When Is Contruction Really Complete?

During project closeout, many differing interests and perspectives—some of them conflicting—create a complex dynamic. Pinpointing whether or not construction is truly "over" isn't always a simple, straightforward matter.

Adding to the challenge is the fact that numerous individuals and entities have an interest in declaring construction complete. At the most basic level, association directors and association managers often hear such laments as, "The contractor says the job is done, but when is someone coming back to touch up the paint in my unit?" or "All of the new roof tiles are on, but nails are scattered all over my driveway and in the plants!"

Others who have a strong interest in the project closeout process include the maintenance staff members, who must know how to maintain and operate the newly constructed or reconstructed facilities; the contractor, who is anxious to finish the work, collect the retainage and final payments that usually amount to the profit for the job, and move on to the next project; and the lending agencies, which may be withholding final payments on loans until the work is completed and accepted.

Then there are the subcontractors and suppliers. Some of them may not be quite done or may be waiting for another subcontractor to complete work before they can finish theirs; some will be providing warranties for products and equipment; or some may still be waiting to be paid fully. And don't forget the insurance companies that maintain a risk position until all of these issues are satisfied; the code and building department officials who will issue the necessary permits and certificates of occupancy; and the community association manager or directors, who may want to keep the contractor on the job to perform work that should by all rights be considered maintenance or warranty work rather than a part of the original contract for construction.

Starting out right

Defining and determining exactly when construction is complete definitely can be a complex procedure. Knowing when "it's over" becomes easier, though, if you have clearly defined what will constitute the end of the project at its very beginning. In other words, your contract for construction should set the terms and conditions for completion and establish the requirements and duties for all parties involved.

Just how complex project closeout is depends to some degree on the scale, size, timing and phasing of the construction or reconstruction effort. Small projects of short duration, or simple maintenance work, will not usually involve all of the steps of a larger project. For example, the contract for a small project may not spell out the need for the association to make progress payments as construction proceeds, or it may not require that the contractor turn over extensive as‑builts (detailed plans that depict exactly what was built). Other issues, though, should be spelled out in the contract no matter how small the project; these include insurance, liens, permits and warranty information.

Some projects are large and multi‑phased, requiring several sequential closeouts. Each individual phase will usually necessitate its own ending in order to determine proper payment of the contractor at the termination of each part of the work, as well as to allow incremental occupancy of the buildings and to complete permit periods.

Having a solid understanding of the two key stages of project completion is essential to a smooth and successful completion of constriction, no matter the project's size or timing. The project closeout process takes the project from the point defined by the industry and by your contract documents as Substantial Completion, to the point defined as Final Completion and payment of the contractor.

Substantial Completion

The date of Substantial Completion is established by the architect's or construction manager's inspection—with important legal significance. Substantial Completion is defined by Section A‑201 of the AIA’s (American Institute of Architects) General Conditions of the Contract for Construction 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."

Unless defined otherwise in your contract for construction, this is the date the contract time ends, insurance responsibilities are transferred from the contractor to the owner, and warranty periods begin. This is also the date that the statute of limitations time period begins for various litigation claims.

Because of these important issues, the architect or construction manager (who, in the case of a small project, may be your association manager or a homeowner appointed to manage the project) should not perform a Substantial Completion inspection until the project has actually reached that stage. If the contractor calls for an inspection prematurely, the request should be denied, and the work should be completed as required.

Once the contractor is satisfied that the project is substantially complete according to the contract documents, the contractor should prepare a comprehensive list of the items yet to be completed or corrected (that bit of paint touchup, for example). This list is typically called a contractor's punch list, and it should be reviewed by the architect or construction manager on‑site to verify that the work is, indeed, substantially complete. ("You can observe a lot just by watchin'!")

At this point, a determination is made of how much time will be allowed for completion of the punch list work, and the date is set on which the owner will occupy the work or portion of the work. The contractor is responsible for correcting all of the items on the punch list and anything else that does not conform to the contract documents.

When the project has been judged substantially complete, the architect or construction manager issues a Certificate of Substantial Completion, attaching the punch list, for mutual approval of the contractor and owner. At the same time, the retainage can be adjusted as provided in the contracts. The cost of completion of the work or items remaining may be a factor in releasing retainage. Small projects with a simple management process may have no retainage, but may instead have preset payment schedules to coincide with stages in the job.

Final Completion

Now we're well into the home stretch. After the punch list work has been completed, and all other contract requirements have been satisfied, the contractor submits a request for the architect's or construction manager's final inspection of the work, along with a final application for payment.

Contract requirements that must be satisfied are often numerous and will undoubtedly include the following:

  •  Assurance of payment (or another means of satisfaction) of all payrolls, bills for materials and equipment, and other indebtedness connected with the work for which your HOA might in any way be responsible.
  • Submittal of lien releases or waivers for all contractors and entities involved in the work (these may require review by your association attorney to be sure they are appropriate).
  • Consent of any surety to the final payment.
  •  Submittal of a list of any exceptions, debts, or known claims that have arisen in connection with the work that has not been paid or otherwise satisfied. The contractor typically must furnish a lien bond or indemnity bond for each item. If these items are minor, they can be waived by mutual agreement.
  • Submittal and confirmation of documentation for all additive and deductive change orders, unit pricing, allowances, deductions for any uncorrected work, and any adjustments for liquidated damages.
  • Submittal of all warranties and guarantees for all work and materials so covered, including certificates of inspection for any product or material on which those warranties depend.
  • Verification that all necessary certificates of insurance during the period of the work are on file.
  • Submittal of as‑built drawings and documentation on the actual progress of the construction.
  • Approvals of homeowners stating that work is complete.
  • Submittal of a Project Manual that includes warranty information, maintenance instructions, and manufacturer's information on the products used.

When all of these items are submitted, verified, and complete, the final payment is due to the contractor.

Is It Over?

Well...not exactly! The end of a construction or reconstruction project is really just the transition to the next stage ‑ the warranty and maintenance period. Routine inspections ‑­and verification and maintenance of the systems and materials as recommended by the manufacturer's instructions ‑‑ are key to prolonging their life and getting the most value for your association's construction dollars.

David Kuivanen, AIA, is an independent architect and ECHO member, offering architectural and forensic consulting services, specializing in site investigations, detructive testing, repari recommendations and litigation services since 1980. For more information, contact him at Dpkuivanen@dpkarch.com.

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