Practical Completion in QLD
- John Merlo
- 16 hours ago
- 14 min read
Practical completion, sometimes referred to as substantial completion, is one of the most critical and frequently misunderstood milestones in any Queensland construction project. It is not simply the end of the job; it is a pivotal transition point where responsibility, risk, and financial obligations shift from the contractor (or builder) to the principal (or owner).
Understanding this milestone is fundamental for builders, contractors, developers, and homeowners across the state, from Brisbane to Cairns. This guide will serve as your definitive resource for navigating the complexities of practical completion, governed by a framework of contract law and key legislation like the Queensland Building and Construction Commission Act 1991.
Key Takeaways
Definition is Key: Practical Completion is reached when the works (whether building works or civil/infrastructure works) are reasonably fit for their intended purpose, even if minor defects or omissions remain—it's not the point at which everything is 100% perfect.
The Contract Rules All: Your construction contract must explicitly define the criteria for practical completion, the process for certification, and the consequences of reaching this milestone.
Handover is a Process: Reaching completion triggers the defects liability period, the release of security funds, and the transfer of risk and insurance responsibility (as set out in the contract) from the contractor (or builder) to the principal (or owner).
Disputes are Common: Disagreements over defects or the completion date are frequent. Understanding the roles of the QBCC and QCAT is essential for dispute resolution.
Understanding the Milestone of Practical Completion
The concept of practical completion is the linchpin of a successful project handover. It represents the moment a project is deemed usable, triggering a cascade of legal and financial consequences. Misinterpreting its meaning or significance can lead to costly disputes and delays.
What Does "Practically Complete" Actually Mean?
In simple terms, a project has reached the practical completion definition when the works are finished except for minor omissions and defects, and the works can be reasonably and conveniently used for their intended purpose. This is a crucial distinction: the project does not need to be 100% perfect or entirely free of defects.
For example, a new home may be considered practically complete even if it has some minor paint blemishes or a dripping tap, as these do not prevent the owner from moving in and using the house (or, in civil projects, prevent the asset from being used for its intended purpose).
This stage of substantial completion is fundamentally about the works being fit for their intended purpose. This contrasts with "final completion," which is the point reached after the defects liability period has ended and all agreed-upon rectifications are finished.
The Legal Foundation in Queensland Law
The milestone of practical completion is legally grounded in both contract law and statutory frameworks in Queensland. At its core, the definition and process are determined by the specific terms agreed upon in the construction contract between the parties.
However, this is overlaid with legislative requirements. The QBCC Act provides a regulatory framework, particularly around builder licensing, standards of work, and dispute resolution. For regulated domestic building contracts, Schedule 1B of the Queensland Building and Construction Commission Act 1991 (Qld) overlays the parties’ contract by prescribing mandatory consumer protections and a statutory framework around “practical completion”.
In particular, Schedule 1B defines “practical completion” for domestic building contracts, so any contractual definition must be read subject to that statutory meaning and related requirements (including the use of a defects document where minor defects/omissions are claimed).
For non-domestic projects (including many civil/infrastructure contracts), the contract’s definition and certification mechanism will ordinarily remain the primary source of what constitutes practical completion.
Why This Single Milestone Carries So Much Weight
Warning: Overlooking the significance of the practical completion date can lead to severe financial and legal consequences for both principals (or owners) and contractors (or builders). This date is far more than just a handover; it is a critical legal trigger.
Reaching practical completion:
Starts the Defects Liability Period: The clock begins ticking on the period during which the contractor (or builder) is contractually obliged to return and fix defects.
Transfers Insurance Liability: The responsibility for insuring the works (and/or the site and completed assets, depending on the contract) against damage typically shifts from the contractor (or builder) to the principal (or owner).
Entitles the Contractor to Final Payment: The contractor (or builder) can now issue their final payment claim and seek the release of a portion of the security held under the contract.
Ends Liability for Delays: The contractor is no longer liable for liquidated damages (penalties for late completion) from this date forward.
The Contract is King: Defining Completion Before You Begin
The single most effective way to prevent disputes over completion is to define it with absolute clarity in the construction contract before any work begins. Ambiguity is the enemy of a smooth handover process.
Drafting an Unambiguous Practical Completion Clause
A well-drafted practical completion clause is essential. It must go beyond a vague statement and detail the specific completion criteria.
Essential elements of the clause should include:
A clear, project-specific definition of what "fit for its intended purpose" means.
A list of conditions that must be met, such as obtaining a certificate of occupancy from a private certifier, approval from relevant authorities, and the provision of all manuals and warranties.
