EVERY PROJECT’S ENDGAME: SUBSTANTIAL COMPLETION AND THE PUNCHLIST
By Roger Greenwald, AIA
Roger Greenwald, AIA is a licensed Connecticut architect based in Wethersfield, CT, specializing in providing licensed architectural services for residential and light commercial architecture throughout Hartford, Hartford County, and the entire State of Connecticut.
Roger’s practice includes expert witness work for construction disputes throughout the Northeast.
Most construction disputes come to a head toward the end of the job. A bad-faith contractor is often adept at deflecting your concerns with promises and bland assurances as the job progresses. At some point, he will announce that he is ready to receive his Final Draw payment, with certain items relegated to a “punchlist”. But is the job really ready for you to release that final payment? And how do you know how much to hold back for the unfinished items? We now focus on the critical milestones of “Substantial Completion” and the “Punchlist”.
Substantial Completion: If your architect has helped you negotiate a fair contract, the Final Draw will be a substantial one, with sufficient money held back to incentivize completion of the job. Typically, the trigger for the Final Draw will be arrival at “Substantial Completion”. But what exactly is Substantial Completion? The American Institute of Architects, which you may know as the AIA, defines substantial completion as:
“the stage in the progress of the Work when the Work …is sufficiently complete in accordance with the Contract Documents so that the Owner can occupy or utilize the Work for its intended use”.
Now, I’m a long-time member of the AIA. But I must say that this AIA definition can spell trouble for the client if it’s not further qualified. The main problem with this definition is that it is silent on the issue of quality. Many a slipshod contractor has sought refuge in this AIA definition. Floors out of level, ill-fitting trim, sloppy paint, crooked tile, and a host of other defects may or may not prevent the owner from occupying or utilizing the Work. But they are unacceptable by any reasonable standards. For this reason, I add the following language directly in my plans: “All work shall be executed in a skilled and workmanlike manner as certified by the Architect.” There! Now, if we have problems with quality, by definition the job is not substantially complete according to the contract documents. So you see why, in previous blogs, we’ve stressed that the plans must be clearly identified as “contract documents” in the construction contract.
Withhold final payment until the architect has certified that the job is substantially complete and has been executed in a skilled and workmanlike manner. In other words, the contractor must correct his errors before that final payment is released!
The Punchlist: The punchlist is a list of tasks which cannot be completed by the time that the project is otherwise ready for occupancy, with each punchlist item associated with a “holdback” sum until completed. A few key concepts help to define what items are legitimate punchlist items:·
Items that are awaiting delivery.
Example: a cabinet door which arrived damaged, and which has been back- ordered.
Items which are weather dependent.
Example: Exterior painting which must await warmer temperatures
It’s important understand that the contractor’s failure to schedule or execute an item of work properly does not qualify as punchlist item. Poorly executed work requiring correction is NOT a punchlist item. It must be corrected before release of the final draw, and before the punchlist is signed.
It is also important to ensure that you hold back enough money for each punchlist item that you can have it done by others if the contractor fails to execute that item. Because it is generally more expensive to bring in a replacement contractor to finish uncompleted items, a good rule of thumb is to hold back three times the actual cost of replacement. This incentivizes the contractor to complete the punchlist, and enables you to complete that tasks using others if he fails to complete.
Your architect can assist you in certifying that the final payment is in fact due, that the work has been executed in a skilled and workmanlike manner, and that the punchlist hold-back amounts are sufficient to incentivize completion, or have the work performed by others.
Remember: A bit of hard negotiation before signing the contract, even if you’re a bit shy of confrontation, can save you from a lot more stress as the job reaches completion. Your architect can play the “tough cop” in that negotiation, enabling you to maintain a friendly relationship with your contractor.
Good luck!
Roger Greenwald, AIA
Licensed Architect, Connecticut