It’s the end of the work as we know it (and I feel fine)1–or the importance of the concept of completion
The completion of the work, the correction of deficiencies and non-conformities, the handing over of the end-of-work documents and the taking possession of the work represent an important stage of a construction project.
However, understanding the legal effects of the completion of the work and adopting effective contractual practices to that sense are often misunderstood or overlooked
Here are some aspects to consider in this regard.
The completion date2 is usually the date on which the work is completed and ready to be used for its intended purpose.
The completion of the activities defined in the contract documents—of which the plans and specifications are an integral part—generally corresponds to this date. In other words, completion of the work occurs when all the work specified in the contract documents has been performed.
It should be noted that, from this perspective, the date of correction of deficiencies or non-conforming work,3 the visits of the professionals or the issuance by them of the certificate of completion as well as the acceptance of the work by the client are not determinative. Moreover, the lists of deficiencies issued by professionals frequently include work activities that have not yet been completed, which leads in principle to the postponement of the completion date.
But why is the completion date so important?
Because, among other things, it marks the beginning of the countdowns to:
- the deadline for payment of the final instalment and the release of the contractual holdback;4
- the thirty (30) day period for the conservation of the right to the legal construction hypothec from which contractors, professionals and suppliers of materials can benefit;
(However, this second case should not be confused with the triggering of the time period—generally one hundred and twenty (120) days—within which a formal notice of payment is required for the application of the labour, services and material bond,5 the calculation date of which is established separately for each beneficiary; whereas in the case of the legal hypothec, a single completion date is generally established for all the parties involved, with a few exceptions.6)
- the application of the solidary guarantee of contractors and professionals against the loss of the work (or major defects assimilated as such) discovered within five (5) years.7
We now arrive at the contractual framework that governs the completion date.
Since the due date for the payment of the final instalment or release of the contractual holdback8 generally falls outside the thirty (30) day window following the completion of the work to register a notice of conservation of the legal construction hypothec, stakeholders may have to opt for a “preventive” registration of such notice.
These notices, in turn, will give rise to (albeit often legally incorrect) holdbacks or monitored payments by the owner, pending their complete cancellations (discharges).9
Worse still, the portion of the final payment owed by the owner may not only be subject to notice for that amount by the general contractor (or design-builder or construction manager for services and construction) but also subject to notice for each of the corresponding sums owed to the various levels of subcontractors and suppliers (of the first levels at least), so that, by way of illustration, a debt of $1 may give rise to hypothec notices totalling $3.
This bad situation can be avoided by providing a more effective framework for this stage of the project, in particular by:
- clarifying the role of the professionals (in terms of inspection, issuance of lists and certificates, establishment of guarantee periods, etc.) and ensuring that the terms of their mandates are compatible with the contractor’s contract and with applicable laws;
- contractually predetermining the substitution of the security offered by the legal construction hypothec, whether by bond or any other commercially satisfactory manner, in order to establish consent, as well as the amount and the terms;
- making this substitution in favour of all the potential beneficiaries of the right to the legal hypothec, in particular in order to avoid an escalation of the sums required due to the duplication effect described above.
The end is in “site” and we wish you good fortune with your project!
1 The title of this article may have surprised you. In writing about the end of the work, we were inspired by R.E.M.’s hit song, It’s the end of the world as we know it (and I feel fine). There you have it, our musical tastes are revealed!
2 Abandonment of the work, the notion of work performed in successive phases and bad faith are some of the major exceptions to this principle.
3 Deficient or non-conforming work is usually itemized in the “list of deficiencies” issued by the professionals.
4 However, the entire amount will generally be due upon delivery of the end-of-work documents and the correction of deficiencies and non-conformities.
5 In this regard, it should be noted that the denunciation notice required for certain beneficiaries of this bond (those who have not contracted directly with the principal debtor) is not the denunciation notice required for the purpose of preserving the right to the legal construction hypothec (for those who have not contracted directly with the owner).
6 It could be argued that a completion date would be established for each of an owner’s co-contractors on a services-only project under management.
7 Acceptance of the work, and not the completion of the work, marks the application of the joint guarantee against poor workmanship discovered during the year. As for contractual guarantees (or conventional guarantees), the terms of the contractual documents should determine the periods of coverage, at least theoretically, since the wording is often fragmentary, uncertain and imprecise.
8 It will generally vary from thirty (30) days from the correction of deficiencies and non-conformities to one (1) and even two (2) years following the issuance of the certificate of substantial completion of the work.
9 These “total cancellations (discharges)” will of course result in delays and costs. Delays may be reduced, for a higher cost, by a process such as depositing the payment in trust, followed by proof of filing of the deeds of cancellation (discharge), followed by release of payment. Another option, again for a higher cost, is to propose the substitution of the hypothecs with another sufficient security. This option will result, at best, in negotiations, or at worst, in a dispute, and in either case, at costs and delays that all parties could have done without.