Project finance—meaning of completion and its effect
Project finance—meaning of completion and its effect

The following Banking & Finance practice note provides comprehensive and up to date legal information covering:

  • Project finance—meaning of completion and its effect
  • Defining completion in a project finance transaction
  • Technical tests
  • Additional conditions
  • Certifying completion in a project finance transaction
  • What changes at completion in a project finance transaction?
  • Key consequence of failing to reach completion of a project on time

Projects involving the development of a new asset or facility (known as 'greenfield' projects) are generally split into two phases: construction and operation. In a project finance transaction, completion marks the end of the construction phase of the project and the start of the operating phase.

This Practice Note explains how completion is defined and tested and what effect it has on the project.

Defining completion in a project finance transaction

The way completion is defined tends to vary. For example, it can be referred to as:

  1. 'practical completion' (common in real estate projects)

  2. 'economic completion' (common in mining projects)

  3. 'construction completion' (common in infrastructure projects), and/or

  4. 'mechanical completion' or 'ready for start-up' (common in oil and gas projects)

The way completion is defined is very important to project lenders and the project participants. A number of things about the project will change at completion so the definition has to be as precise as possible and it must deal with everything that each party considers necessary to enable it to conclude that the project is complete.

For some projects, the definition of completion in the finance documents will cross-refer to the same (or equivalent) definition in the construction contract. This means that when the project is considered to be 'complete' as between the construction contractor and the project company (the borrower), it is also complete for

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