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When is a Project Substantially Complete? |
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Unfortunately the answer to this question is probably: "not until the contract says it is."
"Substantial completion" is an important principle of construction law, particularly for building construction. It is the state when a project has reached the stage when, though not fully complete, it is complete enough to be used for its intended purpose. This stage of completion is important because liquidated damages and warranties often run from substantial, not final, completion, and (most importantly) the contractor's right to be paid the contract price (less the value of incomplete work) is established by reaching substantial completion. Unless the state of substantial completion is reached, it is not automatic that the contractor has a right to ever be paid the full contract price. Recently, some developers and some public owners have attempted to push off the point at which substantial completion is reached by redefining substantial completion in standard contracts to mean a state of more completeness than that required by the long-established definition. For instance, some newer definitions include the concept that substantial completion is not earned until the punch list is "no longer than one page," others that substantial completion is not earned until "every system is completed and fully operational." With such restrictive definitions, the chance for warranty gaps, liquidated damage exposure even when the owner is enjoying the use of the premises, and problems with establishing entitlement to contract price are all greatly enlarged. It is important to recognize restrictive definitions of substantial completion in proposed contracts (a good way to do it is to compare the AIA form contract's definition of substantial completion with the form proposed to you) and either negotiate the restrictive definition away, or provide for it in pricing and scheduling the project. Most contracts provide for a Certificate of Substantial Completion to be issued by the owner or architect whenever the state of substantial completion is reached. The power to issue a certificate does not include the power to be unreasonable. If the owner or architect is unwilling to cooperate by issuing the certificate once the state is reached, it is important for the contractor to document that it has, in fact, reached that state of completion. This can be done by taking photographs and videotapes of all parts of the project as of the date you believe you have reached substantial completion. Also, it is often a good idea in such cases for a contractor to hire its own architect as a consultant to walk the project and offer a written opinion that substantial completion has been reached as of a certain date. This type of independent review can be very helpful if negotiations sour, and the issue is ever submitted to arbitrators or a jury. The law firm of McCreary & Stockford, L.P. handles construction law cases and is here to help. Please call 972-377-8181 for more information. |