Finalise the Contract

The process for practical completion depends on the type of contract used. Practical completion is the stage of construction when all the works described in the contract have been carried out. Practical completion allows contractors to hand over a project to their clients since it is complete and fit for use. Practical completion may be issued by the agent or the contract administrator to relieve contractors with the responsibility to insure.

AS 4000

AS 4000 defines practical completion as:

‘That stage in the carrying out and completion of WUC when:

• the Works are complete except for minor defects:
  • which do not prevent the Works from being reasonably capable of being used for their stated purpose;
  • which the Superintendent determines the Contractor has reasonable grounds for not promptly rectifying; and
  • the rectification of which will not prejudice the convenient use of the Works;
• those tests which are required by the Contract to be carried out and passed before the Works reach practical completion have been carried out and passed; and
• documents and other information required under the Contract which, in the Superintendent’s opinion, are essential for the use, operation and maintenance of the Works have been supplied.’¹

AS 2124

AS 2124 defines practical completion as:

‘That stage in the execution of the work under the Contract when –

• the Works are complete except for minor omissions and minor defects –
  • which do not prevent the Works from being reasonably capable of being used for their intended purpose; and
  • which the Superintendent determines the Contractor has reasonable grounds for not promptly rectifying; and
  • rectification of which will not prejudice the convenient use of the Works; and
• those tests which are required by the Contract to be carried out and passed before the Works reach Practical Completion have been carried out and passed; and
• documents and other information required under the Contract which, in the opinion of the Superintendent, are essential for the use, operation and maintenance of the Works have been supplied.’²

Claiming a practical completion

To claim practical completion for either standard there must be:

• a written notice of the anticipated practical completion date (at least 14 days before the expected date of practical completion)
• a written notice of practical completion (when the contractor is of the believes that practical completion has already been achieved).

Defects liability is a liability that the contractor has for any defects after the practical completion period. Defects are the result of works that did not meet the standards and quality specified in the contract.

Types of defects

• Patent defects: these are those which may be discovered right away through inspection or testing.
• Latent defects: these are those that manifest over a period of time.
• Construction defects: these are those that arise from poor workmanship or poor-quality materials.
• Usage damages: these are the damages retained from incorrect operation.

In most cases a defects liability period may last for up to 12 months depending on terms in the contract. This will also depend on the type of contract used.  At the beginning of the period, a written instruction to the contractor will be given to make good of all the defects and a schedule of defects will be submitted. During this period, contractors are able to rectify defects and principals hold security. After the defect’s liability period expires and all the defects are addressed, the contractor may make a ‘final claim’ for any outstanding monies and to request the return of its security.

Once the final claim has been received, the ‘final certificate’ will be issued with the final amount to be paid to the contractor (or vice versa). Once final certificate is issued defects liability is finalised and the contractor will be released from the performance bond.

Finalising contracts will follow your organisation’s legal procedures in accordance with relevant legislation and contract provisions. Contract finalisation is the process followed to form a written contract. The purpose of this is to ensure that all essential elements are in place to conclude a written agreement that protects the rights of the parties involved and clearly outlines the obligations agreed upon. Once you have selected and prepared the appropriate type of contract, you may refer to existing contract templates and should be based on the solicitation documents with subsequent amendments.

A review of the contract should be done with a copy of the draft made available for concerned parties. The procurement officer will need to ensure that contracts are entered into by the organisation in accordance with its general conditions.

Completing the contract work may be proven by issued certificates of the contract administrator. A Certificate of Final Completion will state that the main parties of the construction project and include when the construction project began, when the final date was, and what work was completed, along with the final construction cost that was paid. You will need to collect all related construction contracts and final inspection documentation in order to issue a completion certificate.  Your organisation will most likely have their own policies and procedures for documentation; make sure to consult your supervisor or your HR officer.

Having finalised your contract, it is important to secure documentation arising from its finalisation to ensure that you have a record of the agreement. To complete and secure documentation, make sure that you compile all the essential documents that arise from every negotiation and keep track of all the updates that occurred.  This will include the range of documents that you have compiled throughout the process and those that are attached as annexes. This is essential for any business transaction as it will allow you to have a reference to the original contract. Follow organisational policies and procedures for completing and securing documents for the finalised contract. You may also consult and collaborate with all relevant persons to ensure that you receive any and all documents used for the contract. Documentation can also be evidence for the need for internal policy changes to prevent the same issues from being repeated in the future.

Here are some tips you can follow to be able to document contracts appropriately:

• Record the facts of each transaction
• Note the dates, exact time, and describe the process from the selection to the finalisation
• Essential to documentation is your name, position, department, contact information. You should, as much as possible, be as explicit with the information you provide.
• Include your signature in your statement and the date.
• Make several copies of your report and give a copy to your manager or immediate supervisor and one to the human resources department.
• Keep extra copies of your files, the original drafts and the notarised documents.

Contract finalisation is also a great opportunity to start a strong relationship with your clients. This may be done by integrating the Customer Relationship Management (CRM) system of your organisation. Here are some of the benefits of using CRM systems:

• Track the success of your marketing activities
• Identify and follow up on prospective customers
• Maintain relationships with customers
• Group customers to develop personalised communications
• Analyse which customers engage with callouts, offers or promotions
• Track customer behaviour and purchases of your products or services
• Record contact information and customer feedback.