In construction a number of instances require the definition of “substantial completion.” Many construction contracts and subcontracts provide for final payment, end dates for warranties and other events calendared by dates of substantial completion. Additionally, a number of Colorado statutes base the timing of other possible legal events on when substantial completion occurs.
It is generally recognized in construction that substantial completion occurs when construction is finished to the extent that the project may be utilized for its intended purpose. Typically, dates of certificates of occupancy are recognized as being the dates of substantial completion.
However, in a September 8, 2016 decision, the Colorado Court of Appeals applied a different twist on the definition of substantial completion. The case ruled that, with respect to a lawsuit against a subcontractor, the date of substantial completion for purposes of the Colorado statute of repose for that subcontractor's work (window and door installation) was when its last work was done—not when the entire construction of the condominium project involved was completed.
The case is “Sierra Pacific Industries, Inc. v. Bradbury.” It will be referred to below as the Sierra case.
The result of the decision in that case was that the supplier of the windows and doors was unable to recover the damages it had paid to settle the general contractor’s claims against it from its subcontractor-installer. That was because more than six years had elapsed from the time of the installer’s last work until the supplier’s lawsuit was commenced.
The reason why the time lapse prevented the supplier’s lawsuit against the installer was the Colorado statute of repose. The statute provides that lawsuits against construction industry members may not be maintained more than six years after “substantial completion” (or up to eight years if defects are not discovered until the fifth or sixth year from completion).
Statutes of repose are intended to prevent lawsuits based on stale claims that may involve failed memories and lost witnesses and exhibits. In the words of the Sierra decision, the statute of repose “... is to relieve those involved in the construction business of the prospect of potentially indefinite liability for their acts or omissions.”
However, in interpreting the Colorado statute of repose, the Sierra court concluded that substantial completion occurred with respect to the installation subcontractor when its work was completed. Relying primarily on a decision from the Texas Court of Appeals, the Sierra decision concluded “... that a subcontractor has substantially completed its role in the improvement at issue when it finishes working on the improvement."
Therefore, it ruled that because the six-year statute of repose had expired by the time the subcontractor was sued, the window and door supplier’s claim against its installer was too late.
Like the Sopris case recently discussed in another of my recent columns (“Defective Construction Defects Case”) a Catch-22 situation may arise from the Sierra case as well.
That’s because it is possible—and it happened in the Sierra case—that the lawsuit brought by the general contractor against its subcontractor (the window and door supplier) was not commenced until more than six years after the installer had completed its work. Because of that time lapse and the Colorado statute of repose, as interpreted by the Sierra court, the installer whose work may have been deficient completely dodged a bullet.
The question presented is whether the need to avoid a lawsuit involving possibly stale claims should take precedence over the opportunity to have those responsible for construction defects answer for their deficiencies.
Albert B. Wolf is a principal in the Denver law firm of Wolf Slatkin & Madison PC. He has many years of experience dealing with construction law, mediation and arbitration.