Substantial Completion in Construction: What Australian Contractors Must Know About Payment, Risk, and Handover

By

Josh Krissansen

Last Updated Jan 22, 2026

By

Josh Krissansen

Substantial completion is the point where contractors must prove the asset is ready, owners must prepare to take control, and certifiers must be satisfied that every critical system can perform under real conditions. The decisions made in the weeks leading up to certification often determine whether closeout proceeds smoothly or becomes a prolonged commercial and operational challenge.

Substantial completion demands more than meeting a date on the program. It requires coordinated commissioning, verified system performance, and contract-aligned documentation that demonstrates the works are fit for use. Any uncertainty in this phase can delay payment, extend insurance and defect exposure, or create disputes that affect both delivery and profitability.

This article explains how substantial completion is determined in Australia, what certification requires, and how contractors and owners can manage the financial, legal, and operational shifts that occur as the project moves into handover.

What is Substantial Completion in Construction?

Substantial completion, often referred to as practical completion in Australian contracts, is the point at which construction works are sufficiently complete for the owner to occupy or use the asset for its intended purpose. It signals that the project is operational, even if minor defects or incomplete works remain.

This milestone typically triggers several key contractual and financial events:

• Issuance of the Certificate of Practical Completion
• Eligibility for occupancy or use of the facility
• Submission of the final progress claim
• Release of most retention funds, usually 5-10% of the total project cost
• Start of the Defects Liability Period
• Transfer of responsibility for security, insurance, and maintenance to the owner

Substantial completion focuses on fitness for the intended use, rather than total completion. The asset must function as designed, even if some non-critical items are outstanding. This stage may apply to the entire project lifecycle or to specific sections defined in the contract.

The exact definition of “fit for intended use” differs in practice, depending on the type of project in question:

• Residential: The home is habitable with an operational kitchen, bathroom, power, and plumbing, even if landscaping or paintwork remains unfinished.
• Commercial: Occupancy certification is issued, life safety systems are operational, and tenant areas are functional, although signage or façade finishes may be pending.
• Industrial: Production areas are operational and ready for equipment installation, while offices or external works may still be in progress.

Substantial completion triggers a cascade of contractual, financial, and operational changes. It marks a pivotal shift in responsibilities, risks, and cash flow. 

How is Substantial Completion Determined in Construction?

Determination of substantial completion depends on the contract. Each agreement defines the criteria differently, so alignment across the construction contract, loan agreement, and lease is essential.

For this reason, a clear understanding of the required inspections, documentation, and approvals is essential for reducing disputes and delays, especially when only one in four construction projects finishes within 10% of their original deadlines.

Substantial completion is formally certified following a joint inspection (often referred to as the defect walk) involving the contractor, owner, and architect. The contractor initiates the process by requesting the walkthrough once they believe completion has been achieved.

During the inspection, the team reviews the works against contract documents and identifies any remaining non-critical defects or incomplete items. These are recorded in a formal defect list, also known as a punch list, which outlines the tasks that must be rectified but do not prevent the owner from occupying or using the space.

All major systems must be operational before certification, including:

• HVAC, plumbing, and electrical services
• Life safety systems
• Infrastructure necessary for functional occupancy

Commissioning may be required to verify system performance and compliance with the National Construction Code and WHS regulations before sign-off.

A certificate of occupancy is also typically required. In most jurisdictions, this must be issued by a registered building surveyor before tenants or owners can occupy the facility. For instance, in Victoria, occupancy or fit-out cannot proceed without this permit.

What is the Certificate of Substantial Completion?

The Certificate of Substantial Completion (known as the Certificate of Practical Completion in Australia) is a formal document that confirms a project or defined stage is complete enough for its intended use.

It is issued once the owner and contractor, and in some cases the architect or superintendent, agree that the works meet the substantial completion criteria outlined in the contract. In design-led contracts, the architect often oversees this process.

The certificate does not indicate that all works are finished. It confirms that any outstanding tasks do not prevent functional use and can be rectified during the Defects Liability Period.