The formal process for the contractor (or builder) to notify the superintendent or principal (or owner) that they believe the certificate of practical completion is due.
The timeframe for the superintendent or principal (or owner) to inspect the works and either issue the certificate or provide a detailed list of reasons why completion has not yet been reached.
These contract clauses form the rulebook that all parties must follow.
The Power of a Detailed Handover Checklist
To support the contractual clause, a detailed handover checklist is an invaluable tool for ensuring objectivity and avoiding disputes. This checklist should be developed and ideally agreed upon by both parties early in the project. The process begins with the contractor (or builder) using the checklist to ensure all requirements are met before claiming completion.
It should include items like:
Testing and commissioning of all services (electrical, plumbing, HVAC).
Provision of all warranties, manuals, and keys.
Removal of all temporary site facilities, waste, and materials.
Confirmation that all authority sign-offs have been received.
During the final inspection, this checklist serves as a guide for the principal (or owner) and superintendent to systematically review the works, turning a potentially subjective assessment into a more objective process.
Are AS 4000 and Other Standard Contracts Enough?
While standard form contracts like the AS 4000 series provide an excellent and widely understood foundation, they are not a one-size-fits-all solution and often require amendment to suit specific project needs in Queensland.
Project-specific requirements, such as unique access conditions on a tight Brisbane CBD site or specialised materials for a coastal Gold Coast property, may not be adequately covered by the standard text. It is crucial that these contracts are reviewed to ensure they align with current Queensland legislation and to add clarity where the standard clauses are ambiguous.
This is a critical point where seeking advice from an expert building and construction lawyer is invaluable to protect your interests before you sign.
Who Decides? The Key Roles in Certifying Completion
Determining whether a project has reached practical completion is not a unilateral decision. It involves a collaborative, and sometimes contentious, process managed by key individuals whose roles are defined by the contract and by Queensland law. Understanding who holds the authority to certify completion is vital.
The Superintendent's Independent Role
In many commercial construction contracts, the superintendent (sometimes called a contract administrator or project manager) plays a pivotal role. This person or entity has a dual function: they act as an agent for the principal (or owner) in managing the contract, but they must also act as an independent and fair certifier when making decisions, such as assessing claims for practical completion.
When a contractor (or builder) submits a notice of completion, the superintendent must assess it based on the specific requirements of the contract, not on the whims or desires of the principal (or owner). They are obligated to act honestly and impartially, a duty that is often tested when there is pressure from the principal (or owner) to delay completion.
Distinguishing a Certifier from the Superintendent
It is a common point of confusion, but the role of a private certifier is distinctly different from that of a superintendent. A private certifier's role is statutory, not contractual. Their primary function is to ensure the building work complies with the Building Act 1975, the National Construction Code, and other relevant standards. They issue statutory approvals and, crucially, the Certificate of Occupancy (or Certificate of Classification), which confirms the building is legally safe to occupy.
In contrast, the superintendent's role is purely contractual. They determine if the builder has met the specific obligations under the contract to achieve practical completion. While receiving a Certificate of Occupancy is almost always a contractual prerequisite for practical completion, it is only one of many conditions the superintendent must assess. A building can be legally safe to occupy but may not yet be "fit for its intended use" as defined in the contract.
What Rights Does the Owner Have in this Process?
Illustrative Example: A Brisbane homeowner, Sarah, was excited to move into her newly built house. The builder submitted a claim for practical completion to the project's superintendent, but Sarah felt the house wasn't ready. There were numerous paint defects, the landscaping was incomplete, and the hot water system was faulty.
Feeling pressured, she reviewed her building contract and realised it gave her the right to provide a list of defects to the superintendent for consideration before the certificate was issued. She documented every issue with photos and submitted her list.
As a result, the superintendent agreed that the faulty hot water system meant the house was not "fit for its intended purpose" and refused to issue the certificate until it was fixed. The paint and landscaping issues were noted as minor defects to be rectified during the defects liability period.
This highlights a key lesson: the owner's role is not passive. You have a voice, but you must exercise your rights through the formal process outlined in your contract.
Managing Defects Before and After Handover
The presence of defects is an inevitable part of construction. The practical completion process is designed not to demand perfection, but to provide a structured framework for identifying, documenting, and rectifying these issues in an orderly manner.
Identifying Defects During the Completion Inspection
The practical completion inspection is a critical event. Typically, the contractor (or builder), the principal (or owner) (or their respective representatives), and the superintendent will walk through the site together.
