Best Practices – Substantial Completion – What Does it Mean and Why You Should Care.

In previous posts we discussed various strategies for organizing and managing the construction process.  Among those strategies, the concept of establishing milestones and breaking up the project into phases of work has been addressed.

There is one very important milestone that applies to all projects.  This milestone is the most pivotal moment in the construction phase and impacts the entire project team.

I’m speaking about substantial completion.

Substantial completion is more than just a milestone we use to manage the project, it is a critical moment in the contract.

All third party contract templates use substantial completion as the moment in the project schedule that begins transition of the project from the Contractor to the Owner.

Substantial completion is the single most referenced date in any construction contract.

In some contracts substantial completion marks the first moment when the Owner can release retained monies.

It’s the date on which all warranties begin.

It marks the moment when the Owner (not the Contractor) takes responsibility for safety and for handling materials delivered to the jobsite.

If you have liquidated damages, substantial completion is the milestone which, (if missed) could cause the Contractor to owe liquidated damages to the Owner.

In bonded projects, it is the date the bonding company must be made aware of before the bond will be released.

So with this date being so important, I thought we should devote some time to discussing and defining when this moment occurs.

The AIA defines substantial completion as the “stage in the progress of the Work when the Work  or designated portions thereof is sufficiently complete in accordance with the Contract Documents so that the Owner can occupy or utilize the Work for it’s intended use.”

 

Consensus Docs defines substantial completion as, “the date when the Work is sufficiently complete in accordance with the Contract Documents so that the Owner may occupy or utilize the Project. Or a designated portion, for the use for which it is intended, without unapproved disruption.

Both of these definitions point to a moment in the project when the space may be “occupied”, but for me this language is still too vague and could be interpreted differently by both parties.

In times like these, I prefer to make reference to an impartial third party.

So in my contracts, I like to tie substantial completion to the date on which the Building Department issues it’s certificate of occupancy.

Unfortunately, this standard does not apply to all projects.  There may be projects that do not require a certificate of occupancy.

In projects that do not require a certificate of occupancy, I like to define substantial completion very carefully.

Here are a few of the key things I would expect to see in a space that is substantially complete.

  1. All structural work has been completed.
  2. All building envelope, insulation, waterproofing, and thermal protection systems are fully installed.
  3. All building systems are in complete and working order.
  4. All electrical systems are fully functional.
  5. All plumbing systems are fully functional.
  6. All inspections have been completed and approved.
  7. All finishes have been installed.
  8. All penetrations are covered.

I also add provisions that allow the Owner and the Architect to perform an inspection of the jobsite.  This inspection provision grants the Owner the right to reject a certificate of substantial completion if the Owner does not agree that the project is substantially complete.

Closing

Substantial completion is the single most important date of any project.  Vague or subjective language should not be allowed to describe this critical milestone.

Whether you choose the standards I’ve laid out or develop your own, make sure that you and your Contractor are clear on when this milestone is reached.  Doing so will protect you both and ensure a smooth conclusion to what I hope has been a successful project.

What do you think?  Is the AIA and Consensus Doc’s definition clear enough?  Do you use your own definition?  Tell me your stories.

Thanks for reading.  If you enjoyed this content, please feel free to browse my previous articles and please like, share, comment, and subscribe.  This helps promote my content and is greatly appreciated.

 

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