Substantial Completion Issues

Hi D.

Lets get the heirarchy in line:

Developer > Client > You. Correct?

Between Developer and Client there is a consultant / engineeri with certifying powers.

It would be unlikely for the certifying engineer to take any action that would be detrimental to the developer.

If it is the Developer who has the certifying power then he can issue a Substantial Completion Certificate whenever he wishes.

Quite often he tries to leave it it until way after practical completion has been acgieved - often using spurious snagging lists as a reason.

If he is willing to issue a Substantial Completion Certificate before test and commissioning then it would be prudent to agree.

Check who has the certifuing power before taking any action.

Best regards

Mike Testro

Actually this is the hierarchy Developer (who owns the whole land)>Client(owner of the building)>Engineer>Me.

Thanks for the reply Mike, as always.

I would not have much of a problem had I been so sure that the developer is willing to issue a substantial completion certificate without the t&c. It's the client who assumed that possibility which could lessen the LD. Basically, the lessening of LD is what they are more concerned about (Developer against Client)

I am just in a position to assume right now and should be ready of the assessment whether that is viable or not, contractually or legally.

Thanks again.

D'Artagnan

If the Owner wants to delay the application of LDs he can do so by issuing an EOT for this purposes. There is nothing wrong with it, it would show the good will of the Owner. I believe this can be a practical solution that will still keep the Contractor focused on time issues. Usually after substantial completion warranties start to run and this can be another reason not to issue a substantial completion out of time. In this way if the Contractor fails to meet the new finish date the Owner reserves the right to apply LDs and the warranties will start running at a more appropiate time.

Also remember that usually after substantial completion there is a contract time to finish 100%, if the Contractor does not finishes then from the payments retainage the Owner can deduct the cost to fix pending items.

D - 

I agree with Mike and Rafael - the developer can issue the SC certificate whenever he wishes. But, depending on the type of project, to do so without the completion of testing and commissioning, might be foolish or even impossible.  For example, on  railroad signals and communications projects, testing and commissioning is a major component of the overall schedule and must be completed before revenue service can start or resume.  The testing/commissioning period may drag on for months and months. Obviously, because people's safety is at risk, components of the system must demonstrate that they work as designed before they are turned over.  On other projects, where problems can be worked out after the facility or equipment is placed in service, then it may be possible to declare SC and then finish up all the tests, etc., later.  But as others said, it all depends on the entity responsible for declaring SC and what they want to do.

Lawrence

 the developer can issue the SC certificate whenever he wishes. But, depending on the type of project, to do so without the completion of testing and commissioning, might be foolish or even impossible.

Of course it might be foolish, that is why I am suggesting for the Owner instead of issuing a SC Certificate to issue an EOT (Extension Of Time) keeping on the record that SC has not being accomplished yet, that the EOT provides some relief for a limited time.

There might be further implications when issuing a SC certificate out of time, what if the Contractor continue delaying the job to the point the Owner is in need to declare the Contractor in default? SC certificate will prevent the Owner from declaring latter on the Contractor in default and most probably from issuing claims to the Surety that bonded the job in case there is a PP Bond.

It is common for some jobs to be delayed by reasons under dispute, in the lack of an agreement a practical solution might be to issue an EOT and making it clear that the purpose is solely to delay the application of LDs (Liquidated Damages). This makes sense when both parties have contributed to the delay for which no agreement has been reached and the Owner want to prevent future claims for acceleration in addition to the portion of the delay he might be found liable.

Thanks for the reply.

My main issue is the LD to be imposed by the Developer to the Client and not the LD to the contractor by the client. The client has a contract with the developer to finish the project at a particular date however the project had been delayed not because of the contractor but by the client. The causes of delay is acknowledged by the client and thus they are willing to pay the LD to the developer but wanted to minimize the LD by declaring substantial completion of the project to the developer at an earlier date (3 months before) which is the date of completion without testing and commissioning works.

The problem lies herein whether the developer will accept it as substantially completed and will halt the LD at that earlier date.

Thanks guys again for the replies.

Hi D

It all depends on how freindly they all are.

The one holding the power of certification may well be minded to set off LD's in exchange for no costs but don't bank on it.

Best regards

Mike T.

Hi Guys,

Thanks for the replies.

D'Artagnan

Hi,

Just my 2 cents.  Different contracts have different ways of defining substantial completion.  Some contracts even call this substantial performance.  Some even define the balance to complete in $ amount that is required before a certain project could be declared substantially complete.  Some contracts derive its definition as legislated by lawmakers.  From my observation, the operative phrase in defining if a project can be considered substantially complete is if the project is ready for its intended use.  Again, the operative phrase is the project "ready for its intended use".

Using the above definition, I believe the owner has all the right not to issue Substantial Completion since Testing & Commissioning has not been carried out yet.

I'm not sure from what I read above if the owner can only issue a substantial completion certificate if he "wishes" to issue it.  My suggestion, please review your contract and look for the definition of Substantial Completion.

regards,

Se