When Is Complete Really Complete?
In a construction project, the terms “substantial completion” and “final completion” represent critical points in time. Yet evaluating each one isn’t quite as cut-and-dried as it might seem.
For example, is a five-story apartment building considered substantially completed when all units are ready to use, but one of the three elevators isn’t functional? Is a retail center substantially completed when all spaces are ready to be occupied and all systems are functioning, but the parking garage is not finished?
Defining the Terms
In construction, substantial completion generally is reached when local authorities have issued a certificate of occupancy on a building; when all expected systems and elements are in place and functioning; and when all spaces in a building are available for use. Substantial completion can be one moment or multiple points in time for phased work. Therefore, it’s important to define what’s expected to be done and by when.
Upon substantial completion, the contractor essentially turns the project / building over to the owner, who takes responsibility for operations and maintenance. And, as of the date of substantial completion, the clock starts running on warranties. At this point, a final punch list of items that need to be corrected and completed is created and agreed upon between the owner and contractor.
Once the punch list items are resolved, outstanding matters reconciled, and all closeout paperwork provided to the owner, the project reaches final completion. At the singular date of final completion, the contractor has earned the right to payment in full.
Our team of experts has been through the stages of completion on thousands of renovation and construction projects. We understand that issues arise when work is proposed to be substantially complete and, yet, can’t be fully utilized due to incomplete work or open inspections. That multi-story building with no elevators, for instance, may be inaccessible to people who can’t walk the stairs and could be considered discriminatory. And, that shopping center with no usable garage means visitors have no place to park and may choose to go elsewhere.
Big problems also occur when strict completion dates are not met. Consider new student housing: college or university students start classes on fixed dates. Those residents count on moving students in on time or else the landlord may need to pay for temporary and expensive hotel rooms. Or, with a new warehouse or manufacturing building, a missed completion date could have severe financial and logistical consequences to a growing business.
Accordingly, when hard deadlines are part of a project, contracts often specify liquidated damages to be assessed on the contractor for not delivering on time. Contractors facing the prospect of liquidated damages will be understandably eager to reach the substantial completion milestone. Conflict can arise when a building owner doesn’t agree that a project is substantially complete and believes damages should be charged.
Looking for a Guide
Owners and investors often look for an experienced representative to help all parties avoid the many pitfalls that lurk around the critical milestones of a construction or renovation project. At Real Projectives®, we aim to make completion be a non-event for our clients. To do so, some of the proactive strategies we employ include:
- Setting goals up front. A clear understanding of the construction process and the role each party plays is important in establishing timelines and setting realistic contract terms.
- Segmenting large projects into smaller parts. When a project involves multiple buildings or phases, completion dates can be staggered to maintain momentum, match priorities and keep a project from bogging down.
- Being proactive with completion tracking lists. We help all involved parties maintain working lists of tasks throughout construction and through final completion. This process encourages open communication and orderly participation toward completion.
For more information on project management from start to finish or the range of services Real Projectives® offers clients, browse some of our other articles — or give us a call at 888.357.7342.