Substantial completion is a legal term used in construction. Construction substantial completion impacts contractors and owners in a variety of ways. For contractors and subcontractors it’s important to know and clarify substantial completion.
What is Construction Substantial Completion?
Construction substantial completion is a legal term used in contracts between owners and contractors. It marks a point at where the owner rather than contractor is responsible for the project. It also entitles the contractor to the remainder or majority of a contract’s balance. Construction substantial completion is the point where work is sufficiently done. Sufficiently done can be hard to pinpoint, many states and the American Institute of Architects say it is when the owner can occupy or use the building for its intended use. Even then, it can be hard to pinpoint when this point is. When a project is certified, or a feature installed, it could count as substantial completion; however, it varies by project. All of it is dependent upon what the contract document specifies.
How Construction Substantial Completion Impacts Construction
The construction substantial completion part of a contract is to protect both contractors and owners. Once a project is usable or inhabitable extra work or finishing work is on the owner to complete. This means the owner is responsible for delays after the construction substantial completion point. The owner generally pays a contractor or subcontractor the rest or majority of their fee once a project reaches that point. However, the day of substantial completion isn’t usually specified because there are delays in many projects. So the contractor doesn’t benefit if an exact date is written in. However, the contractor also doesn’t benefit with the ambiguous wording either.
Warranties, Claims, and Payment
Construction substantial completion particularly impact the contractors and subcontractors abilities to make claims and be paid. Since many contract documents state that the majority or rest of any payments will be made after substantial completion, contractors and subcontractors must define substantial completion. Substantial completion also impacts when claims and warranties can be made or acted upon. Since many contract documents specify that claims and warranties start or can start when the owner takes control.
Ways Construction Substantial Completion Affects Contractors
Contractors, subcontractors, and owners can create a better understanding of what construction substantial completion is in three ways. So long as both parties agree to it, they’ll have an easier time of understanding what the substantial completion date is.
Certificate of Occupancy
When reviewing a construction substantial completion agreement, contractors can argue for the certificate of occupancy to count as substantial completion. This means a certificate of occupancy can be used as the date of substantial completion. So when people can occupy the building or use it for the proposed use it gets a certificate of occupancy. This would allow the contractor to switch receive payment and changes who is liable. Another similar option is the architect to certify occupancy. Similar to the certificate of occupancy, this certifies that the building is ready for occupants. When both parties agree to it, either is an effective way to certify substantial completion.
List of Substantial Completion
Another option when trying to verify substantial completion is for the contractor and owner to create a list of items. Substantial completion is defined by these items or events. Both sides have a say in what substantial completion means when they meet to determine the events or items used. While many projects might use the same sort of list, projects with custom features benefit more from the dialogue between contractors and owners.
The third option available to both parties is to rely on contractor and subcontractor expertise. This benefits the subcontractors and contractors most since they have more control over what constitutes construction substantial completion. Since contractors and subcontractors are experienced professionals in their field they would have a better idea of what substantial completion looks like.
Regardless of which method you use to define construction substantial completion, it’s in everyone’s best interest to define it. Without the definition, it makes understanding contract completion more difficult and can negatively impact contractors and subcontractors.
Guest content provided by eSub Construction Software.