Think through partial substantial completion

BY SUSAN LINDEN McGREEVY CONSTRUCTION ATTORNEY ASK THE AVERAGE person what it means to be " substantially complete" and you will probably get an answer such as "close to, kinda, sorta done." Well for those in construction, the term "substantially complete" has as special a meaning as the word "eagle" does for Tiger Woods. It means, legally (unless the parties have agreed otherwise), when a project

BY SUSAN LINDEN McGREEVY
CONSTRUCTION ATTORNEY

ASK THE AVERAGE person what it means to be " substantially complete" and you will probably get an answer such as "close to, kinda, sorta done." Well for those in construction, the term "substantially complete" has as special a meaning as the word "eagle" does for Tiger Woods. It means, legally (unless the parties have agreed otherwise), when a project is complete enough for the owner to use it for its intended purpose, even if not every last little item is done.

This is a big issue in construction. Many battles have been fought in courts over whether a project was substantially complete at a certain time, because imposition of liquidated damages, entitlement to early completion bonuses, an owner's right to occupy or be responsible for damage all turn on this determination.

Frequently, the contract is written to place responsibility for deciding whether the project is substantially complete in the hands of the owner or the owner's designer. This doesn't always lead to the warmest, coziest feeling for the contractor.

Take all those issues and multiply them times 10 and you get the situation to be faced where one party or the other wants there to be a "partial substantial completion." This makes sense and both parties want it in many, many situations, but even then there are too many potential landmines on the terrain to even count. For example:

• What happens to liquidated damages or bonuses? Is the bonus fully earned if only part of the facility is used? Should liquidated damages go away? Could the original liquidated damages daily rate even be enforced if not all the work is delayed?

  • What happens to retainage? Shouldn't part of it be released if the owner is, in fact, using part of the work?
  • Who is responsible for personal safety of occupied areas?
  • Who is responsible for cleanup in occupied areas?
  • When will warranties and correction periods start to run on parts of the work that are occupied?
  • What if a system is started up, but it can't be tested at its design capacity until the rest of the work is completed?
  • •If the contractors still need to walk through or use parts of occupied spaces to access work left to be done (lobbies, elevators, mechanical rooms), how will responsibility for damage to those "accepted" areas be split and resolved?
  • Are there third parties that might want a say in whether work can go on while part of the space is occupied, such as a tenant, a lender, a surety or insurer?
  • Will the owner want to restrict access of the contractor or working conditions now that some space is occupied? Will noise levels or dust be a problem? Will the owner no longer want contractor personnel on site after normal working hours — or only after normal working hours? Will the owner no longer want contractor personnel parking on site?
  • How to document substantial completion? How did the contractor leave the jobsite, and who is responsible for punch-list items that later appear?
  • Can either party force or deny the other partial occupancy? What if they can't agree on one of the above-listed issues?

I recently had occasion to make the tedious comparison of the form documents of the American Institute of Architects, the Associated General Contractors, the Design-Build Institute of America and the Engineers' Joint Construction Document Council specifically on the subject of substantial completion and partial occupancy, and I was chagrinned to discover that they are all different. In some cases, they are very, very different. Do not assume that any "form" document will protect all your interests if you agree to partial occupancy.

Many of the issues listed above are simply not addressed at all, or the contracts assume that the contractor is responsible for some of these items (such as cleanup) until final completion. If a contractor doesn't know for what kind of use an owner might want a portion of the work early, it can't anticipate in its pricing the extra costs associated with taking the long way around a site rather than the quicker, direct route. If the owner doesn't know how loud the contractor's tools are, it may not know to point out to the contractor that the rooms being taken will be used for retreats and seminars and not storage.

Nothing can take the place of advance planning here. Before building partial occupancy into a contract schedule, both sides need to talk about how that may affect their operations and their contractual responsibilities and rights.

Contractors would have even more reason to videotape site conditions to protect themselves from later claims that it was their employees who scraped the walls and not the day-care toddlers.

Owners need to make sure that the first tenants moving into the building understand what they will be putting up with for the next few months, including alarm testing, HVAC adjustments, inspectors, visitors and other inconveniences.

Tension probably can't be avoided, but it certainly can be reduced if both sides do advance planning and negotiation over partial occupancy.

Susan McGreevy is a partner at Husch & Eppenberger, Kansas City, Mo., phone 816/421-4800, e-mail to [email protected]

TAGS: Law