Project Management: Substantial Completion to Close-Out

*Disclaimer: the content of this blog post is designed to provide information only and do not constitute legal advice. If legal advice is required, legal services should be sought.

Getting a construction project from substantial performance to completion and turnover is not easy. This process involves actions performed by individuals from all facets of the construction chain, with General Contractor leading the pack.

Project close-out is a tedious process involving a lot of paperwork. Project close-outs have become a real challenge for many contractors; once the work is completed the trades have already moved on to the next project, putting close-outs on the back burner. As tedious as it may be, close-out is a critical aspect of construction projects. Finishing a project cleanly and on-time is a win-win for all parties. The contractor receives their deposit cheque* and the owner sleeps with a peace of mind. *It is common practice for the owner to withhold a deposit cheque (between 5%-10% of the contract) in addition to the 10% holdback. The cheque is released upon final job completion, including permit closure and clearing deficiencies.

One of the challenges is that many contractors do not have a formal system in place. I have put together a sequence to assist you in developing, maintaining and executing your project close-outs.

*Note that this timeline has changed on the passing of Construction Lien Amendment Act (Bill 142), implemented on July 1st, 2018. Please reference the amendment act for more information.

Holdback & Construction Lien

The substantial performance date starts the 60 day lien period* where an individual, not paid for the work performed, can register a lien. If no lien is claimed against the property after 60 days, the time limit expires. On the 61st day, the General Contractor can request the hold back to be paid by the owner if no lien is claimed against the property after 60 days. For more information on this section, check out Overview: Substantial Completion.

*Note: 45 day lien period has been changed to 60 days starting July 1, 2018 on the passing of Construction Lien Amendment Act (Bill 142).

Site Review & Deficiency Work

The owner, the general contractor, and consultants will conduct a final walk-through at point of substantial completion. Deficiencies are noted to be compiled onto a deficiency list. General Contractor is obligated to complete every single deficiency in order to reach full project completion to have the construction deposit released. Keep in mind when coming across deficiencies with mechanical, electrical, and plumbing systems as they impact permit closure.

Occupancy Letters

At substantial completion, the project is ready for occupancy. The authority having jurisdiction is to formally issue an Occupancy Letter or a Notice of Final Inspection. Depending on the scope of work, three forms of occupancy exist – unconditional, conditional, and partial. Architectural, Mechanical, and Electrical Occupancy Letters are required depending on the scope of work.

Turnover to Client

As mentioned in Overview: Substantial Completion, the project is formally turned over to the client at substantial completion.  Key actions involve transfer of keys along with all responsibilities for utilities and insurance to the owner.

Close-Out Documentation

The first step is for General Contractor to obtain base as-built drawings (.CAD file) from relevant consultants. The drawing package is forwarded to relevant trades to complete specific as-built drawings.  As a rule of thumb, As-built drawings are required for electrical, mechanical, telecommunications, structural, and fire protection. All trades are requested to provide a warranty letter and supporting documents on maintenance and operation of their product or installation.

Another aspect of close-out involves permit closure. Final inspection is to take place once all deficiency is completed. Once the permit is closed, a final permit report is to be documented.

All close-out documentation is compiled in a close-Out Binder to be sent off to the consultants for final review and approval. At the time of approval, the General Contractor forwards a binder to the client/end user and the building management team for their record.

Construction Deposit

Construction deposit is to be submitted by the Tenant or Tenant’s contractor prior to the commencement of construction, to be held with no interest accruing until such time as the required closeout documents are received to the satisfaction of the Landlord. This includes the rectification of all deficiencies, building permit closure, and a complete close-out binder.