Category Archives: Law Notes

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

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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.

 

Tuesday Tip | Construction Law Research Links

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fireworksIn celebration of Independence Day this past weekend, here are some references for those who want to independently research their construction law issues.  (Just remember to read with caution and consult with a lawyer for any questions and to see if applicable to your particular situation).

All of these links are now in the Resource section of the Blog.  Happy researching!

North Carolina Lien Law Statues  (N.C. Gen. Stat. sec. 44A)

Laws and Regulations Applicable to General Contracting (including NC licensure, lien info, and permit info)

NC State Construction projects (N.C. Admin. Code Title 1, chapter 30)

NC Building Code information (N.C. Department of Insurance OSFM)

 

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Photo Fireworks #1 by Camera Slayer via Flikr via Attribution-Noncommercial-ShareAlike License.

 

Design Error and the Spearin Doctrine (Law note)

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engineering plansDesign Error.  Two words that strike fear into the heart of any architect, engineer, or lawyer representing them.  Today’s post discussion is to discuss the different obligations of each of the parties on a construction project relating to design errors.

As discussed last week, designers have an obligation to design in accordance with a reasonable standard of care.  That does not mean that the plans and specifications are perfect, however.

While the contractor is not responsible for design errors, he does have a duty to report any design errors or omissions which he discovers during his review of the plans.  If he discovers any design errors, he must report them to the owner.  See, for example, AIA A201 3-2.2.

As we have also discussed, an owner also impliedly warrants the adequacy of the plans and specifications .  This is sometimes known as the “Spearin Doctrine,” after the seminal Supreme Court  case, US. v. Spearin, 248 U.S. 132 (1918).   In Spearin, a contractor sought to recover from the government for the government’s failure to provide accurate plans reflecting the overflow issues which preexisted at the Brooklyn Navy Yard,   The Court held:

[I]f the contractor is bound to build according to plans and specifications prepared by the owner, the contractor will not be
responsible for the consequences of defects in the plans and specifications, (Citations omitted). This responsibility of the owner is
not overcome by the usual clauses requiring builders to visit the site, to check the plans, and to inform themselves of the requirements of the
work. The duty to check plans did not impose the obligation to pass upon their adequacy to accomplish the purpose in view.

Id. at 136-137. The Spearin Doctrine has been faithfully followed in the North Carolina courts. See, e.g., City of Charlotte v. Skidmore, Owings and Merrill, 103 N.C, App. 667, 407 S.E.2d 571 (1991); Burke Co Public School Bd of Education v Juno Construction Corp, 50 N.C App. 238, 273 S.E,2d 504 (1981).

One state court held, “[i]t is simply unfair to bar recovery to contractors who are mislead by inaccurate plans and submit bids lower than they might otherwise have submitted.” Battle Ridge Companies v. North Carolina Dept. of Transportation, 161 N.C. App. 156, 160, 587 S.E.2d 426 (2003), quoting Lowder v. Highway Comm., 26 N.C, App, 622, 638, 217 S.E.2d 682, 692, cert denied, 288 N.C. 393, 218 S.E.2d 467 (1975).

Obviously, the architect or engineer is the ultimate party responsible for design errors, but all parties play a role in identifying and minimizing the effect of such errors through prompt notification.

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Photo “pipes” by moonlight on celluloid via Flickr via Attribution-Noncommercial-ShareAlike 3.0 License.

The Architect’s and Engineer’s “Standard of Care” (Law note)

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drawing architectural plans

Architects and engineers are required to meet the appropriate standard of care for their work on a construction project.   Such a simple phrase is actually a very loaded statement.  What, exactly, is the “standard of care” that the design professional is required to meet?  This is one of the “terms of art” that lawyers love and everyone else tends to hate.

Basically, the “standard of care” is a shorthand description that states the designer owes a duty to perform reasonably well on the project.  How is “reasonably well” defined?  It is not perfection.  It is, however, the showing of “reasonable care” and performing the “level of skill and diligence those in engaged in the same profession would ordinarily exercise under similar circumstances.”  Again, what?  If you are an architect practicing in, for example, Raleigh, you will be presumed to:

1.  possess the required degree of learning, skills, and experience that is ordinarily possessed by similarly situated professionals in the community (that is, perform as well as other architects practicing in the Raleigh area);

2. use reasonable and ordinary care and diligence in the exercise of your skill to accomplish your professional tasks; and

3. use your best good professional judgment in performing your professional tasks.

Notice that nowhere did I say that the architect’s plans had to be perfect.  However, the plans do need to meet a “typical” standard.  They must meet the applicable Codes.  They must generally be sound.  But they do not have to be perfect.  (Question: Is there ever a perfect set of plans?).

Courts in North Carolina have spent a lot of time, and a lot of ink, discussing the deceptively simple concept of “standard of care,” but essentially this is how it is defined.  If you want to read caselaw discussing the standard, a good case is RCDI Const. Inc. v. Spaceplan/Architecture, Planning, & Interiors, PA., 148 F. Supp. 2d 607 (W.D.N.C. 2001).

Note for Contractors & Subcontractors

If you are not a licensed professional, are you off the hook?  No.  But your duties fall under the “implied duty of workmanship“.  Essentially, you have a duty to make sure your work is sufficiently free from defects such that it meets the requirements of the Contract documents.

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Photo Drawing up the plans (Doors & Windows) by Sailing “Footprints: Real to Reel” (Ronn ashore) via Flickr and made available via an Attribution-Noncommercial-Share Alike 2.0 license.