In the last issue of Construction inSites, the concept of substantial completion and its importance to contractors and owners was discussed. A related topic that was not discussed, however, is the certificate of substantial completion.

In addition to defining substantial completion in their contract, parties may provide for the issuance of a certificate of substantial completion. Frequently, the determination of substantial completion is made by a third party involved in the construction project. The owner and contractor may agree that the third party, such as the architect or engineer, will be responsible for evaluating the contractor’s work and deciding when to issue a certificate of substantial completion. In many instances, the owner and contractor, in addition to the architect, engineer or other designated third party, will also sign the certificate, thereby establishing the official date of substantial completion for the project.

In theory, once the third party has issued a certificate of substantial completion, one of the contractor’s milestones has been met. A party may want to challenge, for any number of reasons, the attainment of substantial completion, but the party disputing it will face a difficult road. Where the contract calls for the third party to make a final decision on a performance issue, such as substantial completion, those certifications are typically binding. Absent fraud or mistake, most states have held that a certification of substantial completion by a third party is conclusive on the parties if their agreement so provides, either expressly or otherwise.

While the certificate of substantial completion can carry significant weight, the parties also need to remember that its significance is only as great as specified in their agreement. Where the construction contract fails to indicate that the third-party determination of completion should be final and conclusive, fraud and mistake need not be proven in order to dispute a determination of completion.

Similarly, just as the contract language controls the scope of the authority that can be bestowed upon the architect, engineer or other third party, the language of the certificate controls the scope of the certification. Where the certificate fails to recite satisfactory completion of work, the certificate will not be conclusive evidence of contractor’s performance. For instance, if the final certification only specifies that the contractor is entitled to payment, the inference that the work was completed satisfactorily will not be “read into” the certification.

Many construction contracts provide a third party with significant influence in overseeing the progress of the project on the owner’s behalf. The third-party may even have the authority to withhold issuing the certificate of substantial completion altogether until the contractor completes certain punch-list items or other unfinished work. The strength of the certificate of substantial completion, however, is only as great as the authority provided in the contract.

Because of the potential impact of the certification, the contractor can protect itself by insisting on clear language in the construction contract concerning the weight and consequences of the certification. Likewise, the owner can achieve its goals by reserving rights and limiting the impact of the certificate in the event issues in the work arise. In the end, both the owner and contractor must make sure they know and understand the potential effects of the certificate of substantial completion. In the absence of that knowledge, one or both are likely to encounter some surprises at the end of the project.