Saturday, July 14, 2012

Final Acceptance of Work on a Construction Project - Implications - Part 1 of 5

Over the next few days, we'll be discussing the significance of an owner's "final acceptance" and payment for work performed on a construction project. This act, while seemingly just another part of the construction phase and closeout, results in the triggering of many rights, waivers of rights, and warranty issues for the owner, contractor, suppliers and subcontractors.  It even has an effect on the contractual responsibilities of the design professionals.  The series is based on an excellent article written by Joseph C. Staak, Esq. of Smith Currie & Hancock.

Upon completion of a construction project, the owner will “accept” the work and thereafter release final payment to the contractor. Generally this final acceptance is performed by the project archietect. Typically, a contract sets procedures for the administrative closeout of the project, including clauses covering substantial completion, reduction and release of retention, final inspection of the work, final acceptance, and final payment.

As can be expected, contractors usually focus most heavily on what is necessary to receive final payment. However, “final acceptance” by the owner is the most important closeout event as far as the contractual and legal relationship of the parties. Under the common law of contracts, upon final acceptance, the owner takes control and ownership of the project and the risk of loss passes from the contractor to the owner. Final acceptance generally means acceptance of the work as completed, including any deficiencies known to exist. At that point, the owner’s contract rights against the contractor become far more limited. Therefore, final acceptance of the work should be considered the most significant contract event only after contract award.

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