Project Closeout Module #14

1. Project CloseoutModule #14 Prepared by Dr. Randy R. Rapp July 2005

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. 2005, Randy R. Rapp

3. 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 2005, Randy R. Rapp

4. Final Cleanup • Full demobilization • No final acceptance until cleanup complete • Done at contractor’s expense 2005, Randy R. Rapp

5. 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 2005, Randy R. Rapp

6. 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 2005, Randy R. Rapp

7. 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. 2005, Randy R. Rapp

8. 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 2005, Randy R. Rapp

9. 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 2005, Randy R. Rapp

10. 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 2005, Randy R. Rapp

11. 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 2005, Randy R. Rapp

12. Post Completion • Full financial accounting • Final project report prepared • Organize and store complete project records with a view to possible claims 2005, Randy R. Rapp