GROUP 6

PROJECT
CLOSEOUT and
LIEN PROTECTION

MEMBERS:
Aguiton, Chielo Mae M.
Alday, Carlo S.
Aldea, John Michael S.
Flores, Jhovelle Z.
Martinez, Alcy Jay DV.
Navarro, Crisslynn Joy O.
Rodriguez, Quennie P.
BSCE 5-1
PROJECT CLOSEOUT
It is the process or activities associated with finalizing the hand off of the project
deliverables to the business team and completing the administrative aspects of closing the
project.

There are four techniques that were found useful when managing the Project Closeout;

1. Closeout Approach
2. Stakeholder Acceptance Meeting
3. Punch List

Closeout Approach

It is an organizing principle for guiding administrative closeout activities. Closeout

approach considers the method that the deliverables are being hand off to stakeholders and
changes the administrative activity accordingly.

o Project Inclusion The team essentially hands off the project deliverables to itself. In this
case, the project management team need to close any administrative accounts or files
that are associated with the development and reopen them for operational deployment
of the deliverables. The transition is virtually seamless and administrative in nature.
o Project Extinction This form of closeout is also straight forward. The project activities
are immediately terminated. This condition may be created because of problems within
the project, or it may be because of conditions that are completely outside of the control
of the project team.
o Project Integration This form of closeout is the most difficult. The project deliverables
are completed and the project team believes that they meet the project objective.
However, the project team must ensure that the portion of the organization that is to
make use of deliverables is prepared to embrace them and apply them appropriately to
achieve the business benefit.

Stakeholder Acceptance Meeting

 It is exactly what the name implies. The project team meets with the project stakeholders
to review the deliverables of the project stakeholders to review the deliverables of the project
and ensure that the deliverables are acceptable to the stakeholders.

Project Punch List

When conducting stakeholder meetings, gaps are often identified between what the
stakeholders wanted from the deliverables and what is being supplied by the project team. The
punch list is used to manage the closure of those gaps. The project team identifies the cost and
schedule impact of completing the punch list items and they come to an agreement with the
stakeholders concerning which items they must complete and the end point of those new tasks.

It is in the interests of the whole construction industry and owner to make the takeover of
construction projects by owners more time effective and less stressful for all participants. Certain
theme came to the surface time after time of what could help ameliorate the situation:

1. Timeliness Takeover issues need to be addressed before the tendering of the project.
Deficiencies need to be addressed as they are observed. Proceeding in this fashion will
ensure that trades do not leave the construction site until their deficiencies are addressed
and that deficiency lists are minimal.
2. Communication The owner/consultant needs to communicate not only the quality
standards which are expected to be delivered on a particular project within the
specifications, but also the specific requirements in regard to deliverables. The need for
this communication is to be continued throughout the project by all the players.
3. Teamwork Something as complex and expensive as a construction project is best built
with a sense of teamwork. If everyone in the process approaches the project with the
sense that they are there to provide a quality job on time and on budget in a spirit of
cooperation, a project can and will go very well.

By following these principles, every member of the construction team will find the project more
enjoyable and the stress of closing on the job will be reduced, if not eliminated.

IMPLEMENTING A PROJECT CLOSEOUT PROCESS FOR PROJECTS

 The process of project closeout begins with the contract documentation stages by the
consultant working with the owner and continues throughout the construction stage involving
all players.

A. Pre-Construction Phase
Contract Requirements for Closeout

The contracting authority should, in the bid documents, clearly specify in a separate
section what is required to meet Substantial Performance and all of the
documentation that will be required at the time of closeout for owner occupancy or
other intended use.

B. Construction Phase
Job Start Up Meeting
Review your QA/QC plan provide quality expectations with mockups, submittals of
samples, open manuals prepared for the inserts which will be provided, detail what
inspections will be done, independent testing and inspection agencies, Schedule of
Values to be used for payment certification. The following is an example of the
members of the construction team who should be invited to such a meeting;
1. Architect
2. Engineer
3. Contractor
4. Major Subcontractor
5. Owner
C. Contractors Logs
The contractor should, early in the process, prepare a list of what is to be included as
part of the Turnover documents such as:
Spare parts
As built drawings
Commissioning reports
CBO certificate
 Fire Alarm certificate
Balancing reports
Testing Certificates
Maintenance manuals, etc.

Before finally handing off the project deliverables to the business team, there are few
things that must be reviewed and considered, such as:

QUALITY

Quality Assurance (QA) has implications throughout the life of a project from its beginning
to closeout. The consultant is in charge of Quality Assurance, the contractor of Quality Control.

Quality Assurance > Carried out by consultant and sub consultants by means of establishing
quality standards in the drawings and specifications.

Quality Control > Carried out by contractors by working with the consultant to meet specified
quality standards.

Consultants and Contractors Roles

A good QA/QC program is a key element to an effective closeout program.

QA/QC needs to be part of every site meeting agenda, do not wait for deficiency
inspections.
The consultants and owner need to set and communicate quality expectations to
all members of the project team as nearly in the process expectations to all
members of the project team as early in the process as possible.
One of the most important roles of the consultant is to manage owners
expectations and educate owners on the construction process.
It is helpful to also have the project designer involved early on, identifying areas
of the project likely to create quality problems due to workmanship for which the
level of quality is higher than standard.
Deficiencies should be addressed as soon as they are discovered.
 The consultant and contractor need to work together to implement the QA/QC
program.
Subcontractors are part of the QC team and must take responsibility for the quality
of their work.
It is recommended that individual contractors and subcontractors undertake
review, the preparation of a deficiency list, the completion of deficiency fix up
where necessary and, make arrangements for the general contractors and
subsequent consultants review of completed work.

