Substantial performance and seven important events
Think of all the paper and forms that you deal with daily on a construction project: change orders, meeting minutes, RFI’s, SI’s, certificates for payments, schedule of values, or submittals and shop drawings. So it’s understandable if the forms and paperwork lose some of their appeal and shine over the course of a project. Substantial performance is the light at the end of the tunnel for everyone, but certifying it requires an understanding of it’s significance to the architect, contractor and owner.
First, to make sure we are all on the same page, let’s define substantial performance.
It is defined slightly differently by each province, state or country where you practise but in Canada substantial performance is defined by the Canadian Construction Documents Committee (CCDC) as:
“…when the work is ready for use or is being used for the purpose intended and is so certified by the consultant.” .
In the United States the AIA has a similar definition for substantial completion:
“the stage in the progress of the Work where the Work or designated portion is sufficiently complete in accordance with the Contract Documents so that the Owner can occupy or utilize the Work for its intended use.”
A typical scenario might be that your client is pushing you, to push the contractor to finish the project. He wanted to move in yesterday and can wait no longer but at the same time he doesn’t necessarily want to pay all of his bills just yet. You can’t wait to finish this project because what was supposed to be 8 month construction schedule has now become 10, and you are way over budget on your hours for contract admin. Not to mention that the general contractor is seeing his profit margin slowly erode with each passing day. Everybody is a bit cranky by this time.
Obtaining substantial performance starts when the contractor thinks he is finished, and requests that the architect review the work to verify that it is complete. If the Architect is in agreement and substantial performance is certified, then the date for the following seven significant events are established:
- The date for when the owner assumes responsibility to operate and maintain the building. He can move into the building, open the doors to his business, or turn it over for a tenant to occupy,
- This is the date that starts the countdown for the release of the lien holdback, depending where the project is, the lien holdback will be released 60 days from the date of substantial performance,
- The start of the warranty period begins, and from this point forward (generally a year) the contractor is responsible to correct at his own expense any defects or deficiencies in the work that occur. (It is sometimes at this point that the owner actually wants to delay the date in order to prolong warranties),
- Establishes the date for any penalties or bonus’ for the builder. In some cases the contract includes financial incentives for early completion, or liquidated damages for delays,
- For the architect it marks the near end of his basic services,
- For the architect the clock starts on the statutes of limitation for liability, and
- Signifies for legal, financing and insuring parties that the construction has been completed in general conformance with the contract documents.
If you keep in mind the above timings and the significance of each from the start of contract administration, you will be one step closer to successfully closing the project.
What do you think? We would love to have your comments and hear about your substantial performance experiences.
In our research for this post, we found AIA Best Practises series – Substantial Completion, Where Art Thou? by James B. Atkins, FAIA, and Grant A. Simpson, FAIA very helpful and would recommend it for a more detailed read.