Deemed Practical Completion can have significant implications for Contractors All Risks (CAR) insurance in South Africa, particularly when determining when construction insurance ends and responsibility transfers from the contractor to the employer or principal.

This becomes especially important when a project reaches Practical Completion, Deemed Practical Completion, takeover, completion of testing and commissioning or the Maintenance or Defects Liability Period.

A common assumption is that CAR insurance continues unchanged until the defects liability period expires. In many cases, it does not. The transition from construction risk to operational risk is often where uninsured losses can arise.

What is Deemed Practical Completion?

Under South African construction contracts, including JBCC, FIDIC, NEC and GCC forms, Practical Completion generally means that the works are substantially complete, can be used for their intended purpose and have only minor defects or snag items outstanding.

Practical Completion can have several contractual consequences, including the cessation of late completion penalties, occupation by the employer, reduction of retention, commencement of the defects liability period and transfer of risk.

Deemed Practical Completion occurs where the contract treats Practical Completion as having taken place even though a formal certificate may not yet have been issued.

This may occur where:

• The employer takes possession of the works
• The employer occupies or begins using the works
• A contractual deeming provision is triggered
• Certification is delayed

From a CAR insurance perspective, this distinction is critical. Insurers may focus less on whether a Practical Completion Certificate has been issued and more on what has happened to the risk in practice.

They may consider whether:

• The project was capable of being used
• The employer had taken possession
• The project was providing an operational benefit
• Testing and commissioning had been completed

The existence or absence of a certificate may therefore become secondary to the actual use and control of the works.

Why Practical Completion Matters for CAR Insurance

A CAR policy is fundamentally intended to insure construction, erection, testing and commissioning risks as well as certain third-party liabilities during construction.

It is not intended to operate permanently as a property insurance policy.

Many CAR insurance policy wordings provide that cover for completed works may cease when those works are taken into use following successful testing and commissioning.

Practical Completion can therefore represent the dividing line between construction risk and operational risk.

Construction risks may fall under Contractors All Risks, Erection All Risks or Contract Works insurance. Once completed works become operational, cover may need to transfer to policies such as:

• Property insurance
• Fire insurance
• Industrial All Risks
• Machinery Breakdown
• Business Interruption
• Operational Liability

This insurance transition should be addressed before handover takes place.

How Deemed Practical Completion Can Affect Insurance Claims

Consider a completed shopping centre where tenants have begun occupying the building but minor snag items remain and the formal Practical Completion Certificate has not yet been issued.

If a fire occurs, the CAR insurer may consider whether the building had effectively been handed over and was already operational.

If the employer or tenants had taken occupation and were benefiting from the building, the insurer may argue that the construction risk had ended and that the loss should fall under an operational property policy instead.

A similar issue can arise with installed equipment. If a pump station has been handed over and the municipality has begun operating it, the absence of a final completion certificate may not necessarily mean that CAR cover remains in force.

Contractors should also understand the distinction between defective work and resulting damage.

If a construction defect later causes physical damage, the cost of correcting the defective work itself may be excluded while the resulting damage may potentially be covered, depending on the policy wording.

For example, the cost of correcting a defective weld may be excluded while damage caused by the failure of that weld may potentially be insured.

Policy wording remains critical in every case.

CAR Insurance During the Maintenance and Defects Liability Period

The Maintenance or Defects Liability Period is another area that is frequently misunderstood.

Saying that a contractor is simply “covered during the defects period” can be misleading. In many cases, the contractor may only have limited maintenance period cover.

Maintenance Visits Cover may apply when the contractor returns to site to perform contractual maintenance obligations and accidentally causes damage while carrying out those works.

Extended Maintenance Cover may provide broader protection and can potentially include damage arising from causes that originated during construction or damage discovered during the maintenance period.

However, many policy wordings still exclude the cost of correcting defective workmanship itself.

Contractors, employers and brokers should therefore understand exactly what maintenance extension has been purchased rather than assuming that CAR insurance continues on its original basis throughout the defects liability period.

Managing the Transition from Construction to Operational Insurance

The most important broker intervention point is immediately before Practical Completion, Deemed Practical Completion or handover.

Before construction begins, the contract should be reviewed and the insurance implications of Practical Completion, Deemed Practical Completion, taking over, beneficial occupation, testing and commissioning should be understood.

During construction, completion dates, testing records and commissioning certificates should be kept up to date.

Insurers should also be advised where:

• Completion dates change
• The contract period is extended
• Sections of the works are occupied early
• Beneficial use begins before formal handover

At Practical Completion, a formal insurance transition review should confirm:

• The CAR policy expiry date
• Any maintenance or defects extension
• The actual handover and occupation dates
• Completion of testing and commissioning
• The commencement and expiry of the maintenance period
• Whether operational insurance has been activated

Operational insurance should be arranged before the employer takes possession or begins using the works, not afterwards.

Contractors and project owners should also retain Practical Completion Certificates, handover documents, commissioning certificates, snag lists and occupation approvals.

Early occupation, beneficial use, completed testing, tenant occupation or commencement of production should be communicated to the broker or insurer promptly.

The Key Insurance Principle

The central principle is that Practical Completion does not necessarily mean that CAR insurance continues unchanged.

A building or facility can be operational, occupied and providing an economic benefit while minor defects or snag items remain outstanding.

From an insurer’s perspective, the more important question may be:

When did the contractor cease carrying the construction risk and when did the employer begin controlling and benefiting from the works?

If the employer has taken possession, occupied the works, placed the facility into use or begun operating the plant, an insurer may regard Practical Completion or Deemed Practical Completion as having occurred despite delays in issuing formal certificates.

For South African brokers, contractors and project owners, Deemed Practical Completion should therefore be treated as an important insurance transition point rather than only a contractual milestone.

The period immediately before and after handover should be managed carefully to ensure that appropriate operational property and engineering insurance is in place before the construction insurer can argue that its responsibility has ended.

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