Substantial Completion

“Substantial completion” is one of the more elusive phrases in construction law language. It is also one of the most important milestones of the construction process.

The importance of the substantial completion date is that it usually marks:

– when the general contractor is entitled to payment of the contract balance, less retainage of monies withheld pending final completion, o when warranty periods commence to run,

– when the owner takes over responsibility for utilities, insurance and other ownership expenses,

– when time limitation periods for perfecting mechanic’s liens commence to run,

– when dates from which deadlines for commencing suits on surety bonds are measured,

– when a number of other time limitation periods commence to run.

Most common definitions of substantial completion relate to occupancy or use. When ” construction is sufficiently complete so the owner can occupy or utilize the work for the use for which it is intended,” is the definition commonly used in the American Institute of Architects general conditions (AIA Document A201-1976). Unfortunately, that definition is not always easy to apply.

Even though an owner may be able to use a particular project involved for its intended function, it may be far from complete. For example, a building may be usable when it is fully enclosed and the life safety systems are operable.

However, is a building substantially complete if floor coverings are missing, the HVAC system is not fully automated, painting is incomplete and some but not all of the plumbing services are working?

On the other hand, should the substantial completion date be postponed merely because all of the paint splatters have not been removed, the HVAC system is not balanced and a few defective light fixtures need to be replaced? The dilemma may be compounded if the owner must take occupancy because of his particular circumstances.

The AIA general conditions state that the architect is required to establish the date of substantial completion. However, his determination is not necessarily final or binding on the parties. For one reason or another, they may urge a different date for substantial completion. Those not parties to the general contract may also disagree with the date of substantial completion fixed by the architect if that date becomes critical.

Probably the best solution to the substantial completion issue would be in the contract documents themselves. They should provide for an indisputable date of substantial completion. That date could be either:

(1) the date of issuance of the certificate of occupancy by the governmental agency (the building department involved),

(2) the date of the owner’s occupancy, regardless of the then length of the punchlist or the existence of incomplete items,

(3) the date certified to by the architect, which certification shall be final and binding upon the parties, or

(4) some other date which may be determined with precise certainty.

While that definite date may not be binding on those not bound by the contract documents, it would provide better definition in the event that the question becomes disputed in either court or arbitration proceedings.

When the date of substantial completion becomes critical to some deadline, it should be assumed that substantial completion occurred at the very earliest possible date so that the deadline is not missed.

Although the date of substantial completion may be difficult to determine, it is possible that prudent members of the construction industry can and frequently do avoid the problem by careful contracting and observance of deadlines.

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