The purpose of the procedure is to ensure that key issues during the Project Completion stage of the construction cycle are administered in accordance with the Main Contract, including:
– Taking Over Certificates
– Defects Liability
– Final Payment Application/Certificates
For the administration of Monthly Statements/Applications and Certificates refer to procedure for Contractor’s Monthly Statements. This procedure is part of project commercial management package.
Reference Documents
Main Contract Administration – Contractor’s Monthly Statements
Bonds and Bank Guarantees (Outgoing)
Bonds and Bank Guarantees (Incoming)
Legal and Contractual Issues
Letter Samples:
(1) Application for Taking-over Certificate
(2) Statement at Completion
(3) Application for Defects Liability Certificate
(4) Issue of Draft Final Statement
(5) Issue of Written Discharge
(6) Final Statement and Written Discharge
Definitions and Abbreviations
Contractor Monthly Statement/Application Certificate: any certificate of payment issued by the Engineer other than the Final Payment Certificate.
Contractor’s Notice of Substantial Completion: a notice, which triggers the project completion and close out scenario and which generally notifies the Engineer/Employer that in the main contractor’s opinion the Works have been substantially completed and the Contract tests for completion have been satisfactorily passed. It also clearly identifies any remaining outstanding works to be completed within the Defect Liability Period.
Contractors Written Discharge: issued upon submission (Fidic clause 60.7) of the (agreed) Final Statement (Fidic clause 60.6)
Defect Liability Period: the period stated in the Main Contract that commences when the Taking Over Certificate has been issued to the main contractor (Fidic clause 49.1 and Appendix to Tender).
Defect List: a list that is normally prepared by the Employer/Engineer that sets out all the defective works that need to be completed during the Defect Liability Period.
Defect Liability Certificate: the certificate issued by the Engineer to the Contractor at expiration of the Defect Liability period, stating the date on which contractor completed their obligations under the Main Contract (Fidic clause 62.1).
Engineers Final Certificate: the document issued by the Engineer to the Employer approving final payment to the contractor (Fidic clause 60.8).
Final Payment Certificate: issued by the Engineer (Fidic clause 60.87) after receipt of (agreed) Final Statement (Fidic clause 60.6) and the written discharge (Fidic clause 60.7)
Final Statement (Agreed): issued by the Contractor to the Engineer following the issue of the Defect Liability Certificate (Fidic clause 60.6), which shows in detail the (agreed) final account value
Final Statement (Draft): issued by the Contractor to the Engineer following the issue of the Defect Liability Certificate (Fidic clause 60.6), which shows in detail the (draft) final account value.
Main Contract: the suite of documents which have been listed and are contained within the Main Contract Agreement.
Retention Money: the aggregate of all monies retained by the Employer under the Contract (Fidic clause 60.2).
Statement at Completion: the statement submitted by the Contractor to the Employer that states/gives details of the Final Account (Fidic clause 60.5).
Taking-Over Certificate: the certificate issued by the Engineer which states the date on which the Works achieved Substantial Completion in accordance with the Contract, and from which date the Defects Liability Period shall commence (Fidic clause 48).
Responsibilities
The following personnel have responsibilities mentioned in this procedure:
– Managing Director (MD)(CONTRACTOR)
– Corporate Commercial Director (CCD)
– General Manager (GM)
– Divisional Commercial Manager (DCM)
– Project Director (PD)
– Project Commercial Manager (PCM)
– Finance and Accounting Manager (FAM)(CONTRACTOR)
– Corporate Finance Director (CFD)
Project Completion & Handover Procedure
Taking Over Certificate
a) The PD is to vigorously pursue the issue of the Taking-Over Certificate from the Engineer at the earliest possible tim
b) The issue of the Taking-Over Certificate signifies a critical stage in the construction process as it triggers three (3) very important events:
i. Commencement of the Defect Liability Period (see Section 2; Defects Liability)
ii. Release of liability for further liquidated damages being levied against the Contractor iii. Release of „part of the retention‟ (see Section 4.3; Final Payment)
c) The Contractor must not hand over the Project to the Employer until the Taking-Over Certificate and associated documents (Defect List etc) have been received, reviewed and agreed with the Employer/Engineer as being, “full and final‟.
