Whew! After a whirlwind two weeks of travel (some by a long bus ride with a great group of kids, including my daughter), I’m back and far enough above water to get back to posting. Thanks for your patience during a bit of a lull.
Recently I have been on an “advisory” kick here at Musings. My latest post on contract necessities and pitfalls tried to point out a few basic highlights for you, as a construction contractor or subcontractor, to look for in reviewing your contracts (before getting the assistance of an experienced construction lawyer of course!).
A recent post by my friend, and fellow construction attorney, Matt Bouchard (@mattbouchardesq) points out that not only do you need certain terms in the contract, you need to have those terms clearly stated and well understood. In his post, Matt discusses a recent 4th Circuit Court of Appeals case relating to substantial completion and when such substantial completion occurs for purposes of the assessment of liquidated damages. The case, 2300 Pennsylvania Avenue, LLC v. Harkins Builders, Inc., is well and thoroughly discussed by Matt (and I recommend that you read his post and the case), so I won’t go through all of the facts of the case as outlined by Matt.
Suffice it to say that the highly important date of substantial completion came into play when some corrective work on certain windows occurred after both the date of the certificate of occupancy (issues a good 2 months prior to the contracted completion date) and the date that the Owner was able to move tenants into the building. The architect on the project did not issue a certificate of substantial completion until well after the contracted completion date and stated a substantial completion date that matched the last date of the corrective window work. Needless to say, litigation ensued relating to the assessment of liquidated damages pursuant to the contractual term stating that these would be assessed for each day that passed between the contracted completion date and the issuance of the certificate of substantial completion.
The 4th Circuit, taking its usual very literal and strict reading of contractual terms (remember this is the appeals court that affirmed that the contract is king), followed the letter of the contract and affirmed the assessment of liquidated damages despite the beneficial use of the building by the owner that started well before the actual date of completion found in the contract. The Court stated that because the architect is the arbiter of substantial completion, its date trumps all else.
Sound like a bad deal for the contractor and a good one for the owner? It is both. However, this case illustrates the need to be clear on what constitutes substantial completion. It also illustrates the danger in allowing a party other than a governmental entity to determine the date of substantial completion (in the above referenced case, the certificate of occupancy could have been used to mark the substantial completion date). Also, if you, as a general contractor, are forced to work on a project where the owner’s representative (read architect) is the final word on completion, be sure to request a certificate of substantial completion immediately and often upon completion of the work.
In short, be sure that important terms like substantial completion are defined in very clear, detailed and, most of all, understandable terms.
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