to be unambiguous and fair.  In general contractual dates have differences in characteristics. It is crucial to understand what are these  differences between contractual dates as such knowledge can be useful whether one is administering a contract, advancing claims or even defending claims. 

Practical Completion Date/ Substantial Completion Date

Practical completion date is the most commonly used contractual date. It is the date by which the contractor is required to substantially or significantly complete the construction project. Practical completion date embodies the five typical characteristics of what constitute a “contractual date”. Most standard forms of contract are drafted with these characteristics in mind and are described in the paragraphs immediately below.

Firstly, contractual date is usually a deadline by which the construction works shall attain certain objectively definable status of work. Completion of a construction project is largely an objectively definable status of work because the completed works would physically represent and manifest the agreed design on drawings and that it can henceforth be occupied by the intended occupants. Save for certain minor defects that do not prevent the completed building from being occupied, the developer could hand over the completed building to its purchaser or that the tenants could commence its own renovation or fit out works to the designated units within the completed building. In this regard, practical completion is largely a definable status of works. 

Secondly, a certification process must ensue for an objective and fair assessment to be made by a certifier appointed under the contract, on whether the stipulated status of work had been achieved by the contractual date. Contrary to popular belief, assessment of status of work can be subjective and requires a certain degree of judgment call. It is not as black and white or binary as what it is often perceived. Practical completion is also known as substantial completion. It meant that the works are practically completed or substantially completed. The terminology used would suggest that the construction works is not fully completed or completed in its entirety. If the landscaping works remain outstanding at the common areas but does not prevent the purchaser from moving into their apartment units, should the main contractor be deemed to have delayed its completion and be liable for liquidated damages? What if the club house, fitness centre or water feature fountain remain incomplete? Do these disamenities qualify for the project to be deemed as being in delay or incomplete? These issues are likely to draw different responses depending on whether one takes a pragmatic view on the situation. This is why the term substantial completion appears to provide some leeway for the certifier to make a judgment call based on the specific set of circumstances. 

Thirdly, there should be mechanism for the stipulated date to be extended under certain grounds, where the main contractor cannot be held liable for excusable delay.  This happens when the construction schedule is delayed at no fault of the main contractor such as change in design by the Employer or inclement weather. In such a case, the main contractor is expected to make an application to the certifier for the practical completion date to be postponed based on an expected period of delay. Whilst on surface this mechanism seem to favour the main contractor for the schedule relief that it gets, in reality the Employer actually benefits. This is because extended practical completion date preserves the Employer’s right to impose liquidated damages in the event of any further delay. Under the law, the Employer could not have insisted on the original practical completion date if it had prevented the main contractor from performing its obligation. The extension of time mechanism addresses this concern.

Fourthly, the failure to accomplish the required status of work by the stipulated date would result in certain adverse financial consequences such as liquidated damages. As alluded to earlier, any delay beyond the practical completion date or extended practical completion date may result in liquidated damages being imposed by the Employer on the main contractor. This liquidated damages represents an anticipated sum of financial damages suffered by the Employer that was pre-estimated and agreed prior to the conclusion of the construction contract.

Lastly, the accomplishment of the objectives associated with the contractual date would result in a corresponding reduction in the scope of responsibility that the main contractor has in respect of the works. Once the construction works are certified to be practically completed, the main contractor’s responsibility is transitioned to that of maintenance, defects rectification and completion of minor outstanding works. With this reduction in the scope of responsibility, the insurance policy coverage in respect of the works changes correspondingly. With this accomplishment, the main contractor would be entitled to half of its retention sum, which typically represents 2.5% of the original contract sum. Any attempt to instruct the main contractor to carry out any ad-hoc or additional works after practical completion would not be advisable given that it would not be covered by the insurance policy. The main contractor is also expected to demobilise its plant, equipment and machineries off site due to a corresponding restriction to site access.

Phase Completion Date

Certain projects that are large in financial value and/ or in floor areas are usually divided geographically in phases or sections. Each phase is contractually treated like a contract of its own with separate commencement date, practical completion date including other consequential contractual treatment such as certification process giving rise to commencement of its maintenance period, cessation of insurance coverage, reduction in scope of responsibilities etc. This is notwithstanding the fact that the parties only entered into one construction contract.

