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Where the government took beneficial occupancy of a building after the scheduled completion date, it assessed liquidated damages against the contractor for late completion.  This was on the basis that until the contractor successfully tested the fire alarm system it had installed, the work was not substantially complete.  The contractor argued that the project was substantially complete and that the building was ready for occupancy as of the date that the system was installed.   In deciding in favor of the government, the court focused on the contract provisions defining the parties’ expectations as to the owner’s reasonable use of its facility.

According to the court: “A finding of substantial completion is only proper where a promisee has obtained, for all intents and purposes, all the benefits it reasonably anticipated receiving under the contract.  The doctrine [of substantial completion] should not be carried to the point where the non-defaulting party is compelled to accept a measure of performance fundamentally less than had been bargained for.”

In this case, the court said the government bargained not only for operational installation of the fire alarm system, but for testing of that system to demonstrate that the system was operational.  “Clearly, fire alarm testing was an important requirement to the Air Force before the building could be used for its intended purpose.”  Finding that the decision of the Board of Contract appeals from which the contractor had appealed was not arbitrary and capricious, the court affirmed that decision.  Kinetic Builders, Inc. v. F. Whitten Peters, 226 F.3d 1307 (Fed. Cir. 2000).

Copyright 2001, ConstructionRisk.com, LLC – Virginia

About the author: Article written by J. Kent Holland, Jr.,  a construction lawyer located in Tysons Corner, Virginia,  with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk.com Report, Vol. 3, No. 2 (Mar/Apr 2001).