The term “substantial completion” typically appears at least once in any construction contract. It is used to determine a whole host of things. It typically means the same thing in every state.
Under Tennessee law, it’s defined as the “degree of completion of a project, improvement, or a specified area or portion thereof (in accordance with the contract documents, as modified by any change orders agreed to by the parties) upon attainment of which the owner can use the same for the purpose for which it was intended….”
Can the owner of the project terminates a contractor’s agreement after the project has reached the “substantial completion” point? That depends in part on exactly how the contract is written. In the end, it may be left to a court to determine whether the owner could still terminate the contract when they did and what their payment obligations are to the contractor. The same is true for a general contractor who terminates a subcontractor.
Substantial completion vs. substantial performance
It may also depend on how a court defines substantial completion. In one case that made it to another state’s supreme court, the justices ruled that “there must be substantial performance of all material contractual obligations — not just ‘substantial completion’ of the physical work…” for the substantial completion clauses to apply.
Even after substantial completion is reached, there may be some important tasks left to finish, including fixing defective work if the contractor didn’t fulfill their obligation. That’s where the performance bond comes in. However, if you plan to pursue a claim against the performance bond, you need to make sure you’ve fulfilled the requirements, such as officially terminating the contractor for cause. It’s wise to seek legal guidance before you act.