by E. Mitchell Swann, PE, MDC Systems® Consulting Engineer
Substantial Completion. These two words can change the course of history. Well, the course of your project or payment history, anyway. Many contracts contain that phrase as a key indicator of a major project milestone for the release of retainage, but there are other key elements of a project which can be impacted by the crossing the marker line of substantial completion even when you can’t be sure when it’s ‘done.’ New processes, requirements and performance objectives can greatly impact when a building is ‘substantially complete’ and with that many of the key acceptance elements that flow from that completion.
So what is Substantial Completion?
The term is bandied about regularly, but you would be surprised at how varied the interpretations are from project to project. In some cases, it is used interchangeably with “mechanical completion,” which to many contractors is a phrase with major significance. Often, mechanical completion is the point at which the “punch list” inspection (punch listing) can begin and a contractor can hopefully see the light at the end of the project tunnel. BUT, a project being ‘mechanically complete’ is not the same as being substantially complete (unless most of the scope is “mechanical”) because there are often other components in a project which are necessary to make it truly functional and useable in accordance with the design intent but are not mechanical (i.e. finish trades, doors, locks, flooring, etc.)
There are other commonly used terms. One such term is “beneficial occupancy.” This would seem to require “substantial completion” but is often used in a different way. There are some definitions of “beneficial occupancy.”
When an owner of a property can use it before all the construction is completed (from Black’s Law Dictionary)Use of a building, structure, or facility by the owner for its intended purpose (functionally complete), although other contract work, nonessential to the function of the occupied section, remains to be completed (emphasis added; from theconstructiondictionary.com)
So what about the Certificate of Occupancy?
A “C of O” is a document issued by a local government agency or building department certifying a building’s compliance with applicable building codes and other laws, and indicating it to be in a condition suitable for occupancy. The purpose is to prove that, according to the law, the building is in livable condition.
A certificate of occupancy is evidence that the building complies substantially with the plans and specifications that have been submitted to, and approved by, the local authority. (emphasis added)
So we are still left with some uncertainty as to what exactly is substantial completion?
How about this definition?
“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.” Section A.9.8.1 (AIA 201 – General Conditions of the Contract for Construction)
Is “mechanical completion” required? Is a C of O required?
Pretty much ‘yes’ for the first one, but not necessarily for the second. Why is substantial completion so important? Because the date of substantial completion can establish:
- the date that the owner becomes responsible for the property, (the warranty “clock” starts)
- the date the “Statute of Limitations” clock starts
- the date the “Statute of Repose” clock starts
- the date the contractor is no longer (fully) liable for delays to completion (the “LD” clock stops)
So where is the problem in all of this?
The squishiness can arise when you look at some of the execution and completion strategies and expectations employed on projects today. Projects with multiple phases; or projects with a central utility plant but lots of other “pieces” connected to it; or projects with specific performance expectations (i.e. certified green buildings) or projects that are to be commissioned can introduce some fuzziness into the substantially complete date.
Phased projects with central utilities can create the circumstance where a key utility service to the building like chilled water or steam, can end up where the central plant is installed and must be operated before the follow on phases are complete. That ‘early start-up’ of the plant can make the plant ‘substantially complete’ well before the design load – embodied in the remaining phases – is available to really ‘test’ the plant. What happens if the plant is found wanting when the full load is available; or if there is additional construction required to bring the new phases on-line to the operating plant? Is the plant considered substantially complete at the time it is placed in service or at the time it is fully loaded?
Projects that are to be commissioned can raise issues with respect to the time it may take to achieve a fully commissioned building. Clearly the building must be “mechanically complete” to be commissioned; and it should be well past that point. But no owner is likely to ‘accept’ a project that has to be commissioned as being ‘done’ until the commissioning agent says ‘all is well’, right? So therein lies the conundrum – a ‘substantial’ portion of the construction must be completed before the building can be commissioned, but the commissioning process can take several months or longer on a complex facility. Is that portion of time – the period between when the commissioning can start in earnest and when it is finally done – considered “post” substantial completion or “pre” substantial completion? How does that affect the builder’s warranty? Equipment warranties? Is it part of the ‘construction period’ or the warranty coverage period or something nebulous in between?
Then there is the hot topic of high performance and/or “green” buildings. High performance is a concept which can only be realistically measured over time; and often the time required to measure performance can be quite long relative to the functional completion date for the project. However, things like ‘substantial completion’ can start the clock when the project is not really ready to go. If substantial completion is declared but the building is still being “shaken out,” how does the evaluation of performance fare if the shakeout period is included in the mix? If performance is a key expectation, is a project complete if the target performance isn’t achieved? As stated above, sustainability and high performance can only truly be measured over time, but our current contract concepts don’t include that idea except in the ESCO arrangement and those frequently include some sort of O & M or service contract by the contractor.
So what should you do about this essential but elusive concept?
Consider the following steps:
- The Owner’s Project Requirements documents and the Basis of Design, along with the design documentation should clearly delineate systems which will have a phased loading or start-up;
- Critical interface(s) between systems should be clearly defined and if some special or focused effort should be made at start-up or during commissioning, the activities, responsible parties and timelines should be spelled out;
- Essential acceptance testing and criteria should be clearly defined along with the responsibility for same and who reviews and approves the results;
- Request extended warranty periods for both the contractors and major equipment
These are just some of the steps one can take to try to make the very important occurrence of substantial completion a bright line on the project completion timeline so that everyone knows what’s expected; who is responsible for it and what defines “complete.”