Taking over provisons: Risky business

When is taking over not really taking over? The latest decision on this, Doosan Babcock Limited vs Comercializadora de Equipos y Materiales Mabe Limitada (with Mister Justice Edwards Stuart – 11 October this year) is a reminder that this issue never goes away – remember Impresa Castelli SpA vs Cola Holdings Limited and Skanska Construction (Regions) Ltd vs Anglo Amsterdam Corp Ltd?

The employer is anxious to get on and takes occupation of elements of the project or parts of the works. Then the fun begins

The scenario is usually the same – project is running late; employer is anxious to get on and takes occupation of elements of the project or parts of the works. Then the fun begins. Can they still insist on liquidated and ascertained damages (LADs); where do the insurance obligations lie and what about release of retention? A performance bond may also expire on practical completion. So a lot hangs in the balance.

The contract may well provide for certain circumstances in which the employer can use the works, without compromising any LADs claim or the contractor’s ongoing obligations regarding insurance, site security, etc. Often in the JCT form this is done by heavily amending the definition of practical completion. It may state practical completion is only where matters of a very minor nature remain incomplete and that prior to that date any occupation by the employer is not beneficial occupation.  

But do these clauses every really work? Even the more detailed and carefully drafted may not assist the employer. The standard taking over provisions in FIDIC red book articulate clearly where the risks lie post taking over or deemed taking over. Should an employer be realistic and accept that gaining access pre taking over or practical completion will involve transfer of risk? And, if not, should they be prepared to take such risks and leave the contractor to complete in accordance with the contract? A tricky one.

Lindy Patterson QC is a partner in Dundas & Wilson