Project Closeout: Planning Ahead is Key

1568864Whether you are a homeowner building your dream home, a business owner building a new headquarters, or a facilities manager charged with construction of a municipal facility, planning ahead is your key to success in terms of your orderly project closeout process.

What Is Project Closeout?

From the owner’s perspective, project closeout essentially means the closing out of the Owner-Contractor Agreement, effectively relieving the contractor of their responsibilities to the owner in terms of the physical realization of the project.

Thus, among other considerations, it entails transfer of responsibility and control of the jobsite from that held temporarily by the contractor during the course of construction back to the owner. It does not entail nor relieve the contractor of any post-construction obligations pertaining to the contract for construction, such as attending to any warranty considerations or any other obligations required of the contractor under the Owner-Contractor Agreement.

What Items are Tangential to Project Closeout?

Project Closeout signifies the end of a long-term transaction, a winding down as the owner prepares to assume occupancy.

During this interval a number of corollary transactions need to take place, including final payment to the contractor, issuance of the Certificate of Substantial Completion, obtaining the Occupancy Permit from the regulatory authorities, transfer of maintenance manuals from contractor to owner, the contractor’s attending to the punchlist, filing of Notice of Completion with County Recorder, obtaining Consent of Surety, avoidance &/or clearance of any mechanics liens, and releasing the contractor’s retainer.

Identifying these tangential items and approaching them in the right sequence and in an orderly and systematic manner can make the difference between success and failure in terms of project closeout.

The pitfalls accruing to ineffectual planning prior to this critical phase of the construction can be illustrated by the following three examples.

Memorializing the Final Completion Date

Identifying the specific date when the building is fit to be occupied for it’s intended use is an important milestone in the closeout process. The Certificate of Substantial Completion document (e.g. The American Institute of Architect’s Document G704) if used, memorializes the specific date and time of this occurrence.

If this date is not identified and signified by written instrument, the date on which all project warranties commence will not be identified, nor will those for owner’s obligations regarding operations, maintenance, security, insurance coverage, and utilities for the building.

Thus a gap can be created between the contractor’s and owner’s insurance coverage, leaving the parties vulnerable.

Consent of Surety

If the project is bonded, Consent of Surety Form will be required at the appropriate time in the closeout process. This form is normally submitted to the owner by the contractor along with the request for final payment. The contractor’s surety company executes this document, which is required to be notarized.

If the contractor omits to transfer this document, the owner’s failure to obtain this document could result in the surety company rejecting any claims the owner may have against the contractor’s bond.

Having a step-by-step procedure in place from the beginning will help avoid this worst-case scenario.

The Case of the “Never-Ending” Punchlist

Lack of communication between the performance and quality expectations of the owner and those the contractor can lead to vast misapprehension of Project requirements during execution of the punchlist during closeout.

If preparation of the Owner-Contractor Agreement is the beginning of the project and Project Close-out it’s ending, the time to identify expectations is at the beginning, before the contract is executed.

The notorious “never-ending” punchlist issue can easily be avoided during construction contract negotiation by making clear what quality standards will pertain to the Work, who is responsible for punchlist generation, when the punchlist is to be generated, and even details such as how many punchlist revisions may be required.

This forces both parties to be precise as to what is expected and protects the contractor from punchlist “creep” that expands its work.

Conclusion

The two most important considerations for owners of construction projects are 1). reliance upon the contractor’s project budget, and, 2). reliance upon the contractor’s schedule.

Considerable time and energy are invested by owners in coordinating the development of a new facility, and this investment involves much more than its physical construction – precious resources are brought to bear in developing the project concept, designing it, obtaining the requisite entitlements and approvals of the regulatory bodies, and bringing the facility to fruition.

Ineffectual prosecution of project closeout increases the owner’s costs. Closeout delays can cost administrative time for owners, dissatisfaction from building users, tension between project parties, and cash flow problems for smaller contractors and subcontractors.

Proper planning from the inception of the Owner-Contractor Agreement and adherence to a procedural format will help ensure that things do not go awry during the final, and perhaps most critical phase in the owner’s realization of their project.

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