Introduction
Project-close-out marks the finalization of all project activities in all phases. The objective is to close a project in a formal way followed by making a transfer of the cancelled or otherwise completed project to the owners. Large project-closeout techniques may apply upon the completion of each phase. However, various retainage issues may emerge during project closeout. This paper discusses these issues.
Importance Closeout in Construction Contracts
Projects are constrained by time and monetary resources. In their execution, various challenges that cause financial risks and delays may occur. To ensure that such risks do not occur in similar projects in the future, construction projects must reach the crucial and final step of closeout (Koffman and Macdonald 107). At this stage, a project is assessed, documented lessons learned, completion realized, and guidelines provided on the best practices that need adoption in future similar projects. This strategy helps in avoiding repetition of mistakes or risks that could be mitigated even before a project has been initiated.
Effects of Certificate of Completion or Substantial Completion on Retainage
Certificate of completion or substantial completion serves as a conclusive document indicating that the employer, through the contract administrator, is satisfied with works executed and quality of materials and goods supplied for the whole project or part of the project (Dentons par.1). Retainage acts as the shield against payments for defective works, solvency risk of contracting parties, and overpayments for work performed (Bausman 1). Certificate of completion or substantial completion concludes that any issues of duty of care, concerns of breach of contract, and even statutory duties have been taken into full consideration in the work segments that it is issued for or for the whole projects. Upon issuance of the certificates, any retainage held by the employer is inconsistent with the purpose for which retainage is set to achieve.
Disputes in Beneficial Use of a Project
Construction projects require all parties to understand their responsibilities as specified in the contracts. However, hotspots of dispute may emerge between the contractor and the owner after the proprietor begins a beneficial use of the project due to the parties not understanding their responsibilities. For example, after the project has progressed to a stage where it is suitable for occupation or meets the criteria for use as intended, substantial completion issues may become hotspot disputes. Disputes may emerge from withholding of a contractor’s funds upon failure of the owner to recognize substantial completion. Disputes arise when the contractor treats a project as less substantially completed.
Certificate of Substantial Completion and Liquid Damages
Upon substantial completion, the owner has no right for assessing liquidated damages. Indeed, liquidated damages comprise one of the sources of disputes between the contractor and the owner (SBC/Q 55). Insurance of certificate of substantial completion erodes the right of the owner to collect any liquidated damages associated with late completion since the project can serve the needs for which it was intended (Eggleston 26).
Releasing Final Retainage Funds
After a project has been completed, the owner has an obligation for releasing the final retainage funds. This stage occurs upon the issuance of certificate of occupation followed by certificate of completion (Designing Buildings par.5). Warranties are also necessary to provide the surety that the project will perform as intended for a given period without the occurrence of defaults, which the contractor remains obliged to rectify them at no extra cost if they occur even after the retained funds have been disbursed.
Conclusion
Construction projects involve payment for product before it has been successfully delivered to the owner. They have various risks, including payment for poor quality work, and continued solvency of the contracting parties, and hence the need for incorporating retainage clauses in construction contracts. However, the clause may attract disputes between the parties.
Works Cited
Bausman, Dennis. Retainage Practice in the Construction Industry, New York, NY: Clemson University, 2004. Print.
Dentons. The High Court Considers the Final Certificate Conclusively Provisions of the JCT, 2015. Web.
Designing Buildings. Final Certificate for the Construction Contracts, 2015. Web.
Eggleston, Brian. Liquidated Damages and Extensions of Time: In Construction Contracts, New York, NY: John Wiley & Sons Ltd, 2009. Print.
Koffman, Laurence, and Elizabeth Macdonald. The Law of Contract, Oxford: Oxford University Press, 2007. Print.
SBC/Q. Standard building contracts with quantities. London: Sweet &Maxwell, 2011. Print.