When any one phase of the works is examined on its own, it embodies the five contractual characteristics alluded to in the previous section of this article. In other words, phase completion date is also a contractual date. Firstly, much like practical completion date, a phase completion date is a deadline by which the construction works shall attain certain objectively definable status of work. The geographical location of such phase, including the associated scope of works within such area are usually very clearly defined in the contract document. Upon completion of works within a particular phase, the main contractor hands over the site concerned back to the Employer with proper hoarding to protect the completed works from any on-going construction activities. 

The certification process of assessing whether the phase has achieved practical completion is carried out by the certifier appointed under the contract. Apart from the usual subjectivity that the certifier had to grapple with much like in the case of overall practical completion, there is a unique consideration as regards phase completion. This relates to infrastructural compartmentalisation. This means that in deciding how the overall project should be divided into different phases, one should ensure that upon phase completion, each phase is able to operate and function on its own without any major inter-dependency. Where this is physically not achievable, any completed phase’s operability should at least not be dependent on another phase which has a later phase completion date. Each phase completion date should have its own liquidated damages where damages due to delay to each phase is pre-determined separately. Any delay to a phase would not have given rise to damages if such phase could not be put in operation without the completion of a subsequent phase.

Much like the overall practical completion date, there should be mechanism for the phase completion date to be extended for excusable delays.  Under extensions of time provisions of most standard forms of construction contract, the extensions of time also applies to phase completion date. This extension mechanism therefore preserves the Employer’s right to liquidated damages by extending the completion date on occasions where the Employer may have caused or contributed to the delay. Once a phase of works is certified as practically completed, it will be handed over to the Employer with a corresponding reduction in the main contractor’s responsibility. This then commences the maintenance period for the phase concerned. It is also quite common for the Employer to introduce particular conditions to ensure the maintenance period only ends, usually twelve months after the completion of the final phase of works. This meant that phases of works that were completed earlier would have a longer maintenance period than the final phase of works. Therefore all phases of work would have its maintenance period expiring simultaneously. It should be noted that the commencement and completion of maintenance period also triggers the release of the first half and second half of retention sums. It is likely that certain particular conditions would be included to make certain that the release of first half of retention sum only happens upon the commencement of maintenance period of the final phase of works.

Whilst some may not favour the practice of dividing the project into multiple phases due to the associated logistical and administrative burden, phasing does bring about clear financial advantage to the Employer under the right circumstances. Phasing allows one to prioritise where to deploy construction resources and allow the project to be completed in multiple parts sequentially thereby enabling the receipt of rental income of completed parts of property first. These could ease the property developer’s cashflow by reducing borrowing costs through channeling its rental income to finance the on-going construction works. In Singapore with dense urban environment, most large developments are likely to interface with other adjacent developments particularly those initiated by the public sector. This could mean that certain parts of the development had to be completed earlier for reasons such as to facilitate integration with district cooling system, or creation of underground connection with train stations as well as completion of certain public roads to ease vehicular congestion. These arrangements are likely to be in place as part of the statutory approval for commencement of development. Therefore, phasing becomes inevitable as it pertains to compliance with law and regulations. 

Conventionally phases are necessary if certain parts of the works are required to be completed earlier for reasons described above. In this regard, one query that occasionally arises during construction planning is whether it made any sense to have phases that have identical commencement and completion date. At the first blush, this arrangement does not make any sense since phases with identical commencement and completion date could be bundled or merged together. However there may be merits to having phases despite its identical scheduling requirements especially if the overall works is significantly large. By way of example, under a mixed development which comprises hotel, retail malls and office building with identical commencement and completion dates, it will be prudent to split these three components to separate phases. Apart from the fact that these components have different operational requirements, one should avoid the situation where an isolated delay say in the retail mall implicates the certification of completion of the hotel and office components in the absence of phasing separations. Some may argue that even in the absence of phasing, the Employer could rely on standard provisions of early occupation of parts of the works that is included in most construction contracts. These provisions usually stipulate that the main contractor’s possession of site is non exclusive and is only provided to the extent necessary to facilitate the progress of works. Where parts of the works are completed but are not contractually defined as a phase or section, the Employer nevertheless reserves the right to occupy those required parts even without the consent of the main contractor. Under such situation, the certifier is required to certify those handed over parts as completed and there will be a corresponding proportionate reduction in liquidated damages to reflect the outstanding works. Whilst this may be true, the utilisation of these provisions may cause other residual problems such as the difficulty in making a fair assessment of what should the percentage reduction in liquidated damages. This arises due to the fact that value of works commonly fluctuates during the course of construction due to variation orders and are often negotiated and agreed upon during finalisation of account. Therefore in order to avoid any potential dispute, structuring the works into phases helps even if those phases have identical scheduling requirements.

