Project Management

What Happens After the Buyer and Seller Agree on a Punchlist?

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What Happens After the Buyer and Seller Agree on a Punchlist?

What is a Punchlist?

Know the Contract  -  Part 14, Contract Completion/Closeout

Project Manager Obligations Verse Project Production, Schedule Progress, End Date

What are the Requirements for Seller “Turnover” of Contract Products to the Buyer?

By standard contract Forms, punchlist is associated with the milestone for Substantial Completion or when the product of the contract is suitable for its intended use with only minor work remaining or as otherwise stated in the contract.  In conjunction with the Buyer acknowledging the Seller achieved Substantial Completion, a Buyer inspection and the creation of a mutually agreed upon list of remaining work will be established.  So what happens with the punchlist?

The punchlist becomes the baseline for the remaining work that the Seller is obligated to finish as part of the contract.   Under usual circumstances, the Seller controls the area where the work is conducted.    As a result, the Seller can complete punchlist with means and methods of choice and the timeframe to Construction Completion.   However, if the Buyer decides to use portions of the work, the Seller's conditions for completing the remaining work need to be coordinated to avoid inconvenience to Buyer's employees and customers.       

At the time of contract award the date for completing the punchlist is contained in the performance milestones, which can normally be found in the General Provisions.  And the duration and date is commonly cited in the milestones for Construction Completion and Contract Completion. 

At Construction Completion all construction, including all punchlist work, site restoration and demobilization, is completed by the Seller and confirmed by the Buyer.  While the durations between Substantial Completion and Construction Completion can vary by the Contract scope, it will be what the Buyer and Seller consider reasonable, executable and achievable. 

Once the punchlist is established, the Seller will schedule the manpower, equipment and materials needed to complete the work for construction completion.  While it is anticipated to be minor work, scheduling activities to do the work depends on the scope of the punchlist item. 

  • Example: Repairing a crack in a wall or repainting the ceiling or installing covers on sprinkler heads may require clear floor space and room for ladders and scaffolding to reach the work area.  This may mean the Buyer needs to delay plans for using the work.   

Scheduling also depends on the Buyer's use of the completed work.   If the work is not in-use by the Buyer, the Seller's access will be guided by the hours allowed by the contract.   However if the Buyer is using the work prior to Construction Completion, the hours may be restricted as dictated in conditions to the Seller for achieving Substantial Completion. 

  • Example:  Repairing and retesting a fire suppression system may require the area remain clear and accessible exclusively to the Seller.   This means the Buyer needs to stop use of the work and restrict employee and customer access until the punchlist work is completed.  
  • Example:  Repairing a system on a transit passenger car may require the car be removed from service and be stored at an accessible location for the Seller to complete the work.  This may mean the Seller needs to arrange for the work to be done at the time and location determined by the Buyer, such as nights and weekends at a terminal or yard.

However, the Buyer’s full scale use of the work prior to Substantial Completion will present work conditions that were unanticipated at the time of Contract Award.   This may create challenges that affect both parties in meeting milestones and in adjusting access for employees and customers in areas already in use.    As a result, the Buyer and Seller may need to modify the approach to completing the punchlist work.

Similar to quality processes, like those for material review boards, punchlist items and the means and methods used by the Seller to complete the work needs to be evaluated by the Buyer.   The Buyer's evaluation will determine if the Seller completes the punchlist item, if the Buyer will accept As-Is, or if someone else will do the work.  While punchlist items may be considered minor, the work conditions for the Seller, and the Buyer's use of the work may require decisions by both parties to mutually reduce potential impacts to Seller achieving contract dates and the Buyer starting and maintaining operations.   

Punchlist items may need to be classified as:

  • By Seller
  • By Others/Buyer
  • Accept As-Is

Some of the criteria for classifying the punchlist items include:

  • Conditions needed by Seller for the work
  • Accessibility provided by Buyer for the work
  • Flexibility of the Buyer postponing use of the work
  • Inconvenience to Buyer’s employees and customers
  • Loss of early revenue in the Buyer’s business plan

Punchlist items that are not completed by the Seller will likely require contractual adjustment with the Buyer so funding can be re-assigned for another party to do the work.   This may include balancing the Buyer’s benefit of use with the challenges on the Seller to complete the punchlist.    

TIP:   Realizing the risk some punchlist items may be classified Accept As-Is, the Buyer’s project team and construction manager should ensure the Seller’s remaining work, especially items that could affect the Buyer’s early use of the total work, is completed prior to substantial completion.

TIP:   Buyer should always be aware of the value of remaining work, including punchlist, and ensure the Seller ’s invoice requisitions are reduced so the remaining payment is equal to or larger than the cost breakdown assigned to the remaining work.  This will aid the Buyer to implement contractual adjustments for punchlist work not completed.

TIP:   Once contract progress achieves Substantial Completion, the Seller’s submission of a Detailed Contract Schedule (DCS) usually stops because the remaining work is not considered significant enough to deliver the DCS to the Buyer.  As a result, the Buyer needs to establish an alternate method for the Seller to demonstrate a plan to the Buyer to manage and finish the work through Contract Completion. 

TIP:   While understandable, the Buyer’s construction manager is focused nearly entirely on Seller’s progress and compliance with the contract technical requirements – specification and drawings.  To facilitate work post-substantial completion, the Buyer must ensure that the CM is aware of interdependent requirements contained in General Provisions, Special Conditions, Contract Addenda and other conditions established for award, and that the CM integrates these commercial requirements into management of Seller.   

TIP:   Depending on the scope of the Contract, the Seller’s progress may make segments read for intended use by the Buyer prior to all the work being completed.  As a result, the Buyer and Seller may create a distinct punchlist for each segment, which will aid in the Buyer’s use prior to the Substantial Completion milestone. 

Posted on: September 16, 2022 06:33 PM | Permalink

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