“Substantial Completion” on the Construction Project: How is it defined? (Law note)

Substantial completion is another one of those “terms of art” that lawyers love.  What does it mean when your project is substantially complete? If you are an owner, you really are only interested in one thing: when is it done? Right? Well, not exactly.  Particularly on larger projects, there may be a big difference between when a project is substantially complete and when it is finally complete, so it’s good to know what the difference is and what your contract provides.

Substantial completion is generally a defined term in a contract, but regardless of exactly how it is defined in essence it means that the owner can use the building as intended.  It usually indicates that only minor, punch list type work remains.

In the AIA general conditions, substantial completion is defined:

 § A.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 use the Work or a portion thereof for its intended use.

While this is standard language found in most form contracts, it can–and should–be altered to fit any unusual circumstances you anticipate on your project.

Note that the AIA general conditions do not state that either a temporary or permanent certificate of occupancy must be issued for substantial completion to occur.  For example, in the case of an office building, once the building is able to be used for upfitting purposes by the owner it is substantially complete, even if the building is not yet able to be occupied.  This can be signficant if the owner is self-performing much of the upfit work, and the acceptable degree of finished work may be something altered by the parties at the time of contract negotiation.

Whatever the defined date of substantial completion in your contract, however, it is extremely important.  This is the date that triggers:

  • retainage release
  • the warranty period
  • determination of any actual or liquidated damages
  • the running of the statute of limitations and repose

Therefore, it is important that you read your contract and understand what the date of substantial completion will be for each of your projects.

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Photo courtesy of constructionphotographs.com.

 

Add a comment »23 comments to this article

  1. Hi Mam,

    Hope you are doing great.

    Further, I have a query and I need your suggestion please.
    Being a MEP Contractor, which clauses/Terms particularly, I need to focus in the Invitation to Tender Document (Tender Document with contract condition) provided by Client.

    Your kind advise is appreciated.

    Thanks

    Reply

    • All clauses are important in a contract- and they work in an integrated way- so I cannot state what terms in particular you should review. Indemnity and duty to defend are huge issues, as are liquidated damages and consequential damages. But they are all important in their own way. Items that seem just boilerplate, such as the “merger” clause, can have huge implications on your contract.

      Reply

  2. Dear Mam,

    Thanks for your post. Its really interesting and of much use to me.
    Can Preliminary handing over be termed as Substantial completion?

    Reply

    • Syed:
      Thanks for your comment. Preliminary handing over would be similar to substantial completion, yes. It would depend in part on what remained to be done– punch list only, or major work?

      Reply

      • Thanks for your response.
        It was only the punch list that was remained. We, being MEP subcontractor then preliminary handed over the project to client.

        Reply

        • If only punch list remained to be done, then you’ve got a pretty good argument that the statute should start to run from that time. Nothing is absolute in the statue of limitations field, but you’ve got a good argument.

          Reply

      • Would you please detail me the legal definition of “running statue of limitations”

        Reply

        • The statute of limitations begins to “run” when the last act took place that may cause liability (i.e., your last act on the project; substantial completion; etc). From that date, you count up 3 years for most actions, and the lawsuit must be filed before the end of that 3 year period. After that period, the statue has “run” such that the claim is barred.

          Reply

          • Great.. It was Simple to understand. Thanks again

          • Sure thing.

  3. For some Sub-Contracting work, when the specialist work is completed, the only remaining work to be completed are the stated in punch list or defective work remaining to be rectified. Other include submission of the as-built drawings and Indemnity/Warranty in order to fulfil the complete obligation under the sub-contract. My question, Melissa, is what happen if the Main Contractor (or Employer) does not issue the Certificate of Substantial Completion, despite having complete work which is fit for the purpose, less the defective work and submittals. The other scenario is when the issuance of the Certificate of Substantial Completion tie in to the Substantial Completion of the Main Contract Work which would take a lot longer to complete.

    Reply

    • Hi Jason, and thanks for the question. If the main contractor/owner/architect does not issue the Certificate of Substantial Completion, there are going to be disputes, period. They are not issuing it for some reason, if only to say that the project is not complete and liquidated damages and the like are continuing. But if you are looking for a date as to when the statute of limitations would run on your work, it arguably starts when your work is done, whether or not the Certificate is ever issued. Again, it is something that will have to hashed out in court, but that’s what I’d argue.

      Melissa

      Reply

  4. Ok, so all this is inline with what I’ve always practiced, but recently i was confronted with an interesting situation id like your input on. A small city owner project $750K, issue came up months before Substantial Completion of a miss-communication in the ordering of the clay roof tiles. Subsequently, the roof tiles will not be installed until 1 month after SC date. The city is in no rush, and the grand opening ceremony isn’t for two months after SC. The roof is water tight, and the city is able to move their furniture in with no issue, however the roof is not complete. Owner, Contractor, User, and Architect are all on the same page, and understand the issue and where the blame lies (sub-contractor). Now the question, is there a legal cut off for deeming a project Substantially Complete. If the value of the project is $750K, and the punch-list at time of SC walkthru is $150K, can the Architect in sound mind actually issue a SC certificate? Remove the roof issue, and whats left is a small punchlist of misc. items, very typical.

    thought? thanks

    Reply

    • Hi Ray! Thanks for your comment. If the building is water-tight and useable for its intended purpose, substantial completion has been reached. Final completion, of course, is not yet reached. Does that toll the statute of lmitations? Probably not. I’d go from the earliest date that the parties knew there was an issue, to be safe. If the parties are working on good faith, they can all execute a tolling agreement to toll any statue from running. Otherwise, assume the shortest deadline to be safe. Good luck!

      Reply

  5. Wow, that is very interesting.The wording does make all the difference in law, but your explanation of substantial completion was very easy to understand. Thanks for explaining!

    Reply

  6. Latent Defects- extending your liability
  7. When is a Construction Project truly "Complete"? That depends.
  8. Great Post , Many thanks. Staying in 60 miles North of Aberdeen it’s nice to stumble upon a fine websitelike yours, especially with goodposts like the one above. Many thanks and keep up the fab work.

    Reply

    • Thanks for the comment. Aberdeen, North Carolina by any chance?

      Reply

  9. The day all architects love and owners too – Substantial Completion | |
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  11. Great Article! Thanks.

    Reply

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