Stage Completion Date

Whilst phase completion divides project based on geographical sections, stage completion on the other hand divides the project based on construction trades. Therefore stage completion date means the deadline by which certain defined trade or trades of work shall be completed. Such construction trades refers to amongst others mechanical works, electrical works, facade works, brick work, piling works, concreting work, structural steel works, painting etc. 

Stage completion is more relevant for a main contractor that manages multiple trade subcontractors who work in sequence with one another. It is admittedly less relevant for the Employer who relies on the main contractor to sort out the sequences by which the construction works packages shall be arranged and organised. There are also rare exceptions for large developments where the Employer personally takes on the management contractor’s role by engaging various trade contractors directly. These developments are so large, often valued in billions of dollars whereby very few main contractors would have the risk appetite nor capability to single handedly manage such development.

Most standard forms of contract used in the industry are heavily influenced by the needs and requirements of the Employer. Therefore unlike the concepts of practical completion and phase completion which are commonly found in standard forms of contract, stage completion is not often used. Although one would expect the subcontract agreement between main contractor and subcontractor would utilise stage completion more commonly, this is unfortunately not the case because the subcontract forms are usually determined by the choice of main contract forms. By way of example, if the Employer and main contractor enters into an SIA Building Contract in Singapore, the subcontract form used is usually the SIA Subcontract which dovetails with the framework and structure of the main contract. This often ensures some back to back coverage between the main and subcontract. 

In reality most subcontractor are organised by trades and therefore, the completion of works of a trade subcontractor is usually more appropriately defined based on stage completion rather than phase completion or practical completion. In most construction projects, there is a logical sequence of work methodology where the completion of one trade leads to the commencement of another trade. Taking the example of the construction of a commercial building, the completion of the structural concrete works facilitates the commencement of installation of facade panel upon those concrete frames. The completed facade works provides a weather proof environment to enable the commencement of electrical works. In essence, the delay in one trade would have a schedule ripple effect on the subsequent trade. Taking this logic to its natural conclusion, a delay in a trade may cause delay to the overall practical completion date. 

Should liquidated damages be stipulated for any culpable delay to stage completion date? Or should one apply general damages for such stage delay where proof of financial losses is required? There are two competing school of thoughts on this issue. On one hand, the application of liquidated damages provides certainty and clarity of the risk exposure to any trade contractor in case of culpable delay, which in turn allows the trade contractor to submit its tender price based on its own risk assessment. If necessary the main contractor and trade contractor could negotiate for a maximum cap in the total amount of liquidated damages that can be accrued due to delay. On the other hand, not every trades of work are of equal schedule criticality. Certain trades are on main contractor’s critical path where the delay would most certainly cause a corresponding delay to the subsequent trades resulting in an overall practical completion date being delayed. However other trades may be on the schedule’s float which means it is not on the critical path, thereby having certain buffer or tolerance in respect of schedule disruption. In cases where the construction trades are on critical path, any delay by the trade contractor may well cause the main contractor to be liable to the Employer for the full main contract liquidated damages. There are also circumstances where the main contract programme is revised in the midst of the project causing non critical trades to become critical. Given the fluidity of the different permutations in scenarios, it appears that stipulating any liquidated damages to stage completion date can be problematic. In view of this, some argue that general damages would be more appropriate in that it would be extremely difficult to have a reasonably accurate pre-estimate of losses that may be suffered by the main contractor. Whether one decides to adopt the approach of general damages or liquidated damages it requires either drafting of bespoke contract or a fairly significant modification of any existing standard forms of contract. 

