What is "substantial completion"? While definitions may differ, it is usually defined as that stage of construction when the contractor’s work may be used for its intended purpose. AIA contracts define substantial completion as "the stage in the progress of the Work when the Work or designated portion thereof is sufficiently complete in accordance with the Contract Documents so the Owner can occupy or utilize the Work for its intended use."
Why should a contractor care? It must care because numerous rights and obligations are tied to substantial completion. For example, on achieving substantial completion, a contractor may be entitled to its full contract price less only the cost to correct minor deficiencies; an owner may lose its right to terminate the contract for default; the warranty period may start running; and the contract time may stop (important for issues such as liquidated damages and delay claims).
Contract terms and statutes that govern substantial completion may differ from project to project. Therefore, a contractor must look carefully at the contract and applicable statutes to determine how substantial completion is defined, and what rights and obligations it triggers.
Substantial completion is the key to final payment for contractors on Massachusetts public construction projects. This is so because several statutes tie payment rights and obligations directly to substantial completion. For instance, M.G.L. c. 30, §39G, applicable to public non-building jobs, states that once substantial completion is achieved, the contractor is entitled to its entire contract balance, less authorized deductions, within 65 days. Under §39G substantial completion is reached when less than 1% of the work is incomplete, or the building is open to public use.
Similarly, M.G.L. c. 30, §39K, applicable to public building contracts, gives a general contractor the right to be paid its contract balance, less authorized deductions, within 65 days of substantial completion. Under §39K substantial completion is reached when less than 1% of the work is incomplete, or the awarding authority takes possession for occupancy.
Some subcontractors on Massachusetts public construction projects are also entitled to final payment on substantial completion of their subcontract work. Under c. 30, §39F, filed subcontractors and those approved in writing by the awarding authority on public building projects, and certain suppliers on non-building projects, are entitled to full payment within 65 days of substantial completion of their work, less only the cost to complete remaining items. Those same subcontractors and suppliers have the right to demand direct payment from the awarding authority if the general contractor has not paid them within 70 days after they substantially complete their subcontract work.
Substantial completion is also a key element in establishing the deadline for securing liens on private projects under the recently revised Massachusetts Mechanic’s Lien statute. Under that statute (M.G.L. c. 254), substantial completion is reached when "work under the written contract is substantially complete so that it can be occupied or utilized for its intended use". When that point is reached, the owner and contractor are required to file a notice of substantial completion in the Registry of Deeds. The deadline for filing a mechanic’s lien is 60 days from the notice of substantial completion. (See Construction Law Comments — Fall 1996).
To protect their legal rights, every contractor and subcontractor must be alert to the rights and obligations triggered by substantial completion.
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