When the Main Contractor believes that the works are complete, a handing over request should be submitted to the client in order to deliver the works to the client and receive a Taking Over Certificate (TOC).
What is TOC Meaning in Construction?
A Taking Over Certificate (T.O.C.) is an acknowledgment that the job has been completed to a greater extent and that it is safe for occupation. On other contracts, it is known as a Taking Over Notice or a Certificate of Practical Completion.
Taking over Certificate refers to a certificate issued by the client to the contractor certifying that the works to which the certificate relates have been completed properly and are ready for use by the client.
Normally, snagging comes before the issuance of a TOC. The Engineer inspects the work and, if satisfied that it has been done to a greater extent, he can issue a T.O.C. Work may not be completely finished, but it is substantially completed and suitable for occupation.
The outstanding work is noted on the TOC, but more importantly, the Engineer approves the release of the first half of the retention money at this stage.
When does Taking Over Certificate appear in construction?
When the contractual requirements for the works to be considered “complete” have been satisfied, taking over usually occurs.
Contracts should clearly specify what needs to be done in order for the employer to approve the work. While specific requirements can vary depending on the nature of the project, common requirements include that the works can be used for their intended purpose (despite minor defects), that all completion checks have been passed, and that all required approvals for the works to be used have been obtained.
The completion tests differ depending on the nature of the project. Works with a significant mechanical and/or electrical component (such as processing plants) are typically taken over only if the facility is both physically complete and all mechanical and commissioning tests have been passed, while power plants typically need to meet specified levels of heat rate (i.e. the efficiency with which the power plant produces energy from a unit of fuel) and output (i.e. the amount of energy produced by the power plant per unit of fuel).
Importance of TOC in Construction
Perhaps the most significant implication is that, upon taking over, the project could have become a revenue-generating asset.
Further to that, possession of and risk in the works is passed from the contractor to the employer upon takeover. As a result, it is critical that the employer ensures that it has adequate insurance for the works (i.e. for loss of usage, damage, and destruction) on the date of the takeover, as the contractor’s insurance obligations will cease.
If the works are taken over after the contractual time for completion has exceeded and delay damages have become due, the contractor’s obligation to pay delay damages will be ceased.
Taking over can also have a significant impact on the contract’s performance security. For example, the value of the performance bond will be reduced (by 50%), while a percentage of the retention monies (usually half) must be paid to the contractor.
Deemed Taking Over
Even if the works have not achieved the state to be taken, parties should be aware that under such cases, the works might be ‘deemed’ to have been taken over.
Sub-clause 10.2 of the FIDIC 1999 Red Book, for example, states that works are deemed to have been taken over if they are used or occupied (other than on a temporary basis agreed upon by the parties) by the employer prior to the issuance of the taking over certificate.
This is because the employer’s use or occupation of the works demonstrates adequate completion of the facilities, and the employer’s use or occupation of the works can cause damage or disruption for which the contractor can’t be held liable.
In such cases, it may become commercially important for the employer to engage in commercial activities using the facility (for example, to accommodate a lucrative order or to host a one-time event) even though the facility does not meet the contractual requirements for it to be taken over. Regardless of other factors, this method can be used only if all legal consents and permits for the use or occupation in question have been obtained.
In this case, the employer might consider splitting the works into parts and then taking over different parts to avoid the possibility of the whole work being considered to have been taken over (but not the entire works).
If this approach is not viable (for example, since the entire works must be used or occupied), the employer should consider issuing express qualifications stating that its use of the facilities is a temporary measure that should not be construed as taking over due to specified defects or incomplete works.
However, we believe that the underlying contract will need to include precise bespoke drafting to allow the employer to confidently take this action without the contractor being able to firmly claim that the works should be considered to have been taken over.
Taking Over Certificate Sample Letter
In accordance with the terms of the contract under the above reference (“the Contract”), it is certified that all the obligations of the Contractor in respect of the Taking Over of the Goods in accordance with the requirements of the above Contract have been fully discharged.
Enter details of tasks completed and consider the need for Interim Certificates.
Name and Title of Authorised Signatory:
(Authorised Signatory for the End-User)
Other features of a T.O.C can include instructions to complete outstanding works, acknowledgment of as-built drawings handed over to the Client, and the agreed-upon snagging list. Furthermore, warranties and manuals for installed equipment that has been handed over to the Client can be acknowledged.
Finally, there is no doubt that the issuance of a T.O.C is a significant part of a project. It resolves several issues, and every Contractor is satisfied when a T.O.C is issued.