Unlike the achievement of practical completion or phase completion, trade completion does not mean that the works are done and can be taken over by the Employer for occupation. Trade completion very often happens in the midst of construction works where the trade works merely had achieved a status that is sufficient for the next trade contractor to take over for its next cycle of works. By way of example, the completion of erection of brick wall  enables the commencement of plastering and painting on the surface of the brick wall. The construction works are not practically completed per se. Therefore the usual accompanying provisions relating to practical completion such as commencement of maintenance period becomes of limited relevance. The maintenance responsibility of the brick works trade contractor is somewhat diminished and impractical once it achieves its stipulated stage completion. It is impractical to stipulate that the brick works trade contractor shall “maintain” the completed brick wall when the surface of such wall is now plastered and painted. As a result of these practical considerations, the usual consequential contractual provisions in respect of maintenance period such as the gradual release of retention sums, the provision of as-built drawings etc had to be abandoned. Once again, the use of phase completion or practical completion under the trade contract works becomes incompatible. The one aspect that is relatively straightforward when it comes to trade contracts is the determination on whether the trade works are indeed completed as it is more self evident.

Statutory Completion Date

As alluded to earlier, the assessment on whether a project had achieved practical completions or phase completions could at times be subjective for  above mentioned reasons. From the perspective of the Employer, the completion of its project should not be subjective. Project completion marks an important date by which the Employer is able to handover the corresponding parts of the building to buyers of apartment units, tenants of commercial units etc. In other words, purely from the Employer’s perspective, the project is not completed until it is fit for occupation. In Singapore, the question of whether a building is considered completed and fit for occupation involves a statutory certification process administered by the relevant authorities. In this regard, there are two commonly used acronyms namely ‘TOP’ which refers to Temporary Occupation Permit and ‘CSC’ which refers to Certificate of Statutory Completion. TOP is issued by the authorities when the development is completed to the extent that the occupants are safe to move in. At this stage, there may be certain outstanding works on common facilities. The CSC is finally issued after TOP when those outstanding works are completed and the development is also found to have complied with all building requirements. In other words, it is a two stage process. This process allows occupants to be able to move into the development earlier without compromising any safety considerations. 

In view of TOP and CSC regime, some property developers favour having the contractual arrangement where the issuance of certificate of practical completion is dependent on the achievement of TOP. This means the adoption of statutory completion date. The advantage to this approach is that it removes ambiguity as to what constitute practical completion and takes the element of subjectivity out of the hands of the certifier appointed under the contract. The disadvantage is that occasionally the TOP may not be issued on time for matters not relevant to the main contractor’s obligations. This is because the consultants such as architect and engineers engaged by the Employer are effectively leading these statutory certification process. If there are administrative paper work errors on the part of the consultants resulting in delay, the main contractor should not be deemed to be in culpable delay. Therefore some may well reasonably argue that it is problematic for the main contractor to shoulder obligations that it could not possibly discharge.

Milestone Date

Finally, milestone dates are often found in construction programme or schedule. These are essentially important dates in that it signifies the achievement of crucial construction activities such as the fulfilment of certain inspection activities, testing and commissioning of plant and machineries, complete approval of mock up units etc. These milestone dates are important because it often involve complex and critical activities that require the presence of the consultants and the Employer’s representatives. However, it does not necessarily mean that the project is completed per se or that certain contractors have fully discharged its contractual obligations. It merely indicates that risky or high profile activity is completed and there could be a corresponding reduction in project’s contingency sum. There are usually no financial ramification to the breach or delay to any of the milestone dates. In this regard, it is considered more “benign” than the other contractual dates discussed above.

Conclusion

The use of contractual dates can be helpful as part of the carrot and stick approach provided it is supported by the necessary contractual provisions and also administered appropriately. One should be discerning and clear about the differences between various contractual dates which often requires a solid appreciation of both construction law and commercial management.



Koon Tak Hong Consulting Private Limited