'Dracula' Claims Can Be Avoided
The turnover of a construction project to an owner is an important time to confirm acceptance of the work. That opportunity to confirm a job well done is a significant moment both for provision of customer service and management of liability.
From a practical standpoint, formally confirming completion – by a written certificate of completion – allows the owner to request repairs that will solidify a relationship. But a certificate of completion also is important from a risk management perspective, because it prevents old claims from being asserted.
The Oregon Court of Appeals' recent decision in Sunset Presbyterian Church v. Brockamp & Jaeger Inc. illustrates the consequences of a general contractor's failure to obtain a certificate of completion for a construction project.
In all litigation, the time for a plaintiff to file a claim with the court is set by the applicable statute of limitations. One dispute in Sunset Presbyterian Church was whether the owner-plaintiff had filed its claim within the time allowed by the applicable statute of limitations.
A general contractor had constructed a new facility for a Portland church. The parties' contract contained a term that provided that any applicable statute of limitations would begin to run upon "substantial completion" of the project.
The contractor argued that substantial completion occurred when the owner occupied and used the building for its intended purpose. The court disagreed, noting that the contract provided that substantial completion occurred on the date that the architect for the project provided a written certification that the project was substantially completed.
The problem for the general contractor in Sunset Presbyterian Church was that it did not have a written certification from the architect that the project was substantially completed. Had the general contractor obtained a certificate of completion, the plaintiff-owner's case would have been dismissed, saving the general contractor not only from potential liability based on the claim, but also from the expense, distraction and headache associated with litigation.
After all, the greatest cost of litigation often is not the claim itself, but the legal and business costs totally separate from the claim. The costs include attorney and court costs, the lost opportunities that occur when a business must devote itself to litigation-related tasks rather than money-making tasks and the emotional toll related to being hauled into court by an unhappy customer.
Further consequences followed the general contractor's failure to obtain the certificate of substantial completion. The plaintiff-owner also asserted claims against certain subcontractors.
Just as the general contractor fruitlessly argued that the time for the plaintiff-owner to file its complaint had already expired, the subcontractors also failed to obtain dismissal. The court noted that the subcontractors could have proved the date of substantial completion based on one of two events for which only the general contractor, not any of the subcontractors, is ultimately responsible for establishing.
The court pointed out that the subcontractors could have proved that the plaintiff-owner's claim had expired if the general contractor had obtained a written certificate of completion. The general contractor wasn't the only one unprotected; its subcontractors were as well.
This court recognized that even without a certificate of completion, the owner can accept the project by taking control of and responsibility for the maintenance, alteration and repair of the improvement. Subcontractors can rely on that moment in time to prove that a plaintiff's claim has expired. But the date that control and responsibility are properly assigned to the owner, rather than the general contractor, is difficult to prove – and it often occurs well after subcontractors have completed their performance on the project.
Accordingly, the general contractor – not the subcontractor – is in the best position to demonstrate that the owner has accepted control of the project by taking control and responsibility for the project.
To be clear, this is not a lesson in how to avoid liability for shoddy work. The court in Sunset Presbyterian Church was not asked to decide whether the contractors involved in that case had failed to perform in a less-than-workmanlike manner. The question was simply whether the owner-plaintiff had waited too long – in the neighborhood of 10 years – to file its complaint.
During that long period, key employees move to new projects and forget significant project details. Employees can join new employers, move to new places and sometimes become unavailable to provide information that is significant to evaluating the claims made by the plaintiff. Such old, "Dracula" claims are more uncertain to evaluate and difficult to litigate, meaning that risk is higher.
For those reasons, the general contractor bears a significant burden to obtain a written notice of completion from the architect. Subcontractors rely on the general contractor to obtain that notice so that they can be protected by the statute of limitations. General contractors likewise are less protected from the dangers associated with old claims by the statute of limitations when they fail to formally establish the date of substantial completion.
It can seem so simple to state that a certificate of completion must be obtained on every project. But that does not always occur when the complexities of project-closeout are transpiring.
Sunset Presbyterian Church is yet another example of a case where foresight could have saved significant resources. Had the general contractor known the legal consequences of its failure to make the final efforts to obtain the certificate of substantial completion, it likely would have made those efforts.
General contractors, and their subcontractors, are better off resolving any dispute about substantial completion near project completion than walking away and wondering what might happen 10 years later.
David Anderson is an attorney in the Portland office of Schwabe, Williamson & Wyatt. He focuses his practice on commercial litigation. Contact him at 503-796-2456 or at email@example.com.
As published, Daily Journal of Commerce - Oregon, January 14, 2013.