The purpose is to identify patent defects—those that are obvious and discoverable through a reasonable inspection, such as scratches on a window, a cracked tile, or a door that doesn't close properly. These items are documented on a formal list of defects.
This list is then attached to the certificate of practical completion, forming a clear record of the rectification work the contractor (or builder) is obliged to complete, along with an agreed-upon timeline for doing so.
Entering the Defects Liability Period
The moment the certificate of practical completion is issued, the project officially enters the defects liability period (DLP). This is a contractually defined timeframe, typically 12 months for most projects in Queensland, during which the contractor (or builder) is obligated to return to the site to rectify any defects that arise or are discovered. It is important to note that this is a contractual right for the contractor (or builder) to be given the opportunity to fix the issues. A principal (or owner) who hires another contractor to fix defects during the DLP without first giving the original contractor (or builder) a chance to do so may forfeit their right to claim the cost back. Understanding Queensland's defects liability period is crucial for both parties.
The Challenge of Latent Defects
Warning: A contractor’s (or builder’s) responsibility for their work does not necessarily end when the defects liability period expires. The most challenging issues are often latent defects—flaws in design, workmanship, or materials that were not apparent and could not have been discovered during a normal inspection at completion. These can include things like faulty waterproofing that only becomes evident after years of rainfall, or structural issues that emerge over time.
The QBCC standards and the statutory warranties under the QBCC Act provide longer-term protection for homeowners against such issues, extending for over six years for structural defects. When these complex problems arise, they often lead to significant disputes, and getting guidance from a dispute lawyer is often necessary to understand and enforce your rights.
What Happens When Completion Disputes Arise?
Despite the best intentions and detailed contracts, construction disputes surrounding the date of practical completion are common. Disagreements can arise over the quality of work, the interpretation of the contract, or the timing of the handover, often leading to costly delays and strained relationships.
Common Triggers for Completion Disagreements
Disputes frequently ignite over subjective interpretations of contractual terms.
The most common triggers include:
"Fit for Use" Disagreements: A principal (or owner) may believe the works aren’t fit for their intended purpose due to numerous defects, while the contractor (or builder) argues the issues are minor and do not prevent use (or occupation, for buildings).
Severity of Defects: A conflict can arise over whether an issue is a minor defect to be fixed in the DLP or a major defect preventing practical completion.
Refusal to Certify: A superintendent or principal (or owner) may refuse to issue a certificate, which the contractor (or builder) believes is an unreasonable or tactical delay.
Incomplete Approvals: A contractor (or builder) may claim completion, but a crucial council or authority approval is still outstanding.
The Queensland Building and Construction Commission (QBCC) is the frontline regulator for the industry and handles thousands of disputes annually. According to their reports, 962 disputes occurring before completion in the 2022-2023 period were lodged, highlighting how often disagreements about defective work and completion arise before handover.
The QBCC's Role in Resolving Defective Work Claims
When a dispute over defective or incomplete work arises, particularly in residential construction, either party can lodge a complaint with the QBCC. The QBCC dispute resolution process typically begins with the commission attempting to facilitate a resolution between the principal (or owner) and the contractor (or builder).
If this fails, the QBCC may send a Building Inspector to the site to assess the work against the relevant building standards and the contract. If the inspector finds the work is defective or incomplete, the QBCC has the power to issue a formal Direction to Rectify to the contractor (or builder), compelling them to fix the specified items within a set timeframe.
Navigating this process can be daunting, and a specialist QBCC lawyer can provide crucial assistance in preparing your case and responding to the QBCC.
When is the Matter Escalated to QCAT?
The QBCC's role is primarily focused on building standards and rectification. When a dispute involves broader contractual issues, such as claims for delay costs, disputes over variations, or disagreements about payments, it often falls outside the QBCC's jurisdiction.
In these cases, or when a party wishes to appeal a QBCC decision, the matter is escalated to the Queensland Civil and Administrative Tribunal (QCAT). QCAT is a tribunal that operates like a court and has the power to make legally binding decisions on building disputes up to a certain value.
It's important to understand that resolving matters through QCAT is a formal legal process where evidence is presented and legal arguments are made. It is not an informal mediation, and professional representation is highly recommended.
The Financial Ripple Effect of Practical Completion
Achieving practical completion is not just a contractual milestone; it is a significant financial event that sends ripples through the project's accounts. It triggers the flow of final payments, the release of securities, and the cessation of penalties.