Six (6) Month Pre-Completion Checklist
a) The PD/PCM shall prepare a checklist of actions 6 months in advance of the original Time for Completion of the Works, in preparation for Substantial/Practical Completion of the project.
b) This shall be completed for any “Sections” within the Works or any other Milestone or trigger for Liquidated Damages.
c) These checklists shall address the following contract requirements:
i. Verification of Commencement Date
ii. Due Date for Completion versus Projected Date for Completion
iii. Extensions of Time notified / substantiated / awarded
iv. Tests on Completion to be identified / carried out / witnessed v. As built drawing submittal requirements
vi. Operation and Maintenance Manual requirements. vii. Snagging requirements and procedures
One (1) Month Pre-Completion Checklist
a) The PD/PCM shall prepare a checklist one month in advance that addresses the status of the items identified in the 6-month checklist, as well as any issues that have come to light since then in the run up to application for Taking-Over Certificate.
b) This will be required to be done for any “Sections” within the Works or any other Milestone or trigger for Liquidated Damages.
c) PD/PCM shall forward these one month checklists to DCM /CCD and the Corporate Commercial Department (CCD) for their review and the DCM /CCD will advise on any issues that may affect the successful application for Taking-Over Certificate.
Application for Taking-Over Certificate
a) The PD/PCM shall;
i. Forward a draft Application for Taking-Over Certificate (see sample in Appendix A) based on the standard letter to DCM / CCD for review and response. The DCM /CCD shall respond within 48 hours.
ii. Formally issue the Application for Taking-Over Certificate as soon as possible following DCM/CCD approval or comments.
iii. Follow up with Engineer to either;
- Obtain the Taking-Over Certificate within 21 days of application; or
- Secure the Engineer‟s rejection stating reasons why within 21 days of application; or
- If no response received within 21 days, then advise DCM / CCD who will write to Engineer advising that the works / section are deemed to be Taken Over.
b) Should the Engineer refuse to issue the Taking-Over Certificate, then advise DCM / CCD accordingly, and refuse to issue keys / allow Employer use of the Building until such Taking-Over Certificate is issued by the Engineer.
Following Receipt of Taking-Over Certificate
The PD/PCM shall;
i. Submit Statement at Completion (see sample in Appendix B) within 84 days, but in any event, as soon as possible.
ii. Apply for first release of retention.
iii. Advise the CCD to reduce insurance coverage in line with contract and policy requirements and ensure Defect Rectification Cover is properly effective.
iv. Advise the CFO/CFD to action reduction of any bonds that expire / reduce upon issue of the Taking-Over Certificate.
v. Attend to Defects as expeditiously as possible.
Employer Partial Possession/Beneficial Use
Most contracts provide for Employer’s partial possession and use of completed areas of the Works in advance of Completion of the Whole of the Works. Should an Employer request such advance use or elect to occupy, then the PD/PCM shall;
i. Immediately prepare a draft application for Taking-Over of such element of the works and forward to the DCM /CCD for review.
ii. Formally issue the Application for Taking-Over to the Engine
iii. Follow up the Engineer’s issue of Taking-Over Certificate BEFORE the Employer takes such partial possession or beneficial use.
iv. Request evidence of the Employer’s insurances in advance of any such use or occupation.
v. Apply for any release of retention due against such element of the works.
vi. Advise the CCD to adjust insurance coverage in line with contract and policy requirements and ensure Employer’s “operational policy” is properly effective.
vii. Advise the CFO/GM to action reduction of any bonds that expire/ reduce upon issue of Taking –Over Certificate.
viii. Attend to Defects as expeditiously as possible.
Defects Liability Procedure
Application for Defects Liability/Performance Certificate
The PD/CM shall;
i. Forward a draft– Application for Defects Liability Certificate (see sample in Appendix C), based on the standard CONTRACTOR letter to DCM/CCD for review and response.
ii. Formally issue the Application for Defects Liability Certificate following DCM/CCD approval or comments.
iii. Follow up with Engineer to either;
- Obtain the Defect Liability Certificate (DLC) within 21 days of application, or
- Secure the Engineer’s rejection stating reasons why within 21 days of application or;
- If no response received within 21 days, then advise DCM/CCD who will review situation and advise further actions.
