“Substantial completion” is largely viewed as the contractor’s big payday when retention is released and the contractor finally collects a large share of its profits. At the same time, substantial completion has many other ramifications under most form contracts, and represents:
- The point at which the Contract Time allotted for completion of the work ends
- Similarly, the termination of liquidated damages (or at least a reduction in liquidated damages until final completion)
- The commencement of warranties
- The point from which contractual claims periods run
- The termination of builder’s risk insurance
Many state laws use substantial completion as an important milestone as well for purposes of calculating statutes of limitations and statutes of repose (which in turn govern when lawsuits must be commenced) as well as lien rights.
In some cases, as under the AIA A201-2017, substantial completion serves as a time at which legal control over a project shifts hands and the parties must negotiate the contractor’s continuing presence for such purposes as security, utilities, maintenance, and the like.
For something as important as substantial completion, it would be nice to find that there is a bright line on every project that at which substantial completion is achieved. Unfortunately, the typical contractual definition allows for some uncertainty in the date on which substantial completion is achieved. The newest AIA A-201 (2017) employs a standard definition:
§ 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 utilize the Work for its intended use.
AIA Form A201-2017, GENERAL CONDITIONS OF THE CONTRACT FOR CONSTRUCTION.
That definition is typical and offers a perfectly sensible approach to “substantial completion” – a building is substantially complete when the owner can use it. There can be difficulties in applying that standard, however, especially in light of the fact that the owner is naturally postured to push the date of substantial completion as late as possible, while a contractor understandably wants the date to be as soon as possible.
The resulting tension between the parties can make for some interesting dynamics as the project comes to a close. Rather than leaving the actual date open to interpretation, parties do well to provide some mechanism for acknowledging the date. Under the AIA documents, for example, the contractor tells the owner when substantial completion has been achieved, the architect certifies the date, and the parties’ continuing relationship is defined largely in reference to the stipulated date.
Of course, the simplicity of this approach ignores the often strong pull each party feels to move the date one way or another, and the stakes can be quite high. As in any other endeavor, the aphorism “forewarned is forearmed” is a solid piece of advice to owner, contractors, and any other party whose rights turns on establishment of a date for substantial completion.
Stephen Hess and Allison Mikulecky of Sherman & Howard, LLC in Colorado will discuss substantial completion, final completion, and project close-out in more detail in a Substantial Completion, Final Completion & Closing Out a Project 90-minute webinar on Wednesday, July 26.