Why is the Timing of Substantial Completion so Important?

Although my previous post on substantial completion discussed when substantial completion occurs, their are many reasons why this event is extremely important and many points that should be mentioned. As mentioned in my previous post, the contract is the first place to look to determine the specifics of when a certificate of substantial completion should be issued. Assuming it is the point where a certificate of occupancy (CO) is also issued, this means that the governing authority has to approve the building to be occupied and used for its intended use. At this point, the contractor will often prepare a list of items to be completed for the architect and/or engineer to review and inspect. The architect and/or engineer will prepare the certificate of substantial completion and set a deadline to complete the final items. Depending on the contract, this is usually the point where the owner will have to pay the “final” payment minus costs to complete the final items. This is the number one reason issuance of the certificate of substantial completion is so important to a contractor (and/or subcontractor).

The architect and/or engineer, however, can withhold the certificate if he or she believes the building is not substantially complete. So long as the architect and/or engineer believes withholding the certificate is proper, there is little a contractor can do, but continue to work toward substantial completion. Even if withholding of the certificate is ultimately proved to be the incorrect course of action, so long as the architect and/or engineer did not fraudulently or in bad faith withhold the certificate, there is little else a contractor can do. Even if there is fraud or bad faith, the burden of proving it is on the contractor.

Often, even if the certificate of substantial completion is issued, the contractor still has to abide by other requirements of the contract. For example, contractors are often required to provide as-built drawings and proof of all payrolls, material costs, equipment costs, insurance in effect, etc. Although work not completed in accordance with the contract is generally not considered acceptance despite payment to the contractor or issuance of the certificate of substantial completion, it may depend on the terms of the contract. Once the contractor accepts the “final” payment, many times the contractor is simultaneously waiving all claims except those previously made in writing and unsettled at the time of the application for for final payment. The owner may also be waiving unsettled claims for unfinished work (except for work mentioned in the certificate of substantial completion) and claims arising out of the contract.

There are many reasons construction contracts should be reviewed by an attorney and these highlight just a few. It is important to understand what the provisions of any contract, especially construction conracts, will require in order to complete your obligations in the contract.

If you need assistance with construction contracts, feel free to contact me. You can also follow me on Twitter, LinkedIn and Facebook for even more information.