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A201®– 2017 General Conditions of the Contract for Construction
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The terms “substantial completion” and “final completion” are commonly used in the construction industry, yet not everyone fully understands the risks and obligations tied to each milestone. Owners, architects, engineers, and contractors may assume they know what these terms mean, but the details often go unnoticed.
Substantial completion refers to the stage when a project or portion of a project is deemed sufficiently complete according to the contract documents. This means the contractor informs the architect that the work is ready for inspection. If the architect agrees, they issue a Certificate of Substantial Completion (such as AIA G704-2017). Final completion occurs when the contractor formally hands over the completed project to the owner.
Sounds straightforward, right? Not so fast. While the process may seem simple, there are key considerations that can easily be overlooked, especially for the owner. These details, which go beyond punch lists and drawing handovers, can have serious consequences.
At substantial completion, the project is operational—but it also marks a significant point in the risk-shifting process. Below are the four most commonly overlooked aspects of substantial completion that could leave an owner scrambling:
When substantial completion is reached, it triggers the release of retainage—a portion of the project payment that is held back by the owner until completion. For contractors, this is typically a sizable lump sum, which the owner must be prepared to release once substantial completion is confirmed. Understanding this requirement is crucial for managing cash flow during the final stages of a project.
Many construction contracts stipulate that warranty obligations begin as soon as the Certificate of Substantial Completion is issued—not at final completion. This means that even though the project may still be months away from final completion, the claims limitation period for the warranty starts ticking once substantial completion is achieved. This is a crucial detail for owners to understand to avoid unexpected legal issues down the line.
In most contract documents, the builder’s risk policy typically ends when substantial completion is declared. At that point, the owner must have a property insurance policy in place. Failing to secure the right coverage at this stage could leave the project vulnerable to unforeseen risks. Owners need to ensure that the transition in insurance policies is handled smoothly to prevent any gaps in coverage.
At substantial completion, the responsibility for utilities and site security often shifts to the owner. This transition can come with unexpected costs, especially if the owner isn’t prepared for the bills associated with maintaining utilities and securing the site. Owners should review and understand these obligations well before substantial completion to avoid surprises.
One of the benefits of using standard contract documents, such as AIA Document A201™ (General Conditions of the Contract for Construction) and AIA Document G704® (Certificate of Substantial Completion), is that they clearly document all these aspects—from retainage release to insurance and security responsibilities. These documents help ensure that crucial steps and obligations are not overlooked.
These standard documents also create a platform for discussion between the contractor and owner, allowing both parties to clarify expectations and avoid disputes during the negotiation phase.
Although substantial completion is an important milestone, final completion is equally critical—but it’s often treated as an afterthought. Final completion is when the remaining balance of the project sum is paid, and all lien releases, affidavits, and other legal documents are signed. It’s also when the contractor hands over the final, marked-up set of drawings and specifications, which show field changes and constructed conditions. These documents are essential for future maintenance and work.
To ensure everything is in order, it’s important to save all documents related to substantial completion and final completion in a well-organized, easily retrievable location. This will be invaluable in the event of a warranty claim or other issues that may arise after project handover.
While substantial completion marks a crucial phase in any construction project, it comes with several responsibilities that can easily be overlooked by owners. From the release of retainage to securing the appropriate insurance and managing utility responsibilities, these considerations should not be left to chance. Ensuring that all documentation, such as the AIA G704 and A201, is in place and reviewed can help prevent costly surprises down the road. Remember, clear communication and understanding between contractors and owners are vital during these transitional phases to guarantee smooth project completion and avoid future complications.
AIA Contract Documents has provided this article for general informational purposes only. The information provided is not legal opinion or legal advice and does not create an attorney-client relationship of any kind. This article is also not intended to provide guidance as to how project parties should interpret their specific contracts or resolve contract disputes, as those decisions will need to be made in consultation with legal counsel, insurance counsel, and other professionals, and based upon a multitude of factors.