Substantial Completion: When exactly does it occur?

Substantial Completion

When an owner decides to build something, he or she usually decides that he or she wants it completely finished, okay the owner always wants it completely finished.  But is the owner guaranteed that?  Probably not.  Now does that mean a contractor can walk away from a job after placing the concrete building slab, highly doubtful.  The owner is typically guaranteed “Substantial Completion,” which is usually, and should be, defined in a contract.

Substantial completion is similar to the general contract principle of substantial performance, but is more specific to the construction industry.  Substantial completion is the point where the owner can make use of the building or facility and ordinarily only minor work remains, i.e., punch list items.  Section A.9.8.1 of the American Institute of Architects (AIA) defines substantial completion 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.

Certificate of Occupancy

This language may be a starting point for contracts, but it should be reviewed in each contract, especially if the work involved is anything unique or unusual.  Although a certificate of occupancy (CO) may be a good point of reference for determining whether a building or facility can be occupied or utilized for its intended work, the standard AIA provision does not require obtaining a CO to reach the level of substantial completion.  Although, often times local municipalities will require a CO to obtain substantial completion.

The date of substantial completion is extremely important, because it determines the date that a contractor is no longer fully liable for delayed completion or for minor incomplete details.  After substantial completion, the owner again becomes responsible for the property, i.e., security, utilities, etc.  A contractor can still breach the contract, but any breach subsequent to substantial completion will only be a minor breach.  These are some of the reasons why the point of substantial completion can be, and often is, a highly debated issue in litigation.  That’s also why it can be extremely important to define “substantial completion” appropriate to every job.  The cost of reviewing the document can save thousands in the long run by avoiding costly litigation.