There are so many legal terms used in the construction field, but most of them are not as important as substantial completion. This term can affect everyone in the workplace in one way or another, so it must be explicitly explained and made clear to each party.
Definition of substantial
Substantial completion of construction is the point at which the contractor ceases to be responsible for the project and the owner assumes all responsibility. It is at this point that the contractor should receive most, if not all, of the balance of the contract. Basically, in layman's terms, substantial completion occurs when the work has been sufficiently completed.
However, there are many opinions about when the work will actually be completed. Some states state that substantial completion occurs when the owner can occupy the building or use it for the purpose he or she had in mind. Other states have stricter regulations, but they all leave loopholes that make it difficult to know the correct answer.
Substantial construction completion is in place to protect both the owner and contractor. If the project reaches this point on time, the contractor can declare it finished on time. However, a homeowner may benefit from this if the deadline has passed and the project has not yet reached substantial completion.
It is necessary for the contractor and owner to reach an agreement on when substantial completion of the current project will be achieved. This should be written into the original contract so there is no doubt when the time comes for the building to change hands.
Once this date and specifications are met, claims, warranties and final payments for the project can begin. Contractors can collect the remainder of the money owed to them and homeowners can file a claim or begin the warranty period for the materials and equipment that were installed.
There are three different ways to write substantial construction completion into a contract and they are as follows:
- Certificate of Occupancy
Most often, contractors will state that substantial completion of construction will take effect once the building obtains its certificate of occupancy. Basically, it states that the building can receive people inside and that it can be used for the purpose for which it was built.
- A list of items that need to be completed first
The second option that contractors and homeowners have is to create a list of items that need to be completed before substantial completion is granted. This list can be short or long depending on the contractor and homeowner, but each party must agree to these items in advance. The good news for the homeowner is that substantial completion cannot be done until all the items on the list are completed and the good news for the contractor is that he can turn everything over to the homeowner before the homeowner decides he wants any other work completed. .
- Contractor experience
Not every owner will want to use this option, as it is essentially giving the contractor freedom to say when they think the building is ready for substantial completion. However, this is an excellent option for contractors, as they will be able to use their expertise to determine whether or not the building is ready for use. Some contractors may try to take advantage of this option, but many will take a straight and narrow approach to gain a reputation for being fair and thorough.
Some contractors may try to skip listing the substantial completion of their contract with the owner, but this will only hurt them in the long run. After all, contractors need to meet their deadlines on each project to make the most money possible, and a substantial unagreed completion can easily turn any profit into a loss.
It's all the extra fees for lawyers and litigation that make contractors remember to add the substantial completion clause into their contracts with every homeowner they work with. While these clauses may be in the contract, every contractor should re-read them for each project to make sure they apply to the current one. As each project is different, a standard substantial completion agreement may not be possible and contractors will need to be flexible with each project.
Of course, the main objective is to have a substantial conclusion in writing and agreed upon by everyone involved, so that everyone leaves the project happy and with what they expected.
