June 26, 2022
Substantial Completion: Definition, Criteria, and Certificates
Construction projects bring their fair share of paperwork. Some of the legal terms are unnecessary, but here’s one you’ll definitely want to know. Substantial completion is an important checkpoint that determines payment and liability.
- Substantial completion is declared when the structure is fit for the intended purpose. Sometimes this happens when the Certificate of Occupancy is issued, but owners and contractors often agree on more specific criteria.
- The Certificate of Substantial Completion allows all parties to discuss liability and agree on clear next steps.
- After substantial completion is determined, general contractors can demand full payment, subcontractors begin their warranty periods, and the homeowner’s insurance is activated.
What is Substantial Completion?
Substantial Completion is a legal milestone used in construction. A project reaches substantial completion when it is ready for the intended purpose. In many cases, this happens when a building is fit for occupancy.
Although substantial completion does not signify the end of the construction project, it carries serious legal weight when determining liability and payment. Despite its significance, there are no universal criteria for this event, so it is crucial to understand the general factors that contribute to substantial completion.
How is Substantial Completion Determined?
Because there are no exact standards needed to reach substantial completion, the owner and general contractor must arrive at an agreement. The hope is that by this point in the project, they have developed mutual trust and are able to effectively negotiate substantial completion. However, for complex situations, some people will opt for more objective goals:
An itemized list of checkpoints is sometimes provided by the owner in the early stages of construction. Once the general contractor fulfills each task, substantial completion is reached. This method is often used for detail-oriented projects and acts as a legally-binding portion of their contract.
The certificate of occupancy is also a common way of determining substantial completion. Since this evaluation is performed by the local government, both the owner and general contractor can decide to treat this milestone as a marker of substantial completion.
Once all parties have reached a verbal agreement, they can move forward with the legal distinction for substantial completion in the form of an official certificate.
What is a Certificate of Substantial Completion?
When the general contractor requests a Certificate of Substantial Completion, an AIA-licensed architect should inspect the site. Upon approval, the owner, general contractor, and architect will collaborate to write and sign the document.
The certificate will contain information such as:
- The names and contacts of all parties involved
- What aspects of the project have been “substantially completed”
- A “punch list” of tasks that still need to be addressed
- The expected costs of any work remaining
- The expected timeline for any work remaining
- Who will be responsible for security, maintenance, heat, utilities, damages, and insurance
Broadly, the document accomplishes three main goals:
Clear next steps. Construction projects are major undertakings that require highly-coordinated communication. The certificate adds yet another agreement to the paper trail, essentially proving that everyone is on the same page. There are clear expectations for how to continue and finish the work.
Start the clock. Many legal periods officially begin when the certificate of substantial completion is signed. These include warranty obligations, lien and bond claims, and statutes of limitation and repose. In addition, liabilities typically switch from the owner to the general contractor. At this point, all parties transition from construction mode to legal mode, making sure to note any deadlines.
Payday! The general contractor can now request full compensation for any completed work. The owner returns any retained funds. All parties take financial inventory as the project begins to wind down.
What does Substantial Completion mean for me?
Homeowners, if you are unhappy with the general contractor’s work, the certificate offers the opportunity to discuss. The architect is your agent, and you can negotiate any changes. Once you sign, make sure to pay the general contractor for the full amount owed. Now, the insurance will also switch from construction to home.
General Contractors, you get paid after the certificate is signed. If there are any issues, you now have a limited period of time to make a lien claim. From a liability standpoint, you are no longer fully responsible for any delays or minor incompletions. Your construction insurance will no longer be needed because the owner’s home insurance is now active. Finish that punch list and get to final completion!
Subcontractors, you’re getting paid too. The certificate also marks the beginning of warranty periods, meaning that you will be responsible for fixing any defective work (usually for a year). Coordinate with the general contractor to see what needs to be removed from the construction site during the closeout phase.
Final Completion vs. Substantial Completion
Now that we’ve covered substantial completion, it’s important to mention final completion. What are the differences between the two terms?
Final completion is much less important than substantial completion. Once the punch list is finished and all work is complete, the architect will perform a final inspection. After this approval, the project is considered to be finished. Sometimes, certain contract clauses will delay payment until final completion, but by this point, all parties should be paid and satisfied.