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When Is A Project Substantially Complete?

Thursday, November 03, 2005 04:23 pm

When Is A Project Substantially Complete?

Substantial completion is the most significant milestone in the life of a construction project. It is defined as that point at which the project is suitable for beneficial occupancy or its intended use.

A contractor's achievement of substantial completion has significant legal ramifications. Under the prevailing rule, liquidated damages may no longer be assessed, as the owner is not being deprived of the use of the property. With certain exceptions, the owner is no longer allowed to terminate the contractor for default. And under the terms of many contracts, the contractor is entitled to a reduction of retainage pending the completion of punch list items.

The basic definition of substantial completion - suitable for occupancy or intended use - appears straightforward and objective. In actual practice, however, it calls for a case-by-case factual determination. A review of the case law reveals some prevailing trends, but also some inconsistencies.

Physical Function

Given the definition of substantial completion, the physical functioning of a facility is, obviously, crucial in making the determination. Where a contract called for construction of a containment dike around a dredge spoil area, the project was substantially complete once the dike was physically capable of holding dredged slurry. Appeal of Randolph and Co., Inc., ASBCA No. 52957 (November 6, 2002); CCM December 2002, p. 4.

On phased, multiple-contract projects, it is not possible to determine each contractor's substantial completion based upon the functioning of the facility. The general rule is that the work is substantially complete when the facility becomes available for the performance of follow-on contracts. Appeal of The Gassman Company, ASBCA No. 44976 (December 29, 1999); CCM March 2000, p. 4. With leased commercial or retail space, a project is considered substantially complete when it becomes available for occupancy and installation of fixtures by the tenant. J. M. Beeson Co. v. Sartori, 553 So.2d 180 (Fla.App. 1989); CCM April 1990, p. 2.

The performance of mechanical systems is a common source of disputes regarding substantial completion. Faulty wiring to an air conditi [...]

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