A few years ago, Eric Novelli, a Tennessee
contractor, agreed to have Wagner Heating & Air install the HVAC system in a
new 3-story home Novelli had under construction. There was no written contract.
When work was done, Wagner called for
final inspection by the City of Chattanooga. The inspector found no deficiencies.
Two months passed. Novelli didn’t make a final payment on the job. Instead, Novelli
showed up at the inspector's office with pictures showing what he claimed were defects
in Wagner’s work. A senior building inspector re-checked the job and found some
problems. Wagner made repairs and called for another inspection. This time, the
entire system passed. But that wasn’t the end of the story. When Wagner presented
his final bill, Novelli wadded it up, threw it away and told Wagner not to come
back to the job. With no other option, Wagner filed a claim for $12,000.
Substantial Completion
The case of Wagner v. Novelli (2018 Tenn. App. LEXIS 281) was decided last week.
Wagner got his $12,000. But it’s a classic example of what should NOT happen when
work is complete. Here’s what should have happened at substantial completion of the Novelli job.
Work is a candidate for substantial completion
when it could be used for the intended purpose – even if minor defects remain. The
completing contractor should schedule the walk-through inspection. Everyone doing
the walk-through needs a pencil and a tablet to make notes. Consolidate these separate
lists into a single punch list of items to be completed after occupancy. Wagner
said that he never got a punch list on the Novelli job. So we can assume there was
never a final walk-through. Call for a walk-through when:
- Installed equipment has been tested and is working,
- Testing required by the specs has been completed,
- Manuals, warranties, keys and controls have been delivered,
- Debris, waste, and excess materials have been removed,
- Work has passed final inspection,
- Occupancy has been approved by the public authority,
- Utilities and services are connected and working.
Terminate and rescheduled the walk-through
if you discover:
- Anything that would limit the intended use,
- Any problem hard to fix when the building is occupied,
- Too many items incomplete, regardless of the type,
- Anything that would take days or weeks to complete.
The owner has to make a decision at the
end of the walk-through. Is the job substantially complete? Or should another walk-through
be scheduled later? Acknowledging substantial completion means, of course, that
the remaining contract price is due less any retainage and maybe 150% of the value
of work identified in the punch list. Clearly, the owner can’t have it both ways
– denying substantial completion while using the premises for the intended purpose.
The most difficult question during walk-through
is discovery of a problem overlooked by everyone, including the inspector. What
happens then? Every case has to be decided on its own merit. But one consideration
applies no matter the type of defect:
It’s the owner’s building. The owner
has to live with the defect. If the owner considers the problem trivial, forget
it. If the owner feels the defect has to be corrected, the contractor has to either
make the correction or offer a discount. In the Tennessee case cited above, Novelli
complained to the inspector and Wagner made the correction. I’m OK with that.
But I’m not OK with doing any significant
construction work without a contract. Construction Contract Writer can head off
problems such as project close-out issues before they morph into an expensive dispute.
The trial version is free.
