What does substantial completion mean?
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Substantial completion marks the moment in a construction project when the owner can occupy or use the property, but some punch list items remain to be completed. In many cases, substantial completion is used to calculate the deadlines for final payment, mechanics lien claims, and other rights and responsibilities for those who worked on the job.
The American Institute of Architects (AIA) defines substantial completion as “the stage in the progress of the work when the work or designated portion is sufficiently complete in accordance with the contract documents so that the owner can occupy or use the work for its intended purpose.”
However, substantial completion can be frustratingly difficult to pin down. In some cases, it’s spelled out in the construction contract. In others, it may be up to the courts to decide. It’s important for contractors and suppliers to understand how substantial completion is determined on their project, so they can take action if they don’t get paid for their work.
Ultimately, when there’s confusion or dispute about the date of substantial completion, it’s a good idea to play it safe and use the earliest of the events that occurred. Letting a deadline pass could mean losing out on your right to secure payment for your work.
Why substantial completion matters
Contractors and suppliers need to know the date of substantial completion in order to calculate future deadlines. Substantial completion may affect:
- The deadline for payments to the GC and subcontractors (final payment & retainage)
- A contractor’s deadline to file a mechanics lien or bond claim
- The expiration date for liability & warranties
Deadlines for payment
Once a construction project is substantially complete, most contracts require the property owner to submit final payments and retainage to the GC within a specific period of time. In addition, nearly every state has prompt payment laws that require payment by a specific date after substantial completion.
Deadlines for mechanics liens & bond claims
Each state has their own method for determining the mechanics lien or bond claim deadline. Many states use substantial completion as the start clock for the deadline to file a claim.
In some states, the deadline for a contractor to file a lien or bond claim is based on their own date of last furnishing. This means the last day that the contractor or supplier did work or provided materials to the project. In these states, the deadline is generally much simpler to calculate.
Deadlines for liability
Statute of repose
A statute of repose sets an overarching limit for when a property owner can make a claim for defects. Generally, the expiration date for the statute of repose is based on the project’s substantial completion. In California, for example, the statute of repose for construction defect claims is 10 years from substantial completion of the project.
The warranty period is the amount of time for which a contractor has the responsibility to correct defects in their work or materials. The warranty period is generally defined in the construction contract. The deadline for the property owner to submit a warranty claim often starts ticking upon substantial completion.
Date of substantial completion
Substantial completion can be one of the most difficult points to nail down in a construction project.
Defined by contract
The construction contract should clearly define an event or action that constitutes substantial completion. However, in some cases, the contractual definition of substantial completion may not be enough. Ultimately, the definition in most cases is statutory – meaning that it will be up to a court to decide.
Certificate of Substantial Completion
Construction projects that use contract documents from the American Institute of Architects (AIA) will often use the AIA Certificate of Substantial Completion. The architect on the project will inspect the site and issue the certificate when the building is ready to use.
Notice of Completion
In some cases, if a Notice of Completion (NOC) is filed, the date of substantial completion is irrelevant.
In California, for example, the deadline to file a mechanics lien is 90 days from “completion” of the work. However, if a Notice of Completion is filed on a California project, the deadline to file a lien claim is reduced to just 60 days from the NOC filing.
Only 7 states require the property owner to file a Notice of Completion (also called a “Notice of Cessation” or “Affidavit of Completion”):
Some other states have voluntary Notices of Completion.
Notice of Termination
Most construction projects will contain a provision that allows the General Contractor or property owner to terminate a contractor or supplier on the job for breach of contract. In this case, they may be required to serve the contractor with a Notice of Termination. Depending on your project’s state laws, a Notice of Termination can affect your deadline to file a mechanics lien. In Louisiana, for example, if a Notice of Termination is filed, the deadline to file a lien or bond claim is calculated from that date – rather than from the date of project completion.
Certificate of Occupancy
A Certificate of Occupancy (CO) is issued by a local building inspector, and certifies that the building is ready for use. While a Certificate of Occupancy and a Certificate of Substantial Completion have similar standards for issuance, they may not necessarily coincide. Sometimes, a building inspector may require a Certificate of Substantial Completion before they will issue a Certificate of Occupancy. But that is not always the case.
Approach substantial completion carefully
Because substantial completion can be so hard to pin down, it’s important to communicate openly with the GC and property owner on the project. Keeping detailed, comprehensive records of your work and your communication with the project’s owners will be critical if there is a dispute about the date of substantial completion in the future. Ultimately, be conservative about calculating your payment deadlines and the timeline to protect your lien rights. If you’re waiting to get paid for your work, waiting for the deadline to approach could mean losing your rights.