Typical contents of a Certificate of Practical Completion include:

• Description of the scope certified as complete
• Date substantial completion was achieved
• List of outstanding punch list items with rectification timelines
• Assignment of responsibility for security, utilities, maintenance, and insurance
• Warranty commencement date and start of the Defects Liability Period

The certificate has immediate contractual and financial consequences, including:

• Triggering submission of the final progress claim
• Allowing partial or complete release of retention funds
• Transferring responsibility for site security, utilities, and insurance to the owner
• Starting key contractual timelines, including warranty and statutory defect periods

Substantial Completion Implications for Owners, Contractors, and Specialty Contractors

For each party involved in the project, this milestone alters obligations, activates payments, and introduces new legal exposures.

After a hospital expansion reaches substantial completion, for instance, the owner assumes responsibility for heating, utilities, and security in the new wing. The contractor receives a significant portion of retainage, and the warranty period begins.

Meanwhile, the contractor's insurance coverage shifts, and the owner's property insurance now covers the completed spaces.

While the Certificate of Practical Completion may appear as a single milestone on paper, it carries far-reaching consequences. Below, we outline the changes, identify who is responsible, and guide how to manage each transition with clarity and confidence.

Enable Early Occupancy and Revenue

Once substantial completion is achieved, the owner can occupy, use, or lease finished portions of the project. This enables earlier revenue generation through rent, tuition, or operations, even while other areas remain under construction.

The owner also assumes responsibility for occupied zones, including security, maintenance, and utilities.

In staged or sectional handovers, roles must be clearly defined to prevent conflicts over access and maintenance.

For instance, a mixed-use development reaches substantial completion for the ground-floor retail spaces in November, allowing tenants to open for the holiday season. The residential levels above remain under construction, with the contractor maintaining secure, separate access to active work areas.

Release Retainage and Final Payments

Substantial completion typically triggers the release of most withheld retention. The contractor becomes eligible to submit the final progress claim, receiving a significant portion of the final payment. A smaller amount is held until completion and closure of the punch list.

Subcontractors and specialty contractors are typically paid once their scopes of work are complete and accepted by the project owner. Retainage terms vary by contract, jurisdiction, and project type, so payment milestones must align with substantial completion requirements.

For example, a general contractor completing a school renovation may receive 90% of retained funds at substantial completion, with the remaining 10% released once all defect list items are resolved. This allows subcontractors to be paid promptly while keeping a reserve for outstanding works.

Start Warranty Periods and Legal Timelines

The date of substantial completion marks the official start of the warranty period and Defects Liability Period, typically twelve months. It also triggers statutory limitation and repose periods for defect claims. Contractors and subcontractors remain responsible for rectifying defects within this timeframe.

The certificate must specify the warranty start date to eliminate ambiguity and protect all parties.

For instance, a commercial office building’s HVAC system comes with a one-year warranty that begins at substantial completion. If a fault is found eight months later, the contractor must repair it at no cost to the owner. The same obligation applies if the issue arises after completion but within the warranty period.

Shift Risk, Security, and Maintenance

At substantial completion, the owner takes responsibility for site security, maintenance, utilities, and insurance.

These changes must be recorded in the Certificate of Practical Completion to prevent confusion, especially if construction continues elsewhere on site. Clear boundaries protect both parties from liability overlap.

For example, on a mixed-use project, the contractor hands over completed office spaces while continuing fit-outs in retail areas. The owner’s insurance covers the completed offices, while the contractor maintains risk coverage for active work zones.

Reduce Contractor Liabilities and Insurance Exposure

Substantial completion reduces the contractor’s legal and financial exposure. They are no longer liable for theft, vandalism, or damage caused by occupants. Builder’s risk insurance typically terminates, lowering overhead costs. Day-to-day site risk transfers to the owner, though defect liability remains.

Specialty contractors also benefit. Once their scope is certified as complete, they have no further operational exposure beyond warranty obligations.

For instance, a contractor completes a multi-residential project and hands over the property at substantial completion. The owner’s property insurance now covers all units. If a tenant causes water damage, the owner’s insurer responds. If a plumbing defect causes the issue, the contractor remains responsible under warranty.

Substantial completion defines when responsibility and risk officially shift in construction

Contractors and owners face their most significant financial and legal transitions at substantial completion, when payment eligibility, warranties, and risk transfer take effect. 

Understanding this stage helps both parties manage cash flow, protect their obligations, and maintain clear accountability through project handover.

Written by

Josh Krissansen

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Josh Krissansen is a freelance writer with two years of experience contributing to Procore's educational library. He specialises in transforming complex construction concepts into clear, actionable insights for professionals in the industry.

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