You don't want your last experience with your client's project to be frustration and a black hole of time and effort.
What has put both parties in this situation?
Is there a sure-fire way to avoid this situation?
- Ok, here are some tips.
My experience has been that even 'good' contractors can have problems with Close Out. Before I retired in 2012, I had experienced just one or two contractors who had established 'Close Out Processes'. These processes were designed to wrap up all the loose ends with the minimum of fuss. One contractor brought a specialized project manager into the project who's specialty was Close Out. Another contractor had built terms into his subcontractors' contracts that allowed him to complete their unfinished punchlist items at their expense. Maybe things are changing for the better. Nevertheless, it is always the contractor who causes the delays in Close Out.
And, NO, there isn't a sure-fire way to avoid this situation. (But, below, I will show you a good way to manage Close Out.)
Liquidated damages won't do it.
Construction contract terms won't do it.
Hand-picking a quality contractor *might* do it.
The best idea that we came up with to try to avert the situation was:
1] Proactively work to get defects corrected immediately
2] Constantly remind everyone at progress meetings that a delay in Close Out paperwork will absolutely delay final payment for everyone. (Peer pressure tactic)
The second best idea that we came up with was to get paid for lengthy Close Outs.
We did this in two ways. The first way was to limit the number of hours that our fee included for Construction Administration. The basis for this limit is that, unlike design, we don't have control over how the Construction phase proceeds, and we shouldn't be penalized for delays. This solves the financial problem that a slow Close Out can cause. This needs to be agreed to before design work starts. Here is a clause that we have used.
"§ XX.X BASIC COMPENSATION
§ XX.X.X IT IS UNDERSTOOD that for all services provided during the Construction Phase, there is a total allowance of xxx hours. If additional hours are required, and authorized, they will be treated as an Additional Service as provided in Sections XX.X.X and XX.X.X."
The second way was contractural too. We defined the end of Basic Services as 60 days after the Date of Substantial Completion. This will solve the financial problem that a long Close Out creates.
"§ XX.X ADDITIONAL PROVISIONS
§ XX.X.X IF THE BASIC SERVICES covered by this Agreement have not been completed within Sixty (60) days of the Date of Substantial Completion, as established, through no fault of the Architect, extension of the Architect's services beyond that time shall be compensated as provided in Sections XX.X.X and XX.X.X."
The first method is needed because a long Close Out is often the culmination of lots of other problems - time-consuming problems. In fact we started using the limitation on Construction Administration hours primarily because of the time it was taking on nearly every job to get the project built. The second provision protects your profit margin by making a long Close Out an Additional Service.
One last tip before showing you my idea for managing Close Out. Make sure you are holding LOTS more money than the remaining work represents, even if it is paperwork. There are all kinds of arguments to be 'fair' and 'reasonable' because this is a hardship on the poor contractor and his subcontractors to withhold payment.
It you don't have 10 times the value of the remaining work, you don't have enough leverage.
Here's my suggestion for managing Close Out whether it is a short one or a long one.
My solution is to create a Trello BOARD that contains all these loose ends (above).
Make a LIST for each project that is ‘trying” to Close Out. Add a CARD for each issue, e.g. Punch List, Close Out Documents, Payments, etc. My 'Post Construction' BOARD above is public. You can see it here and copy into your Trello account. I have a master LIST in the BOARD that you can use whenever you are adding another project.
When a project’s LIST is finally complete, archive it.
If you want to give Trello a try, use this link to get your free account (and I will get a month of Trello Gold free).