project closeout module #14 prepared by dr. randy r. rapp july 2005

Project CloseoutModule #14

Prepared by

Dr. Randy R. RappJuly 2005

2005, Randy R. Rapp 2

Acceptance of the Work

• Begins with contractor request for final inspection

• Punch list• Final payment, minus disputed amounts• Retainage released after lien filing period and

punch list corrections (surety must approve!)• Correction of work usually guaranteed one year;

warranted indefinitely or until statute of limitations expires.


Liquidated Damages

• Is time “of the essence?”

• Predetermined liquidated damages, or actual damages—not both– Liquidated damages must be reasonable, not

a penalty– Cannot be unilaterally changed after

agreement (Fig. 14-1)– Less than $500/day means little to contractors


Final Cleanup

• Full demobilization

• No final acceptance until cleanup complete

• Done at contractor’s expense


Punch List Obligations

• Contractor– Subtrade work should be carefully checked during

construction: “correct as you go”– No subtrade leaves until its work is acceptable to the

contractor

• Engineer– Noted deficiencies promptly corrected?– Prefinal inspection when contractor notifies– Sign and date numerical list– Continue numerical list if additional faults discovered


Minor Deficiencies

• “Failure to correct minor deficiencies in a substantially completed project is not a default; it is a constructive, deductive change.”– Cannot be a contractual default– Hold 1.5 to 2 times the estimated cost of

uncorrected items from any payments


Closeout Preparation

• Release unneeded personnel, typically all except resident inspector (and maybe clerk)

• Changes of address to all parties• Ensure contractor submits record drawings as a

condition to final payment• See pp. 358-61• Final progress payment and release of retainage

may constitute waivers of claims by parties, except for particular circumstances.


CompletionVs. Substantial Completion

• Black’s Law Dictionary:– Completion: no essential element lacking.– Substantial performance: no willful departure from the

terms of the contract; only minor omissions or defects

• What is minor? Can owner use work for purpose intended?

• Some confusion in AIA documents: not really two stages of completion


Substantial CompletionVs. Beneficial Occupancy or Use

• Complementary terms• Beneficial occupancy occurs if owner uses

project before 100% complete• Guarantees begin upon beneficial occupancy or

substantial completion, unless a prior commitment for partial occupancy

• If beneficial or partial occupancy:– Beware responsibilities for maintenance and security– Inspector prepares punch list before occupying– See pp. 365-67


Liens and Stop Notices

• Mechanics liens protect financial interests subcontractors, suppliers, and—sometimes—designers who contribute to improvement or a project

• Normally a time limit to file, sometimes a time limit to notify that a lien will be filed

• Some states allow liens to be filed against public funds: stop payment to the contractor


Lien Waivers

• Two versions:– Conditional waiver and release upon partial or final payment– Unconditional waiver and release upon partial or final payment

(owner should expect only when concurrently issuing payment check)

• Subcontractors paid after contractor, so unfair to expect waivers from them until they are paid for their work– Contractor affidavit swearing that all subs and suppliers have

been paid– Contractor signs indemnification to reimburse owner in full, if a

sub or supplier later files lien– Stop notice or lien release bond: owner released from lien

obligation, but surety pays


Post Completion

• Full financial accounting

• Final project report prepared

• Organize and store complete project records with a view to possible claims

project closeout module #14 prepared by dr. randy r. rapp july 2005

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