Substantial completion
The term ‘substantial completion’ is often used in American construction contracts, however, because of the ambiguity of its meaning, and the fact that it is often not expressly defined in contract documents, it can lead to disputes.
A general definition has been established by the American Institute of Architects (AIA):
'[The] state in the progress of 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.'
There are several states that have followed this general definition, but others have left it to the individual contract documents to define, as the condition of being fit for occupancy and for its intended purpose may be difficult to standardise for every situation. As a result, it may be necessary for the parties to define within the contract itself what qualifies as being substantially complete.
Substantial completion is an important milestone as it can trigger the release of payment sums (less retainage funds which are withheld until final completion), the commencement of warranty periods, the commencement of statutory limitation periods, the beginning of the owner’s responsibility for insurance, utilities, etc., and so on.
NB: The UK equivalent is known as ‘practical completion’.
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