Certificate of Substantial Completion: What It Is and Why It’s Important
You have homeowners ready to occupy their properties. Are there still details to complete, but they keep asking to move in?
In this case, you can get a certificate of substantial completion for your client.
Keep reading because this article will teach you how substantial completion is determined and why this form is essential to your construction business.
- CM Fusion: Construction Document Management Made Easy
- What Is the Meaning of Substantial Completion?
- Notice of Substantial Completion Is Tied to the Contract
- How Is Substantial Completion Determined?
- 6 Reasons a Substantial Completion Form Is Important
- Certificate of Substantial Completion vs. Certificate of Occupancy
- Certificate of Substantial Completion vs. Certificate of Final Completion
- Manage Substantial Completion Certificates and Other Construction Documents With CM Fusion’s Document Management Software
CM Fusion: Construction Document Management Made Easy
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Filing papers
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Clocking in with punch cards
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What Is the Meaning of Substantial Completion?
In construction, substantial completion refers to when a building or project is finished enough to be used by its owner. Contractors and owners use substantial completion to determine a project's progress and legal deadlines.
With substantial completion, you can determine when the responsibility for a project shifts from the contractor to the owner and what this means for payment and liability.
What Does an AIA Certificate of Substantial Completion Contain?
For the parties to sign a certificate of substantial completion, they must agree on the definition and terms of substantial completion.
In the top portion, the …
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Owner
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Owner’s architect; and
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Contractor
… are identified.
Next, the architect or owner specifies what is substantially completed in the following section. They then list the items the contractor must complete or correct, the costs they will pay, and when the work begins and ends.
Additionally, the document specifies who is responsible for the unfinished work, such as:
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Security
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Maintenance
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Heat
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Utilities
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Damage; and
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Insurance
Notice of Substantial Completion Is Tied to the Contract
A substantial completion occurs when only minor, corrective, or warranty work remains. Substantial completion is difficult to define because it can vary from project to project.
Because final payment is often linked to substantial completion, contractors want to avoid situations where substantial completion is unclear. For this reason, it's best to review the contract carefully to ensure that substantial completion is clearly spelled out.
Substantial completion is best defined by tying it to a clear project milestone, such as the Certificate of Occupancy.
How Is Substantial Completion Determined?
A substantial completion can be applied to a complete project or just one part. The certificate of substantial completion will be signed by the owner and contractor in both cases.
Near the end of a project, there will always be lingering details to be addressed. Eventually, these unfinished details do not prevent the owner from using the property.
Examples of incomplete details could include contractors waiting for supplies or subcontractors to finish minor tasks.
At this point in the process, the owner and contractor should know each other well enough to decide whether or not to sign a substantial completion certificate.
If the owner feels the contractor needs to perform better, they may resist substantial completion. They may worry the contractor will need help completing the unfinished details.
Additionally, if a contractor has had problems receiving payments from an owner, they may want to avoid signing a certificate of substantial completion. It may be feared that the owner will delay or, worse, not pay.
To agree to the terms of substantial completion, there must be trust between the owner and contractor.
6 Reasons a Substantial Completion Form Is Important
As the name suggests, verbatim minutes are a word-for-word account of everything that was said during the meeting.
Verbatim minute-taking is helpful when needing to refer back to a decision made during the course of a project.
#1: Clear Expectations
Clarity is essential throughout construction. The expected outcomes are clearly stated in a well-written substantial completion certificate.
Owners and contractors will have mutual expectations when their expectations are clear and understandable.
#2: Warranty Timeline
As soon as substantial completion is complete, the warranty clock begins to run.
Contractors are required to correct defects through supplemental performance during warranty periods. The AIA A201 General Conditions provide a one-year correction period.
Warranty periods do not affect deadlines or bar claims, but they define how long contractors are responsible for repairing defective work.
#3: Statute of Limitations and Statute of Repose Timelines
Statutes of limitations and statutes of repose timelines begin once a project reaches substantial completion.
Generally, statutes of limitations set a time limit from when an issue is discovered. And once that time limit expires, claims cannot be made. Therefore, where a defect has been found, there will be a limit on how long you have to file a claim based on that defect.
Under a statute of repose, liability will be extinguished after a specified period has passed. For example, if a defect is discovered within ten years of a contractor's performance, the contractor may not be liable.
The statute of limitations and statute of repose limit contractors' and subcontractors' liability so that they aren't responsible for an indefinite amount of time.
#4: Payment and Retainage Deadlines
Payable timeframes and retainage deadlines vary from state to state, and deadlines within the same state may differ depending on whether the project is public or private.
These deadlines and timeframes may be based in part on substantial completion. Because retainage and slow payments are the two most common causes of construction payment disputes, it is essential to understand how substantial completion is calculated.
#5: Mechanics Liens and Bond Claims
In many states, mechanics lien claims and payment bond claims are also triggered by substantial completion.
Mechanics liens guarantee payment to:
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Builders
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Contractors; and
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Construction firms
Also covered by mechanics liens are suppliers of materials and subcontractors, as well as building repairs. In the event of a liquidation, the lien ensures that the workmen are paid first.
Bond claims are claims against surety bonds that have been provided by contractors for the purpose of ensuring payment. They are most common when working on public projects and with governments. By using it, subcontractors can be paid without having to file a lien against government property or sue the government.
#6: Liability Reduction
A contractor will be released from certain liabilities once the project reaches the point of substantial completion.
One example is the assessment of construction delay claims and liquidated damages. Generally, these cannot be enforced after substantial completion.
Additionally, substantial completion eliminates the contractor's liability for material breaches of the contract. A material breach of contract cannot be alleged if the contractor performed sufficiently to reach this point.
Certificate of Substantial Completion vs. Certificate of Occupancy
It is essential to note that a certificate of substantial completion is between the contractor and the owner.
On the other hand, certificates of occupancy are mandated by local governments.
They are needed for any:
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Construction
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Major remodeling projects; or
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Ownership changes
The certificate of occupancy is judged based on whether the existing work is suitable for the specified uses, but zoning boards and building authorities must approve it. In other words, a certificate of occupancy states that a structure adheres to local zoning laws and building codes.
Certificate of Substantial Completion vs. Certificate of Final Completion
The certificate of final completion is a legal document proving a construction project has been completed and is ready for payment.
Of the two, substantial completion is the more significant milestone on a construction project than final completion. In legal terms, substantial completion triggers numerous events and timelines, making it far more critical.
In addition, punch list items are determined after substantial completion, determining which items need to be completed.
Final construction involves …
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Finishing punch lists
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Cleaning up; and
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Clearing the site
… for the general contractor and subcontractors.
During this stage, closeout documents are handed over to the owner by the general contractor after all final payments have been processed. Construction closeout marks the end of the final phase of the project.
Manage Substantial Completion Certificates and Other Construction Documents With CM Fusion’s Document Management Software
Our team at CM Fusion understands the construction industry and the responsibilities that construction crews have. We have created the best software tools to simplify and streamline your work.
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Daily field reports
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Image management
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