The Punch List Can Cause Problems: Common Issues and Best Practices

“Everyone has a plan until they get punched in the mouth.”~ Mike Tyson

A construction project can be long and grueling. Everyone has their plan and executes it as best they can, but in the end, it’s all about buttoning things up and getting onto the next job site. Still, the owner still has to approve everything before the project reaches completion and everyone gets their hands on retainage. That’s where the punch list comes into play.

Let’s take a look at what exactly a construction punch list entails, how it can affect getting paid, and how it could cause problems for lien rights. Then, we’ll move on to best practices.

Construction 101: What Is a Punch List?

A punch list is a list of work or items that do not conform to the contract specifications. The GC must complete or repair these tasks in order to receive final payment. An accurate punch list is key to delivering a successfully completed project. This is basically the last step in the project in order to double-check that everything has been completed according to the owner’s specifications.

A well-formulated punch list will outline all tasks that need to be addressed before the structure is ready for occupancy. Punch work items are usually smaller/minor fixes. Most of the larger issues have most likely been corrected through change orders. These fixes could include any incomplete/incorrect installations or incidental damage on existing finishes or structures.

Fun Fact: the term “punch list” takes its name from the old process of punching holes in the margin next to the items on the list indicating that the task is complete!

Who’s Responsible for What on the Punch List?

Preparing a punch list is a collaborative effort. It involves nearly every project participant. Punch lists are the result of a walkthrough conducted by the owner, the GC, and potentially the architect as well. They will inspect the premises and identify problem areas. It’s the owner’s role to ask as many questions as possible and point out anything that doesn’t meet expectations. The architect might be there too to determine if the finished product matches the original plans. It is the GC’s role to act as the owner’s representative. They’ll consult with the owner, and prepare the final punch list. The GC will then contact the subs, who will ensure the remaining tasks are completed.

Subcontractors are the ones who bear the heaviest load in the punch list process. They are the ones who are performing much of the punch work and gathering all the necessary change orders and documentation that the GC must pass on to the owner. The best practice here is to start organizing these documents as soon as possible, rather than waiting until the end of the project.

Free Punchlist Template Download Available

Free form download: Punch List Template


What Effect Does Punch Work Have on Getting Paid?

The reason everyone on a project should be involved or concerned about the punch list is that it’s tied to final payment. An owner will typically be holding onto retainage (for more on ‘retainge,’ read the article we have linked below) until the punch list items are complete, which puts the fate of the contractor and subs in the owner’s hands. After all, retainage often exceeds the profit margin on the job. When the contractor believes that he has reached “substantial completion,” they can request a “pre-final” inspection of the project. With any luck, the punch work needed will be trivial and the final payment won’t be too far off.

Further Reading:  The Ultimate Guide to Retainage in the Construction Industry

In most contracts these days, final payment is released when the punch list items have been completed to meet the contract specifications. Once “punched” the list is then typically attached to the Certificate of Substantial Completion.

However, we have one key takeaway here: retainage does not extend your mechanic’s lien deadlines! (More on how punch work affects lien rights in the next section.)

How Does Punch Work Complicate Your Lien Rights?

Another possible challenge contractors may encounter is the effect on mechanics lien rights. Every state has deadlines that need to be met in order to secure lien rights. Typically, the lien deadlines starts ticking from the “date of last furnishing of labor/materials” or the substantial completion of the project. The tricky part here is that most states don’t include punch work when determining these dates.

Many would consider their last day of furnishing labor or material to the project or the completion date of the project to include punch list work, but in the mechanic’s lien context, they would be wrong. For whatever reason, states almost universally exclude punch list, warranty and other remedial types of work from any of these calculations.

The danger here is clear. If you don’t take this rule into account, you would consider your mechanics lien deadline to be one date when the actual date is much, much sooner.

Earlier this week, I was speaking with a subcontractor who was in a not-so-rare dilemma. Punchlist work on a project had gone so long that his mechanic’s lien deadline was approaching while he still had work to do on the site, and since he was still doing punch list work, payments were held up.

For the purposes of this discussion, it really doesn’t matter whether the amount withheld from the contract for punch list work is exaggerated or not, because in the mechanics lien context you’ll want to file a claim to secure everything owed to you – which will include amounts owed upon completion of punch list work.

The Catch-22 is that your mechanics lien deadlines are expiring on money that you may not be contractually owed (because it’s contractually approved to withhold for any and all punch work).

Unfortunately, very few states address this issue in the mechanic’s lien laws. Usually, there is little guidance to the subcontractor or supplier if this situation arises. The best practice may be to simply file the claim for the amount you expect to be due after punch list acceptance.

And of course, there’s the issue of project relationships when confronted with a mechanics lien deadline while still on the project. Bottom line: it’s never a good thing when punch work goes on for so long that your payment rights (via the right to file a mechanics lien if unpaid) are due to expire.

Punch List Best Practices for Contractors & Subs

Because punch items are difficult to anticipate or define in a contract, it is important for subs to be prepared. The 3 keys to this are communication, documentation, and education!

Communication

Having open channels of communication with your GC or project manager is crucial to successfully closing out your contract. Anytime there’s an interference or damage to your work – let them know, right then and there! The GC’s main goal is to reach the finish line too. The fewer the punch list items, the easier life will be. So informing the GC as early as possible will reduce delays make closeout simpler and easier so both of you can get paid.

Documentation

Photograph anything and everything! Having progress and completion photos can help ensure that you aren’t called back to do additional work. Many times, especially for trim-out and finish work, other contractors will begin the next phase of construction and potentially damage your completed work. If any issue arises, you’ll have photographic proof that you properly completed your work.

Education

Read your contract! More than once! Make sure that your scope of work is as detailed as possible. Otherwise, you might end up doing work or paying for items that are potentially outside your scope of work.

The Bottom Line on Punch Lists and Punch Work

Punch lists are a crucial step in the construction process. It is the last hurdle to successfully deliver a completed project. Each project faces its own unique challenges, but preparing a complete and accurate punch list will give everyone on the project a clear understanding of what needs to be done in order to finish the project.  Which is why we created this simple, easy to use downloadable, punch list template (link above), to help you finish your efficiently and profitably finish your project.

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The Punch List Can Cause Problems: Common Issues and Best Practices
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Punch list work might seem minor, but it has an improportionate impact on payment. Without getting punch work out of the way, retainage won't be released.
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