Howard S. Stevens Wright, Constable & Skeen, LLP
Baltimore, Maryland 21201
ARE WE THERE YET? More often than not in a construction project, at least one of the many players in a construction project asks the age old question: “Are we there yet?” referring of course
to Substantial Completion. Under the AIA family of contract documents, the Consensus Docs, and
basically any other contract that has any level of sophistication to it, the term “substantial completion” is used to describe a point in the project with wide legal implications. In fact, reaching (or missing) Substantial Completion is so critical to most projects, that the definition of Substantial Completion is provided for in the AIA Series of documents as its own subsection.
The current form of the A201 (2007) defines Substantial Completion as follows:
“§ 9.8.1 Substantial Completion is the stage in the progress of the Work when the Work or designated portion thereof is sufficiently complete in accordance with the Contract Documents so that the Owner can occupy or utilize the Work for its intended use.”
Taken at face value, Substantial Completion is pretty straight forward in that it reflects a point in the Project when the work is sufficiently completed such that the authorities having jurisdiction over the construction of the project would permit occupancy and use of the space by the owner. In addition, to elation of the parties, it is the time in the Project when the they see the light at the end of the tunnel and for the first time it may not be a train coming at them! The practical aspects of reaching Substantial Completion have significant implications, not only in terms of turning the project over for use, but financially as well.
For instance, Substantial Completion is almost always the point in time when the Owner and the Contractor alike “stop the clock” on accruing any damages that they may claim on account of project delay. If the Project is behind schedule, Substantial Completion may also be the point when the Architect’s claims for Additional Services for Construction Administration may also stop. The stopping of the clock is applicable to essentially all time-related damages, including consequential damages for delay or liquidated damages, depending on what is stated in the contract. In addition, Substantial Completion is typically the time when insurance obligations for protection of the “work” transfer from the Contractor (for instance under a builder’s risk policy) to the Owner under a permanent commercial general liability or premises insurance policy. Under 9.8.4 of the A201 (2007), Substantial Completion is the time when the Owner assumes responsibility of site security, maintenance, heat, utilities, damage to the Work, and unless specific provisions are included in the contract, warranties required by the contract documents will commence.
The achievement of substantial completion could be the start each party’s rights under dispute resolution provisions under the contract (for instance to initiate mediation of outstanding disputes or proposed change orders), and limitations on claims (either by statute or by agreement) may also start with regard to the work in place. Under 12.2 of the AIA 201 (2007) Substantial Completion is the start of the one year period under which the Contractor may be obligated to correct any work
discovered that is defective during this one year period (which may track a one year general warranty on the work), and the milestone may also be the start date for any statute of repose for claims for latent construction defects.
In most cases, Substantial Completion is determined by the Architect upon the request of the Contractor, and with the concurrence of the Owner. Under the AIA Series of contract documents, the Architect typically issues a Certificate of Substantial Completion (AIA Document G704) which is a tri-partite agreement signed by the Architect, Contractor and Owner. Often the Certificate of Substantial Completion is accompanied by the list of known punchlist items, which when acknowledged by all parties, greatly reduces the likelihood of continuing disputes on what work still needs to be accomplished to the satisfaction of the Owner and Architect in order for the Contractor to reach Final Completion. Incorporation of all known punchlist items or issues that need to be completed or reworked permits the parties to each understand and acknowledge their outstanding obligations prior to reaching final completion of the project, and it allows the parties to establish an agreed upon schedule and time frame for completing the outstanding work.
In addition to documenting outstanding work items, incorporating the punchlist into the Certificate of Substantial Completion allows the parties to adjust the amount of retainage being held against the Contract amount. With the punchlist in hand, Architect makes a determination of the value of the work left to be completed so that the Owner can withhold the appropriate amounts to complete the project in the event the Contractor fails to do so. In light of this purpose for issuing a Certificate of Substantial Completion, the role of the Architect in certifying Substantial Completion should not be taken lightly so that the Owner is not put in a position of financial risk to complete the project. After Substantial Completion is achieved, the parties turn their collective attentions to Final Completion. How vigorously, and cohesively, the parties work towards Final Completion will vary from project to project, and party to party, because the factors controlling this period between Substantial Completion and the “end” of the Project can vary widely. For example, if the punchlist is small and the Owner’s goal it to take over the space and not be interrupted by the Contractor’s forces finishing the items on the punchlist, the period between Substantial Completion and Final Completion may be drawn out. Other factors that influence how long Final Completion takes includes the financial condition of the Owner (i.e. are they in a position that disbursing all remaining retention is not immediately practical or possible), or is the punchlist so extensive that completing it to the satisfaction of the Owner and the Architect is no small feat. The mood of the Project also impacts how long Final Completion may take. For example, if the Architect has fully exhausted the entire Construction Administration budget dealing with claims, or responding to extensive requests for additional project information, then the Architect may be less proactive to help, or less willing to expend additional resources, to see the project through to the end. On the other side of the coin, the Contractor and its forces may be focused on the next project, meaning that this Project is in the rearview mirror.
Whatever factors may exist, under the AIA series of documents Final Completion is the time when all of the work under the Contract has been fully performed, and all project close-out documentation has been received by the Architect and Owner. See e.g. §9.10 of the AIA A201 (2007). The typical project documentation includes written warranties, operation and maintenance (O&M) manuals and documentation, certified payrolls and final lien waivers (when required), and other documents that the parties’ have determined are required under the Contract. Aside from the Architect’s certification of Final Completion, the Architect is often required to provide certain
“certificates” to the Owner and/or its lender(s) that certify (within the bounds of the appropriate standard of care) that the Project as constructed conforms to the Contract Documents, applicable codes and regulations, and zoning requirements. The Architect's Final Certificate for Payment will constitute the Architect’s acknowledgement that all conditions necessary to issuing the final payment to the Contractor have been satisfied, and that the Work is ready to be accepted as completed by the Owner. Assuming there are no outstanding disputes, the issuance of the Final Certificate for Payment is the proverbial finish line for the Project.