It's Not Over 'Til It's Over

In construction, whether a project is “over,” i.e. has reached substantial or final completion, can be a hotly debated topic.  Well-drafted contract provisions can aid the parties in determining when “it’s over.” A recent decision by the Nebraska Court of Appeals illustrated the importance of following the contractual provisions regarding substantial completion in order to provide all parties with certainty about the date it has been achieved.  In Village of Doniphan v. Starostka Group Unlimited, Inc., 22 Neb. App. 464, --- N.W. 2d --- (2014), on February 11, 2010, the owner filed a breach of contract claim against the contractor for damages relating to drainage and standing water problems in a new residential subdivision.  After a trial to the jury, the contractor obtained a dismissal of the owner’s claims based the applicable four-year statute of limitations.

Despite the fact that the contract at issue had provisions that directly provided the definition of “substantial completion” and the process to obtain a certificate of substantial completion, the parties did not follow the steps set forth in the contract.  As a result, when considering the contractor’s statute of limitations defense, the jury was left to weigh the entirety of the evidence to determine when substantial completion occurred triggering commencement of the statute of limitations.  The owner contended that substantial completion occurred in May 2006 after the contractor completed tests of the water line, the Department of Health and Human Services approved the water system, and the owner approved and signed a Recommendation of Acceptance.  The contractor contended that substantial completion occurred in December 2005 because the system had passed the necessary water tests at that time and only “punch list” items remained to be performed.  Evidence presented at trial also indicated that the project engineer believed the project was substantially complete on December 12, 2005, that the May 2006 tests by the contractor were not considered primary for the contract, and although it had not yet been approved by DHHS, as of December 2005, the water lines and sanitary system were put to effective use.  Ultimately, the jury found that the contractor substantially completed its work prior to February 11, 2006.

This case highlights the importance of clearly defining “substantial completion” and, once defined, following the steps set forth to clearly establish a substantial completion date for the project.  The substantial completion date is important for several reasons:

  • Commences the statute of limitations and statute of repose
  • Begins the warranty period
  • Determination of incentives or disincentives and liquidated damages
  • May allow contractor to transfer responsibility for the project and property back to the owner if the project is ready for occupancy

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