Deficiencies, substantial performance and completion

Three weeks before the clinic was due to open, Simone Dufresne walked level 1 with Ruth Pell of Pell & Strand Architects, Kwame Asante, Helen Achterberg and a clipboard that soon became a tablet full of photographs. They found a door that did not latch, scuffs on corridor walls, a missing cover plate, a sink with no hot water, a ceiling tile stained by a leak that had since been fixed, and a nurse call station that showed the wrong room number. None of these stopped the clinic from working; all of them had to be fixed. The walk produced a list of 287 items. Two weeks later, after Harbourline and its subcontractors had worked through most of them, the list was down to 41, and the project reached one of the most important legal and financial milestones in any construction contract.

That milestone is called substantial performance in Ontario's Construction Act and in CCDC contracts. It marks the point at which the work, or a substantial part of it, is ready for use or is being used for its intended purpose and can be finished at a relatively small cost. Substantial performance starts the clock for lien rights and holdback release, usually starts the warranty period and shifts responsibility for the space toward the owner. Getting it right matters to everyone's money.

Deficiencies and the deficiency list

A deficiency is work that is incomplete or does not meet the contract documents. Near the end of a project, the contractor prepares its own list of deficiencies, corrects as many as it can, and then asks the Consultant to inspect. The Consultant adds items it finds and issues the deficiency list that must be completed. Good contractors walk the work themselves first, trade by trade, and fix what they find before the Consultant arrives; a contractor that relies on the Consultant to find its deficiencies is paying the Consultant to do its quality control, and usually gets a much longer list.

Harbourline ran its own walk two weeks before the formal one, room by room, with each trade foreman present. It used a completion-list app on tablets: each item had a photograph, a location pinned on the floor plan, the responsible trade, a target date and a status. Trades received their items on their phones the same evening and marked them complete with a photograph. When the formal walk came, the list was shorter and better organized, and the design team spent its time on items that mattered.

Substantial performance under the Construction Act

Ontario's Construction Act gives substantial performance a precise financial test. A contract is substantially performed when the improvement, or a substantial part of it, is ready for use or is being used for its intended purpose, and it is capable of completion or correction at a cost of not more than 3 % of the first $1,000,000 of the contract price, 2 % of the next $1,000,000 and 1 % of the balance. The payment certifier, usually the Consultant, determines whether the test is met, and then certifies substantial performance on the prescribed form. The certificate must be published in a designated construction trade news publication; from January 2026 the province designated three online sources for statutory notices. Publication starts the period within which liens must be preserved, generally 60 days.

# Ontario Construction Act substantial performance threshold
def threshold(price):
    t = 0.03 * min(price, 1_000_000)
    t += 0.02 * min(max(price - 1_000_000, 0), 1_000_000)
    t += 0.01 * max(price - 2_000_000, 0)
    return t

price = 19_420_000
to_complete = 168_000
t = threshold(price)
print(f'Threshold for ${price:,}: ${t:,.0f}')
print('Substantially performed:', to_complete <= t)
print(f'Deemed completion threshold: ${min(5000, 0.01 * price):,.0f}')

Threshold for $19,420,000: $224,200
Substantially performed: True
Deemed completion threshold: $5,000

The last line of the Ontario program matters too. The Act also defines completion: a contract is deemed complete when the price of completing it is not more than the lesser of 1 % of the contract price and $5,000. For a project of Ashgrove's size, completion therefore means nearly everything is finished. Completion matters for subcontracts and for liens where no certificate of substantial performance is published.

Prerequisites the owner insists on

The CCDC 2 2020 edition added a further milestone called Ready-for-Takeover, which ties the owner's acceptance of the work to a list of conditions, such as occupancy permission from the authorities, delivery of operating and maintenance information, completion of training and a substantial performance certificate, so that the owner is not asked to take over a building it cannot actually operate. Ashgrove's supplementary conditions added hospital-specific items to the list.

• Occupancy permission from the building official for the area.
• Fire alarm verification, sprinkler certificates and integrated test results accepted.
• All commissioning issues affecting safety or the OPR closed.
• Infection control sign-off from Dr. Moreau's team after terminal cleaning.
• Operating and maintenance information and training for the systems serving the area delivered (lesson 11).
• Keys, access cards and the security system turned over.