Following Receipt of Defect Liability Certificate
The PD/CM shall:
i. Apply for final release of retention.
ii. Advise CCD to cancel insurance coverage in line with contract and policy requirements.
iii. Advise CFO to cancel any bonds that expire upon issue of
iv. Request DCM / CCD assistance in the preparation of Issue of Draft Final Statement (see sample in Appendix D) and Issue of Written Discharge (see sample in Appendix E) to be provided to the Employer with the “Final Statement”
v. Submit the Draft– Issue of Draft Final Statement, Issue of Written Discharge and Final Statement and Written Discharge within 56 days, but in any event, as soon as possible.
vi. Action any reasonable requests from Engineer for further information regarding the Final Statement.
vii. Follow up the Engineer’s issue of “Final Payment Certificate” within 28 days of issue of Final Statement and Written Discharge, and copy same to DCM /CCD.
Final Payment Procedure
Retention Release
To protect the Contractor’s interests, the PD or nominee shall:
i. Ensure that once the Taking Over Certificate has been issued a Monthly Statement/Application is submitted to the Employer/Engineer for retention monies, usually 50% (Fidic clause 60.3 and or stated in the Appendix to Tender), additional variation revenue stipulated in the Main Contract.
ii. Ensure that once the Defect Liability Certificate has been issued a Final Payment Certificate is submitted to the Employer/Engineer for the remaining retention monies and additional variation revenue if applicable.
iii. Ensure the date for the expiry of the Defect Liability Period is recorded so that the remaining retention monies can be claimed at the appropriate time.
iv. Ensure a copy of all Contractors Statement at Completion and Contractors Final Statement (both draft and agreed) go to the FAM /CFD.
v. Liaise with FAM to ensure all retention monies have been received. If there is late or non-payment the DCM/PCM is to engage the Employer/Engineer to find out the reasons and to seek remedy.
Final Account Statement (Statement at Completion)
To protect the Contractor’s interests, the PD or nominee must:
i. Ensure that within a period stipulated in the Main Contract a Statement at Completion (Final Account Statement), with supporting documents is issued to the Employer/Engineer. The Statement at Completion should contain the value of all work done and work that is going to be done (estimates to be provided for record) in accordance with the Main Contract up to the date stated in the Taking Over Certificate (Note: not as per Fidic clause 60.5, also estimate the amounts, which will become due to the Contractor)
ii. Ensure the Employer/Engineer acknowledges receipt of the Statement at Completion and certifies payment accordingly.
Final Payment Certificate (Fidic clause 60.8)
To protect the Contractor’s interests, the PD or nominee must:
i. Ensure the Engineer issues the Engineers Final Payment Certificate to the Employer for the agreed value based on the Final Statement.
ii. When submitting the Final Payment Application, the PD/CM shall submit in writing confirmation that the total of the Final Payment Application represents full and final settlement of all moneys due (Note: Fidic requires written discharge, clause 60.7)
iii. Refer any disputes that cannot be resolved at “project level‟ to contractor’s (GM/DCM /CCD) where a decision to advance to Arbitration or Litigation in accordance with the procedure of Legal and Contractual Issues can be taken.
iv. After receiving the Final Statement and written discharge, the Engineer should issue, to the Employer, the Engineers Final Payment Certificate which shall state the amount which is finally due and the balance (if any) due from the Employer to CONTRACTOR (or vice versa)
Bonds and Guarantee Procedure
Once the Taking Over Certificate has been received, the Contractor (PD) must ensure that all the Bonds, Bank Guarantees and applicable Warranties are closed out in accordance with the procedure of Bonds and Bank Guarantees (Outgoing) and Bonds and Bank Guarantees (Incoming).
Necessary Records
Application for Taking-Over Certificate
Statement at Completion
Application for Defects Liability Certificate
Defect Liability Certificate Issue of Draft Final Statement Issue of Written Discharge
Final Statement and Written Discharge
Contractors Monthly Statement Application Schedule
Checklist of Actions for completion of the works