Key points
- Construction contracts typically include conclusivity clauses, containing provisions regarding the issuance of a “final certificate” at the end of a project
- Parties to construction contracts should be aware of their contractual rights and obligations with respect to the issuance and effect of final certificates
- In this article, we outline some practical tips for contractors and principals alike to avoid some of the traps and issues we often see at the final completion stage of projects
Introduction
This article outlines our practical tips for contractors and principals alike to avoid some of the traps and issues we often see at the final completion stage of projects.
The typical function of a Final Certificate
Construction contracts typically include “conclusivity” clauses containing provisions regarding the issuance of a “final certificate” at the end of a project.
The function of a final certificate depends on the terms of the contract. However, typically, a final certificate:
- is issued by the principal’s representative/superintendent following the expiry of the defects liability period;
- evidences the completion of the works and the discharge of the contractor’s obligations;
- identifies the final amount due and payable between the parties and acts as a bar to additional claims by either party; and
- evidences the completion of the superintendent’s role (where applicable).
| Practical Example: Clause 37.4 of both AS 4902-2000 and AS 4000-1997; Clause 42.8 of AS2124-1992. |
Set out below are our top practical tips for contractors and principals to navigate the final completion stage.
Top Tips for Contractors
1. Consider the final certificate regime at the time of entering into the construction contract and get legal advice, where required.
2. At the end of the works, ensure that the date of practical completion is clear and that the certificate of practical completion issued under the contract is without conditions.
3. Diarise the date for issuance of the contractor’s final payment claim and ensure compliance with form requirements set out in the construction contract when issued.
| Practical Example: Under the AS 4000-1997 Clause 37.4 and the AS 2124-1992 Clause 42.7, a final payment claim must be issued by the Contractor within 28 days of the Defects Liability Period, which is usually 12 months from the date of Practical Completion unless stated otherwise in the Contract. |
4. Note the date for the superintendent to issue the final certificate.
| Practical Example: Under the AS 4000-1997 Clause 37.4, a final certificate must be issued by the superintendent within 42 days of the Defects Liability Period, which is 12 months from the date of Practical Completion unless stated otherwise in the Contract. |
5. Make sure all claims are covered in the final payment claim. In AGC Industries Pty Ltd v Karara Mining Ltd [2019] WASC 140, Justice Allanson considered that provisions which bar claims not included in a final payment claim are relatively standard in the construction industry and enforceable notwithstanding that they might produce a harsh result.
| Practical Example: Under the AS 4000-1997 Clause 37.4, the final payment claim can include all other claims whatsoever in connection with the subject matter of the Contract. |
6. If you do not agree with the final certificate, immediately serve a notice of dispute in accordance with the formalities and the timeframe stipulated under the contract.
| Practical Example: Under the AS 4000-1997 Clause 37.4, this timeframe is 7 days. Under the AS 2124-1992 Clause 42.8, this timeframe is 15 days. |
7. If:
- you do not agree with the final certificate;
- no final certificate is issued; or
- the principal fails to make payment of amounts due pursuant to the final certificate,
consider submitting an application for adjudication under the Construction Contracts Act 2004 (WA) (within the timeframe stipulated in the Act which is currently 90 Business Days from the date of the ‘payment dispute’ but may become significantly shorter due to expected legislative change).1
Top Tips for Principals
1. Adopt tips 1 – 4 for contractors above, noting that the principal/superintendent usually has the ability to issue its final certificate even where a final payment claim has not been issued by the contractor.
| Practical Example: under the AS 4000-1997 Clause 37.4, the superintendent is permitted to issue a final certificate within 42 days after the expiry of the last defects liability period, regardless of whether or not the contractor has provided the superintendent with its final payment claim. |
2. To avoid any doubt, ensure the final certificate is in writing and is clearly stated to be a final certificate issued under the relevant provision of the contract. Note that final certification may arise by implication or be given orally, but that is less than ideal.
3. Ensure that the final certificate does not contain matters left for further consideration or require further rectification. In Ian Delbridge Pty Ltd v Warrandyte High School Council [1991] 2 VR 545, a final certificate accompanied by a letter referring to outstanding rectification works and contemplating a further review of the claim once the contractor submitted certain information was held not to have the effect of a final certificate as contemplated by the contract as it referred to incomplete works and defects that had not been rectified.
4. Consider whether the principal has any entitlement to liquidated damages or other set-off entitlement that should be included in the final certificate. The net final sum due may be payable to the contractor or the principal.
5. Should the contractor fail to pay amounts due to the principal, consider whether to submit an application for adjudication in respect of that claim under the CCA (subject to the expected legislative change noted above in contractor tip 7 which may diminish a principal’s entitlement to do so).
6. Where either party has applied for an adjudication determination under the CCA, seek advice as to whether you will be able to rely on the effect of the final certificate in your reply.2
7. Be aware of the exceptions that may affect a final certificate’s ultimate contractual effect. A final certificate typically does not in itself bring an end to a principal’s entitlement to claim damages for latent defects for example.
| Practical Example: Under AS 4000-1997 Clause 37.4, the final certificate ‘shall be conclusive evidence of accord and satisfaction…’ except for:
|
This article was written by Kate Morrow, Partner and Michael Harris, Senior Associate.
