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By: Thomas H. Welby Gregory J. Spaun Published: September 2020

Court Rules Substantial Completion Means "Substantial", Saving Contractor's Claim from Dismissal

In previous columns, we have written about contracts where the parties have reduced the applicable statute of limitations from the generally applicable six years to as little as six months. The issue with such contracts is that they are often written so that the limitations period runs before the claim accrues—which will result in a court invalidating the provision entirely. However, not every construction contract has such a provision. As can be seen from the recent case of Eurotech Construction Corp. v Skanska USA Building Inc., even where there is not a shortened limitations period in the contract, it is equally crucial to determine when the claim actually accrues so that the statute of limitations can be properly applied.

Background

In March of 2011, Eurotech Construction signed a subcontract with Skanska USA Building where Eurotech was to be a subcontractor on one of Skanska’s New York City School Construction Authority projects. On June 20, 2013, Eurotech sent its “98%” substantial completion invoice to Skanska for payment, indicating that 98 percent of the work had been completed. Despite having submitted its “98% invoice”, Eurotech performed the following work after the submission of that invoice: repairs to auditorium ceilings; changing and raising soffits; changing and raising framing; changing metal panels and waterproofing; changing and fixing hundreds of doors; installing louvers and door stops; installing aluminum sills; removing ceilings to permit cable installation; and patching sheetrock ceilings, all totaling 1,039 hours’ worth of effort.

Issues arose during the project, and Eurotech ultimately sued Skanska to recover nearly $6 million for amounts it claimed were owing. Importantly, Eurotech commenced its lawsuit on July 21, 2019. Skanska moved to dismiss the lawsuit, arguing that Eurotech submitted its 98% invoice on June 20, 2013, and as the lawsuit was commenced more than six years later, it was time barred. In opposition, Eurotech noted that it performed more than just incidental work after the submission of the 98% invoice, and that substantial completion only occurred on the completion of that substantive work.

Decision

While both sides agreed that a claim for the breach of a construction contract accrues upon substantial completion of the construction, the parties fought over whether such substantial completion had been achieved before, or after, July 21, 2013: the earliest date on which the claim would not have been time barred. The court denied the motion to dismiss, holding that the well settled law on the subject does not reference the measure of substantial completion by any percentage of completion. Rather, the test announced by the Court of Appeals, and again applied here, holds that the statute of limitations begins to run “on the completion of the project even though incidental matters related to the project remained open”. The court further distinguished the controlling case on the issue, noting that the “incidental matters” referenced there were only a minor punchlist—not over 1,000 hours of actual physical work.  In light of this actual physical work continuing well after July 21, 2013, the court held that the claim was timely.

Comment

In negotiating construction contracts, especially between owners and general contractors, the definition of substantial completion is often hotly contested. Owners frequently try to delay a substantial completion payment by requiring the contractor to jump through a number of hoops, some involving outside parties such as the local building department. Having the parties agree upon the definition of substantial completion up from, in the contract, eliminates many of these issues. However, even without a definition of substantial completion in the contract here, the court dismissed the general contractor’s form over substance argument, and held that regardless of the denomination of Eurotech’s invoice as a “98%” or “substantial completion” invoice, the applicable test relates to the actual work performed, and left to be performed, at the project. Clearly, here, the 1,039 hours put in by Eurotech could not be credibly characterized as “minor punchlist” or “incidental matters”.

There will undoubtedly be a case in the near future where the work put in after the statute of limitations date does not measure up to Eurotech’s effort, and the call will be much closer than the one faced by the Eurotech court. Of course, if the lawsuit had been brought much earlier, then this issue would have been avoided in the first place. Accordingly, it is important to consult with construction counsel to determine when your claims accrue, and when you should commence a lawsuit to protect your rights.

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