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The importance of defining “substantial completion” in contracts

| Sep 13, 2021 | Uncategorized |

“Substantial completion” is a common term in the construction industry, but it’s actually a legal term. It’s typically the stage of a project where the bulk of the agreed-upon work is finished. Generally, at this point, an area is ready to be occupied or used for its intended purpose. 

In a large construction project, substantial completion usually marks the point at which responsibility transfers from the contractor to the owner. There may be a certificate of ownership issued at this point, but it’s not always a requirement.

Substantial completion and payment

In just about any repair, remodeling or construction project, payment is expected upon substantial completion. That’s why it’s wise to define in your contract what substantial completion involves so that all parties to the contract understand what is required to meet that milestone and when payment is due.

Many people (particularly customers) combine substantial and final completion into one. Sometimes, particularly in smaller projects, they’re one and the same. However, final completion may not occur until weeks or months later, depending on what still needs to be done and what other professionals may be involved. It could involve painting and any number of other finishing touches.

As a business owner developing your contracts, it’s crucial that you clearly define what “substantial completion” means. This can help you prevent customer dissatisfaction, disputes and potential lawsuits – all of which can harm your reputation and your bottom line. That’s just one reason why it’s wise to have experienced legal guidance as you develop your contracts – and if you need to defend yourself or initiate legal action.