Delay to Mechanical Completion

Disputes often erupt over the definition of Mechanical Completion. The contract usually defines the contractual Mechanical Completion date as the date from which liquidated damages are measured if the contractor does not complete on time. It is also the date from which the contractor will measure its delay damages if actions or inactions of the owner extend its work.

The owner’s definition of the work required to achieve Mechanical Completion is often more inclusive than what the contractor deems necessary. The contractor may attempt to declare that Mechanical Completion has been achieved, and the remaining work is either punch list work or work not necessary to start up the facility. Unless the contract specifies all that is required for Mechanical Completion, delay claims and liquidated damages counterclaims can sour the completion of an otherwise successful project performance by the contractor.

An example of a contract clause with a very specific definition of Mechanical Completion follows:

“Mechanical Completion” or “Mechanically Complete” shall mean that each of the following conditions have been met (except as to minor items of Work that would not affect the performance or safe operation of the Plant such as final insulation, final painting, final cleanup, final grading, and any portion of the work which does not affect the operability, safety, and mechanical and electrical integrity of the Plant):

(a) The Plant has been physically constructed in accordance with the Agreement (including, without limitation, the specifications and AFC drawings);

(b) No defective or incomplete portions of the Work exist that can be expected to negatively impact the reliability, safe operation, and specified output of the Plant;

(c) Completion of all remaining Work by the Contractor will not interrupt, disrupt, or interfere with the successful start-up of the Plant;

(d) All materials and equipment have been installed in accordance with the Agreement (including, without limitation, the specifications and AFC drawings), and successfully checked for alignment, lubrication, rotation, hydrostatic and pneumatic integrity by first preparing all hydrotest packages according to the requirements and specifications and successfully completing all hydrotests, and are Mechanically Complete;

(e) All power to equipment, controls, and phase loading have been successfully checked and all electrical equipment is complete and operational;

(f) Field control devices have been successfully checked;

(g) All systems required to be installed by the Contractor have been installed and successfully tested;

(h) The appropriate systems have been flushed and cleaned out;

(i) All the equipment and systems can be operated in a safe and prudent manner, have been installed in a manner that does not void any equipment or system warranties, and may be initially operated without damage to the Plant or any other property and without injury to any persons;

(j) The Plant is ready for testing, adjustments, and operations in a safe manner and in accordance with all the requirements of this contract and its exhibits;

(k) A Punch List of the uncompleted items shall have been established and mutually agreed upon by the Owner and Contractor, provided that Owner may at its sole discretion at any time waive completion of certain Punch List items;

(l) All turnover documents have been completed and submitted to the Owner in a manner and completeness required by the contract and its exhibits and acceptable to the Owner; and

(m) Owner has issued a letter or letters certifying that Mechanical Completion has been achieved.

An owner should consider the above definition and provide specificity of the work that it requires the contractor to complete to achieve Mechanical Completion. The contractor should review the owner’s Mechanical Completion requirements not only to include in its bid price the work hours, materials, and equipment to achieve these requirements but also to adequately schedule this work to avoid delay and associated liquidated damages to the Mechanical Completion of the project.

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