Substantial Completion: When exactly does it occur?

When an owner decides to build something, he or she usually decides that he or she wants it completely finished, okay the owner always wants it completely finished.  But is the owner guaranteed that?  Probably not.  Now does that mean a contractor can walk away from a job after placing the concrete building slab, highly doubtful.  The owner is typically guaranteed “Substantial Completion,” which is usually, and should be, defined in a contract.

Clip boardSubstantial completion is similar to the general contract principle of substantial performance, but is more specific to the construction industry.  Substantial completion is the point where the owner can make use of the building or facility and ordinarily only minor work remains, i.e., punch list items.  Section A.9.8.1 of the American Institute of Architects (AIA) defines substantial completion as:

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.

This language may be a starting point for contracts, but it should be reviewed in each contract, especially if the work involved is anything unique or unusual.  Although a certificate of occupancy (CO) may be a good point of reference for determining whether a building or facility can be occupied or utilized for its intended work, the standard AIA provision does not require obtaining a CO to reach the level of substantial completion.  Although, often times local municipalities will require a CO to obtain substantial completion.

The date of substantial completion is extremely important, because it determines the date that a contractor is no longer fully liable for delayed completion or for minor incomplete details.  After substantial completion, the owner again becomes responsible for the property, i.e., security, utilities, etc.  A contractor can still breach the contract, but any breach subsequent to substantial completion will only be a minor breach.  These are some of the reasons why the point of substantial completion can be, and often is, a highly debated issue in litigation.  That’s also why it can be extremely important to define “substantial completion” appropriate to every job.  The cost of reviewing the document can save thousands in the long run by avoiding costly litigation.

Comments

Posted On
Mar 11, 2015
Posted By
Sancho Tomaroy

What if it is an EPC contract say water plant where there is a requirement of the testing and commissioning. Can we consider the project substantially completed before the conduct of testing and commissioning?

Posted On
Mar 11, 2015
Posted By
J. Mason Williams IV

In large part, if not entirely, the answer depends upon the terms in the EPC contract. Without knowing the full scope of work as defined by the EPC contract, it is not possible to give a complete answer. If the EPC contract does require testing and commissioning, then you might be able to argue that it is substantially complete prior to testing and commissioning because the construction is complete (assuming it is). However, a court may require that it be shown that the project did not require further work after testing and commissioning, which might be difficult. The problem is that typically testing and commissioning is part of what is necessary to provide a building that is ready for its intended use. If you are in a situation like this, I would highly recommend seeking an attorney to review your contract and further discuss the facts of your situation in more detail.

Posted On
Sep 24, 2015
Posted By
Patel Vasant D.

In the EPC contract for pipeline project for feeding major reservoirs provision made to withheld 3 % of contract value for testing & commissioning. Contractor had completed the work physically.Can work can be considered as the substantial completed prior to testing & commissioning.

Posted On
Jun 03, 2016
Posted By
Are you DONE? - Lean Culture Group

[…] that all depends on who you are. The American Institute of Architects defines done as when substantial completion occurs, or when the stage of completion of the project is fit for occupancy and use for its […]

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