Triggering the Final Payment Claim
The issuance of the Certificate of Practical Completion is the primary trigger that allows the contractor (or builder) to submit their final payment claim. This claim typically covers the remaining balance of the contract sum, plus any approved variations, less any amounts already paid and any funds held as security.
In Queensland, the contractor’s (or builder’s) payment rights under the BIF Act (Building Industry Fairness (Security of Payment) Act 2017) are robust. Once a payment claim is issued, the principal (or owner) must respond within a strict timeframe with a "payment schedule" that either confirms the amount they will pay or details their reasons for paying less. Failure to do so can have serious consequences for the principal (or owner).
The Release of Bank Guarantees and Retentions
Most construction contracts require the contractor (or builder) to provide security, either as a cash retention (where the principal (or owner) holds back a percentage of each progress payment) or as a bank guarantee. The release of security is typically staged. The contract will usually stipulate that half of the security amount is returned to the contractor (or builder) upon reaching practical completion.
The remaining half is held by the principal (or owner) throughout the defects liability period as leverage to ensure the contractor (or builder) returns to rectify any defects. This final portion is released only after the DLP has ended and all agreed-upon defects have been fixed.
Stopping the Clock on Liquidated Damages
Liquidated damages are a critical concept in construction contracts. They are a pre-agreed sum of money (e.g., $500 per day) that the contractor (or builder) must pay the principal (or owner) for every day the project is delayed past the contractual date for practical completion. This is not intended to be a penalty, but a genuine pre-estimate of the principal’s (or owner’s) likely losses due to the delay. The issuance of the Certificate of Practical Completion officially stops the clock on these damages. For a contractor (or builder) on a project that is running late, achieving this milestone is a major financial relief, as it caps their exposure to potentially crippling daily charges.
Conclusion
Practical completion is a complex but manageable milestone when all parties understand its legal and financial significance. It marks the critical transition from a construction site to a usable asset, triggering a cascade of contractual obligations related to payment, defects, insurance, and liability.
The paramount importance of a clear, comprehensive, and well-drafted construction contract cannot be overstated—it is the ultimate source of truth that guides the process and prevents disputes. For specific advice on drafting or reviewing construction contracts, managing a handover, or navigating a dispute, the team at Merlo Law has extensive experience in Queensland's dynamic construction industry.
For further reading, please see our publications hub.
FAQs
Can the principal (or owner) take early possession or use the works before practical completion is certified?
Yes, but only with the contractor’s (or builder’s) explicit written consent. This is called early occupation, and it should be documented in a formal written agreement addressing (at a minimum) the transfer of risk and insurance, access to the site, security and safety controls, and how remaining work and defects will be completed.
If the owner takes early possession without written consent (unauthorised occupation), it can trigger serious contractual consequences—including, under some standard form contracts, “deemed practical completion” from the date of possession—potentially bringing forward final payment rights and stopping liquidated damages.
It can also create insurance coverage disputes and complicate responsibility for damage occurring after possession is taken. Proceeding without this agreement can void the builder's insurance and create significant disputes.
What's the difference between a Certificate of Occupancy and a Certificate of Practical Completion?
A Certificate of Occupancy is a legal document from a building certifier confirming the building is safe and compliant with the Building Code, allowing it to be legally inhabited. A Certificate of Practical Completion is a contractual document that confirms the builder has met all their obligations under the contract for handover. A project can be legally safe to occupy but still not meet the contractual requirements for practical completion.
What should I do if my builder goes insolvent before the project is finished?
Immediately secure the site to prevent loss of materials, then seek urgent legal advice. You will need to formally terminate the contract based on the insolvency clause and prepare to make a claim under the QBCC Home Warranty Insurance scheme (for residential projects). Do not make any further payments to the builder.
Can I refuse to pay the final invoice until every single minor defect is fixed?
Generally, no. The contract usually requires you to pay the final claim upon practical completion, less any security held. The purpose of the defects liability period (and the security held during it) is to ensure the builder returns to fix minor defects. Unilaterally withholding the entire final payment can be a breach of contract, exposing you to legal action from the builder under the Building Industry Fairness (Security of Payment) Act.
What happens if the owner and builder disagree on the list of defects at the handover inspection?
If there is a dispute, the contract's superintendent or administrator should make a determination. If an item prevents the property from being reasonably used for its purpose, it must be fixed before completion. If it's a minor defect, it should be noted on the defects list for rectification during the defects liability period. If no agreement can be reached, either party may need to lodge a dispute with the QBCC or seek legal advice.
This guide is for informational purposes only and does not constitute legal advice. For advice tailored to your specific circumstances, please contact Merlo Law
Comments