It is often said that everything is negotiable. The prudent contractor should keep that in mind in regards to the definition of “substantial completion” and should consider negotiating that definition to better fit each specific project. Given the importance of that term and its effect on subsequent events, such as the release of retainage, determination of liquidated damages, and commencement of warranties, among others, the definition of “substantial completion” should be carefully considered and specifically defined.
A standard definition often used is that contained in the AIA A-201 (2017): § 9.8.1 Substantial Completion is 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.
The typical approach for determining when substantial completion occurs is to rely on the project design professional’s determination; however, given the design professional’s relationship to the project owner, another less subjective option should be considered. Sometimes owners and their design professionals do not agree with the contractor as to when substantial completion occurs. While this could be due to a legitimate dispute over the status of the work, it could also be due to the owner wanting to put off paying the contractor or accepting responsibility for the work. Rather than leaving the actual date of substantial completion open to interpretation, the parties would be better served by providing from the outset as much clarity as possible for acknowledging the date that substantial completion occurs.
One option for additional clarity is to define substantial completion as the date of issuance of a certificate of occupancy by the governing authority. Another option is to agree at the outset on a list of items to be performed and/or materials to be put in place the occurrence of which will constitute substantial completion. There are, no doubt, other options for defining substantial completion, but the take-away is that substantial completion should be defined in the contract documents as specifically as possible to reduce the subjectivity from the determination of when substantial completion occurs and make that determination as straightforward as possible.
If you would like to discuss this issue further, please call Matthew Vanderloo at (601) 427-0065.
Disclaimer: The information and comments presented above are general in nature, are the author’s understandings for educational purposes only, and are not intended to offer a legal opinion for use in dealing with any specific set of facts or to create any attorney/client relationship. You should consult with an attorney before taking any action of a legal consequence. Further, the authority cited above is subject to change and/or re-interpretation.