Owners Role

Owners have an important role to allow themselves to be informed by the project team
and to commit the time and effort to evaluate whether the quality of what is being specified and
later installed meets expectations and not wait for deficiency inspections.

FINANCIAL

Deficiency Retainage

Deficiencies need to be completed as soon as possible to avoid delays in the process. The
consultant and contractor must work together to judge the value of deficiencies to establish the
value of works early. Payment certifiers must accurately value deficiencies to avoid placing undue
hardship on subcontractors who have completed their work by assessing the percentage of work
complete and using deficiency lists to reduce draw payments by an amount equivalent to the
cost of repairing deficiencies.

OCCUPANCY

An important issue is providing the subcontractor with sufficient time to complete

deficiencies between the preparation of the deficiency list and the owner moving in. Once the
move in takes place, it can make deficiency completion very difficult.

A good idea is to schedule a pre-occupancy review with the consultants and owner a
minimum of one week prior to the planned occupancy date to allow for deficiency completion.
The contractor should organize all trades to be prepared to get in and clear out the deficiencies
quickly before move-in.

INSURANCE AND BONDING

Bonding

Surety companies constantly monitor their clients; any complaints to surety company
from an owner that a contractor is not complying with their contractual responsibilities are taken
very seriously. Construction bonds provide a means of protecting the owners rights under a
construction contract.

Insurance

It is a general principle that the party who has the care and control of a facility is the best
in the position to provide project insurance. When a project, such as an addition/renovation,
involves multiple occupants of a building, it is better for the owner to carry the property and
liability insurance policies.

CONSTRUCTION LIEN ACT: Protection for suppliers of goods and services

The typical construction project is a tangle of contracts involving a large number of

parties, most of whom will have no direct involvement or contract with the owner. If a party does
not have privity of contract with owner, that party cannot enforce its right against the owner.

In order to remedy this obvious shortfall, the Construction Lien Act was passed. The Act
provides four remedies to construction suppliers.

1. The Act creates a lien in favor of each supplier.

2. The Act mandates holdbacks.
3. The Act imposes a trust against the money used to finance the construction project.
4. The Act provides the right to have a trustee appointed, in certain cases, to protect the
premises.

This is one of the most complex areas of the law. In an attempt to provide you with a general
understanding of this area here are some common questions along with answers.
 What is a Construction Lien?

A construction lien is a right given to persons and businesses who supply services or materials
to the improvement of real property (the construction project). A lien provides them with an
enforceable remedy against the owner of the project, despite the absence of a contract with the
owner. Specifically, the lien becomes a charge against the owners interest in the property being
improved.

Who are suppliers?

The right to a construction lien is given only to suppliers of materials and services to the
improvement. Determining a supplier of materials is relatively straightforward but a supplier of
services may not be. Although the services that will benefit from a lien need not actually be
performed on the construction site, the supplier must have a degree of connection with the
making of the improvement. For instance, the brick layer will be entitled to a lien, however the
trucking company delivering the bricks probably will not.

The right to a construction lien has been narrowly construed by the courts and the onus is on
the claimant to establish that he or she is a supplier of services or materials to the project.

When is a supplier entitled to a construction lien?

The right to a construction lien arises and takes effect immediately upon the first supply of
materials or services. The lien comes into existence automatically. However, it is essentially
dormant until the lien holder takes the necessary steps to enforce it.

What is a construction lien worth?

The value of a lien is equal to the contract price, or the fair market value of the services or
materials supplied, plus GST and PST. However, a supplier cannot recover more than s owed to
his payer (i.e. the person who hired him). A lien does not provide for damages for breach of the
contract.

When is a lien discharged?

 A lien is discharged once the supplier has received full payment for the services rendered or
the materials supplied.

Do liens expire?

Generally, a contractors lien will expire unless it is preserved and perfected within 45 days
following the earliest of:

The date the certificate or declaration of substantial performance is published, or

The date the contract is completed or abandoned.

Generally, a subcontractors lien will expire unless it is preserved and perfected within 45
days following earliest of:

The date the certificate or declaration of substantial performance is published, or

The date the subcontractor last supplied services or materials.

What are preservation and perfection?

A construction lien is preserved by registering a claim for lien, before expiry, on the title of
the property being improved. The lien is perfected by commencing an action to enforce the lien
claim and by registering a Certificate of Action on title to the property within the time period
prescribed by the Act.

What is a holdback?

The holdback is the second major remedy provided to construction suppliers. Each payer
involved in a construction project, is under an obligation to hold back an amount equal to 10% of
the value of the services and materials that have been supplied to it. The payer becomes liable
as soon as the services or materials have actually been supplied, irrespective of the payment
arrangements that have been made. These amounts form an insurance fund for suppliers.

There must be a separate holdback for each contract entered into.

A payer is also obliged to withhold an amount sufficient to satisfy any lien claim for which he
has received notice.
 The holdbacks must be maintained until all liens that may be claimed have expired, been
satisfied or been discharged.

How do the trust provisions work?

The Acts third major remedy is the trust, which is imposed on all amounts received by the
owner and that are to be used in the financing of the improvement. The owner becomes the
trustee of the fund and he cannot appropriate the money for his own use. The trust will be
imposed regardless of whether any money is then owing to the contractor.

A similar trust will be imposed on the net proceeds received by the owner if he sells the
property prior to completion of the project.

When can a trustee be appointed?

An application to appoint a trustee can be brought at any time, by any person having a lien.
The appointment of a trustee is considered an extraordinary remedy and its primary purpose is
usually to complete the construction project.