The Four Most Overlooked Realities of Substantial Completion

The terms “substantial completion” and “final completion”  have become so common in the industry that it’s easy to assume all parties—owner, architect, engineers, and contractor—understand the inherent contractual risks and obligations associated with each.

Theoretically, we all know the definition of substantial completion is the stage when the project or designated portion of a project is sufficiently complete in accordance with the contract documents. At this point, a contractor communicates to the architect that substantial completion has been achieved, which signals the architect to inspect the work. If the architect determines that the project has reached substantial completion, this step is formalized in a Certificate of Substantial Completion (e.g., AIA G704-2017). Final completion is the handover from contractor to owner.

Easy right?

Not so fast. As the “the devil is in the details” idiom reminds us, there are some often forgotten considerations that go well beyond punchlists and drawing handovers, especially for the owner.

Consider substantial completion.  A signed substantial completion confirmation that the project is operational—but it’s also a significant risk shifting milestone. Here are the four most overlooked or even forgotten elements of substantial completion that could leave an owner scrambling:

1. Release of Retainage

Substantial completion comes with a release of retainage from the owner to the contractor. For contractors, it’s usually a large lump sum payment that the owner needs to be prepared to release.

2. Claims Limitation

Most contract documents stipulate that warranty obligations start once the substantial completion certificate is signed—not final completion. Since many projects can take months to reach final completion, many owners don’t realize that the claims limitation period is already well underway.

3. Insurance

The presumption in most contract documents is that a builder’s risk policy ends at substantial completion. At this point, the owner must have a property insurance policy in place.

4. Security and Utilities

Typically, all utilities and responsibilities for site security switch to an owner at substantial completion. That can be a big surprise bill for many owners!

The best part about using standard contract documents such as AIA Document A201™ – General Conditions of the Contract for Construction or AIA Document G704® – Certificate of Substantial Completion is that every one of these items from release of retainage to insurance and security is documented, so it won’t be missed or forgotten. And while these documents make common presumptions, such as the transfer of insurance requirements, it also provides a forum for discussion between the owner and contractor during contract negotiations.

So what about final completion?  Too often, this aspect of a project is something of an afterthought.  However, final completion is the point when the entire balance of sum for the project is paid. For owners, it’s when all lien releases, affidavits and other documents are signed. It’s also the point when contractors hand over the final marked up set of drawings and specifications that show constructed conditions with field changes—vital information for maintenance and future work.

One last piece of advice: save all documents associated with substantial completion and final completion in a place that is easily retrievable in case a problem, such as a warranty claim, should arise!

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.