What Is Substantial Completion?
Sort it out before you’re told that you’re there.
This month I will continue addressing what can be done to reverse the trend of building owners prematurely accepting projects as substantially complete. Although this practice may seem expeditious for the project, it can lead to long-term problems with the building. This is especially true for its systems if they are not completed, integrated, and/or proven to be operating as intended before the owner’s operations staff takes responsibility for them. The following are ideas from readers, including directors of facilities management and a construction manager.
CAN MOST BE ENOUGH?
Substantial completion is typically defined as the point at which the owner can take beneficial occupancy of the building. This may be the best term for use in standard/generic contract, but it is vague and needs to be defined for each individual project. What is beneficial for an elementary school is different than what is beneficial for a hospital, which is different again for an industrial plant.
Does beneficial occupancy mean “some benefit” or “all benefits expected from a completed project?” If substantial completion is awarded when the owner gains some beneficial use of the facility but not all of the intended beneficial use, the time and effort it takes to go from “some” to “all” is likely to be greater than if the substantial completion award were postponed to the “all” status. One chief of facilities management wrote, “The low-bid contractors are just not bothering to complete because there is no penalty and they have most of their money, they have no incentive. I had one contractor tell me that all the work beyond substantial completion (which he defined as beneficial occupancy) was warranty work and that was the standard of the industry.”
Invariably the building owner wants to start moving into a building as soon as practical, but does the ability to move in represent beneficial occupancy? I think not, because the act of moving in and setting up furniture, equipment, business systems, etc., is a necessary step towards the owner obtaining full beneficial use of the new facility. I agree that not all building systems need to be fully functional in order for an owner to start moving into a building, but move-in should not be defined as substantial completion.
There is also the issue of phased occupancy. If a building is scheduled to be occupied by and fully beneficial to the owner in phases, is the beneficial occupancy of some of the building equivalent to substantial completion for all of the building? What are the systems performance expectations for each phase of occupancy?
It is unlikely that each phase of occupancy has totally independent mechanical and electrical systems. If the central chilled water plant is satisfactorily serving the first occupied phase but not the rest of the building yet, is the chilled water plant substantially complete? The same question needs to be asked regarding central air handling equipment, heating systems, emergency power systems, fire alarm, etc.
OR TO LOOK AT IT ANOTHER WAY …
I suggest that each individual project needs to customize the contractual definition for substantial completion for their particular building and systems. It needs to be clear to all parties — pre-construction and pre-bid — exactly what work needs to be done prior to substantial completion and which does not. In the clear-minded climate of a project’s design and specification phase, I would expect the latter list to be significantly shorter than the former. Simply listing the things that may be completed post-substantial completion would then leave everything else as a prerequisite for substantial completion.
Post-substantial completion activities could include cosmetic touch-ups of finishes; delivery of as-built documentation; seasonal performance testing; and other administrative activities/deliverables that do no impact the ability of the building and its systems to support the owner’s full occupancy and operational requirements.
This approach means that commissioning functional testing should be successfully completed as a prerequisite to substantial completion. If facilitated properly, systems commissioning includes some of the best defined acceptance criteria and, thus, should be relatively easy to enforce. Just like general construction, however, there may be some deficiencies discovered during commissioning testing that the owner determines do not impact the owner’s ability to fully occupy and use the building. Those can be put on the punchlist for post-substantial completion, but the owner should be aware that she is taking an increased risk of those items remaining unresolved for an indefinite period of time.
ON THE OWNER
In summary, I would like to quote one more reader who is a county director of operations: “I do not understand why more owners do not require commissioning on every project and require a completely resolved issues log before issuing substantial completion. When I bid a project, building commissioning is clearly defined in the bid documents. Substantial completion is well defined throughout the specifications and the construction agreement. I find that most general contractors appreciate an owner who requires the commissioning issues log is fully resolved before substantial completion is granted. It is part of being a responsible owner.”