These prerequisites turned out to be the real path to handover. The clinic's 287-item list was finished on time, but the building official's inspection waited on the integrated test report, which waited on the elevator recall fix described in lesson 9. Simone's closeout schedule tracked the prerequisites, not just the list.

What changes hands at the milestone

When a part of the work reaches the milestone, responsibilities move from the contractor to the owner, and the move needs to be explicit. Before the milestone, the contractor controls the space, insures the work under its builder's risk or property policy, pays for temporary heat and power, keeps it secure and repairs any damage. After it, the owner normally insures the space under its own property policy, pays utilities, provides security and cleaning, operates the systems and takes responsibility for damage it causes. If the handover is vague, gaps appear: a flood in the first week can leave both insurers pointing at each other.

On Ashgrove, the change of responsibility for the clinic took effect at 07:00 on the Monday after the certificate was signed. That morning, Helen's operators took control of the clinic's systems at the automation workstation, hospital security took over the doors, and Harbourline's builder's risk coverage for the clinic ended. Harbourline's workers still needed access to finish the remaining items, so the handover agreement set rules for that access: badges from hospital security, work only between 18:00 and 06:00 in patient areas, and an escort in the medication room. Every item completed after handover was signed off by Helen's coordinator rather than the trade foreman, because the space was now hers.

Disagreements about readiness

Owners and contractors sometimes disagree about whether the milestone has been reached. The contractor wants the milestone as early as possible, because it stops exposure to delay damages, starts the warranty and releases money. The owner wants the space finished, because once it accepts the space it loses leverage over the remaining work and takes on the costs of running it. Disagreements are reduced when the contract defines the milestone clearly, when prerequisites are listed, and when the parties walk the work together early and agree what remains. When disagreements do arise, they are usually about a few large items, such as a system that has not passed its functional test, rather than hundreds of small ones. Ashgrove's experience was typical: Simone and Helen disagreed about whether the level 3 offices could be accepted while a cooling problem in two rooms was being solved, and resolved it by accepting the floor with those two rooms excluded and a dated plan for the fix.

Partial occupancy and phased handover

On a phased renovation, the owner takes over parts of the work at different times. CCDC 2 2020 allows the owner to take occupancy of a part of the work before substantial performance of the whole, subject to conditions such as agreement on insurance and the Consultant's inspection. On Ashgrove, the dialysis unit was handed over at the end of phase 2 while the rest of the wing was still under construction. The parties signed a partial takeover agreement that set out who was responsible for the dialysis unit's security, maintenance, utilities, insurance and damage, when its warranty started, and how the contractor would reach the rest of the work without passing through the unit.

Phased handovers create overlapping clocks. Each part of the work has its own substantial date, its own warranty start and sometimes its own release of holdback. Simone kept a closeout register with a row for each handover area and columns for every date and document, because by the end of the project three different warranty periods were running on the East Wing at once.

Holdback, liens and final payment

In Ontario, owners must hold back 10 % of the value of work as security for lien claimants, and release it when lien rights have expired. Under the amendments in force from January 2026, holdback is also released annually on contracts that run longer than a year: the owner publishes a notice of annual holdback release, then pays the holdback accrued in that contract year after a set period if no liens have been preserved. Ashgrove's contract was signed before 2026, so the transition rules applied, and the phase 2 holdback was released in the usual way after the dialysis unit's lien period expired. At the end of the project, after completion, the Consultant certified final payment once the deficiency list was finished, the closeout documents were delivered and a statutory declaration confirmed that Harbourline had paid its subcontractors and suppliers.

Avoiding a closeout that drags

The last 2 % of a project often takes 20 % of the time. Subcontractors move their best crews to new jobs, small items languish, documents are late and the owner's patience runs out. Harbourline used three habits to keep closeout moving: it kept a closeout coordinator on site full-time for the last eight weeks; it reviewed the deficiency list with every subcontractor weekly, with photographs of each item; and it withheld part of each subcontractor's payment until its items and documents were complete. The final deficiency list for the whole East Wing was closed 46 days after the last substantial performance date, inside the 60 days Harbourline had promised.