Substantial completion
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Substantial completion is a point in the course of a project when the project or part of it is sufficiently complete according to the contract documents, the Owner may occupy the project or part thereof for its intended use, and all systems and equipment are ready to receive raw material for the start-up operation and are capable of production[1].
A substantial completion is something that is missing until completion or final completion; rather, it is a practical completion. Although the owner may not occupy the building until the construction department says it can, a certificate of completion means that the project is ready for its intended use[2].
Process
The AIA documents define substantial completion as occurring when the construction is sufficiently complete according to the contract documents for the owner to occupy or use the work or its intended part for its intended use. On the basis of the AIA documents, the architect shall determine the date of significant completion by issuing a certificate of substantial completion. At the time of substantial completion, the contractor, the owner and/or the architect conducts a check to establish a list of elements, the punch list, to be completed or corrected before final completion. After completing the punch list, the contractor shall request a final inspection. The owner shall carry out a final check to determine whether the contractor has carried out all the work on the charts in accordance with the owner's requirements[3].
Legal considerations
Substantial completion has been defined in a number of ways and has been the subject of extensive litigation. In general, when the owner uses and benefits from the contractor's work and the project can be used for its intended purpose, there has been a substantial completion[4].
In fact, substantial completion is not significantly different from essentially complete, but the term ‘substantial completion’ is the legally preferred term in the world of construction. Substantial completion seems to be sufficiently objective: but, like practical completion, it is not so easy to identify. Many lawyers believe that no milestone in a construction project is more significant than that associated with a substantial completion. It follows from already established legal precedents that such a formulation in the contract has a huge impact on the rights and remedies of the Owner against the contractor[5].
A substantial completion may be synonymous to a practical completion. All this depends on the definitions contained in the contract. The point is that there are many definitions of completion. The parties have to agree in advance which definition they want to apply. Typically, the term 'practical completion' is more commonly used for situations where the first processing takes place, but not all systems are yet operational; for example, where only one process line is completed at a multi-line plant. The term ‘substantially complete’ is more reserved for the whole project, i.e. when all systems reach their practical end. But strictly speaking, it does not have to be so, substantial completion can be (and often is) applied to a single system[6].
Examples of Substantial completion
- The construction of a hospital building is considered substantially complete when the building is ready for occupancy, all mechanical, electrical, and plumbing systems are functional and operational, and the interior and exterior finishes are completed.
- The construction of a residential building is considered substantially complete when the building is ready for occupancy, all mechanical, electrical, and plumbing systems are functional and operational, and the interior and exterior finishes are completed.
- The construction of a retail store is considered substantially complete when the building is ready for occupancy, all mechanical, electrical, and plumbing systems are functional and operational, the interior and exterior finishes are completed, and all shelving, display units, and other fixtures are in place.
- The construction of a road is considered substantially complete when the surface is complete, all signage and guardrails are in place, and the road is ready for use.
Advantages of Substantial completion
Substantial completion has a number of advantages for the project. These include:
- Improved project management, as it allows the contractor to move onto other tasks while the owner evaluates the work already completed.
- Reduced risk, since the contractor is less likely to be held liable for any problems that may arise after the substantial completion date.
- Improved control over the project, since the owner can begin to occupy the project or part of it before it is fully completed.
- Reduced costs associated with unfinished projects, since the owner can begin using the facility before it is completely finished.
- Reduced stress, since the contractor can focus on finishing the project without fear of the project being abandoned.
Limitations of Substantial completion
Substantial completion is an important milestone in the development of a project, as it marks the point where the project is ready to be occupied and used. However, there are several limitations to be aware of when considering substantial completion:
- All systems and equipment are ready to receive raw material for the start-up operation and are capable of production, but may not necessarily be fully operational or optimized.
- Any warranties or guarantees provided by the contractor may not be in effect yet.
- Due to the complexity of some projects, there may be parts of a project that are not considered complete until later stages of the project.
- Final inspections may still need to be conducted by local or state authorities before the project is considered complete.
- The owner may be liable for any costs associated with repairing or replacing defective materials or workmanship.
- The contractor may not have been paid in full for the project.
Substantial completion is a pivotal milestone in the course of a project, as it marks the time when the project or part of it is deemed as substantially finished according to the contract documents and ready for the owner to occupy. Other approaches used to define substantial completion include:
- The completion of all required work, including the correction of all deficiencies. This includes all items identified in the contract documents, such as the installation of all components, systems, and equipment, as well as any other necessary operations to bring the project to its intended use.
- The completion of project close-out procedures, such as the submission of all required documentation, such as as-built drawings, warranties, and operation and maintenance manuals.
- The verification that all systems and equipment are ready to receive raw material for the start-up operation and are capable of production.
- The final inspection of the project to verify compliance with all contract documents, as well as any applicable code and safety requirements.
In summary, substantial completion is an important milestone in the course of a project, as it marks the time when the project or part of it is considered substantially complete and ready for the owner to occupy. Other approaches used to define substantial completion include the completion of all required work, completion of project close-out procedures, verification of all systems and equipment, and the final inspection of the project.
Footnotes
References
- Dykstra A, (2018), Construction Project Management: A Complete Introduction, Kirshner Publishing Company, Santa Rosa
- Hickson R, Owen T, (2015), Project Management for mining- Handbook for Delivering Project Success, Bukupedia, United States of America
- Kelleher T, Jr., Smith, Currie & Hancock LLP, (2005), Smith, Currie & Hancock's Common Sense Construction Law: A Practical Guide, John Wiley & Sons, New Jersey
- Klinger M, Susong M, (2006), The Construction Project: Phases, People, Terms, Paperwork, Processes, American Bar Association, Chicago
Author: Karolina Stankiewicz
