The final few days of a job can be the most difficult. You want to wrap things up and move on to the next project, and the homeowners are anxious to have the place to themselves. Often all that's between you and final payment is the punch list. I've learned from long experience that the best way to keep this last phase from derailing the job is to have a set of procedures in place and make sure the homeowners understand how they work.
I put what I call "close out, completion, and final payment procedures" into all of my agreements for new construction, remodeling, and commercial-tenant improvements. Since I believe an informed customer is a happy customer, I try to cover all the bases and use this section of the contract to reinforce good communication and set expectations. As a result, the homeowners understand the rules, and I get a road map on how to perform.
While I can't recommend specific language to include in your punch-list procedures — that's a job for your attorney — your contracts should address the concepts listed below.
Punch-List Preparation
I explain to homeowners that during the last few weeks of the project, I will begin to prepare a list of items that are incomplete or require adjustments, repairs, or touch-up. I also explain that I will present this list to them during a final inspection walk-through. While I make it clear that the homeowners are welcome to communicate their own list of items and concerns at any time during the project, the goal here is to make sure they understand that they can't add to the list after the walk-through. (I'll get to warranty items a little later.) Otherwise, I might show up at the site to find sticky notes sprouting like mushrooms.
Final payment. Most homeowners want to withhold the entire final payment until the punch list is completed. But punch-list work is usually small stuff that seldom adds up to anything even close to the amount of a final payment. So I itemize the list and put a price on everything, and the homeowner can withhold the total of those itemized prices or $500, whichever is greater. The goal is to encourage communication and avoid a situation in which something like the late delivery of a special-order light fixture worth a few hundred dollars threatens to hold up a final payment of thousands of dollars. It might be a good idea to tie the payment to the final inspection by a third party, like a building inspector or a lender. If the home is deemed fit to be occupied and the bank releases the needed funds, then it's difficult for the homeowner to argue for withholding the entire amount.
Timely completion. I specify that we will complete all punch-list items as soon as reasonably possible, but no later than 30 days from the final inspection by the appropriate building authority. In practice, we try to finish everything up before the final inspection, or at worst within 10 days of it. If something gets in the way of that happening (like a late special-order light fixture), we negotiate that part of the deal, and put the outcome in writing.
Homeowner responsibility. Some punch-list work may require moving, protecting, or even storing the homeowners' personal property — everything from artwork, clothing, and furniture to pets, rugs, and vehicles. We prefer that the homeowners handle this themselves, though they must agree to cooperate with us on timing. If we handle it, we state that we will not be held responsible for their personal property.
Damages After Inspection
Sometimes items are damaged after the walk-through. Maybe one of the movers pokes a hole in the screen door or fuzzes up the paint on a door molding while trying to jockey a rug into a bedroom. Though we usually perform these small repairs without making a fuss, our contract says that we do so at our discretion. This gives us control.
Speaking of control, sometimes things happen despite our best efforts. For example, once we installed an AC compressor just outside the back of a house, and the next morning we found that it had been stolen. Another time, the homeowner's children displaced freshly laid tile by walking on it too soon. Things like this (a neighborhood dog leaving paw prints in a freshly poured concrete sidewalk, a gust of wind smearing fresh paint) are unfortunate but not our responsibility. Again, we are pretty generous about taking care of these kinds of problems, but our contract states that we are not obligated to make the repairs.
Utility service. Our punch-list procedures exclude us from liability for damage caused by an outage or surge from a utility serving the property. We added this in response to a problem we had one super-cold winter. One night the demand for natural gas was so high the pressure dropped in the entire neighborhood and shut down the gas appliances, including our clients' furnace. The pipes froze and we got the phone call. We responded and eventually the insurance companies worked it out, but we decided to address it in our contract to avoid similar problems in the future.
Limitations. A related issue has to do with finishes, textures, and overall appearances. For example, Ponderosa pine — a very messy tree — is common in Flagstaff where we do most of our work. Pine cones and sap often fall on decks and porches and can discolor the finish. Our contract explains that we are not obligated to repair, repaint, or replace materials that may be affected in this way.
Product performance. I once had a homeowner claim that the porch heaters we installed should be replaced because they generated too much heat. Another customer complained that the dishwasher made too much noise. While we are sympathetic to these complaints and try to help, we are not responsible for creating or resolving them.
Warranty Items
We spell out warranty coverage in a separate section of the contract, but it's worth mentioning briefly here. Because it's easy to confuse a punch-list item with a warranty item, we specify what is covered by warranty. That way, if the air conditioner stops working, it won't hold up our final payment. We'll fix it, but not as part of the punch list. Our suppliers and subcontractors cooperate with us on this, and if we can, we try to be part of the solution. But we also make it clear that while a manufacturer warranty may cover parts, we have the right to charge for the labor required to make the repair.
This distinction can get tricky. We once had a homeowner complain that the burners on an expensive commercial gas range had discolored after just a few weeks of use. We worked with the manufacturer to replace the burners, but we explained that the discoloration was a normal part of everyday use and thus fell outside of both our warranty program and the manufacturer's. It's important to anticipate how you will handle strange, Murphy's-law-type circumstances that impact your work — without taking responsibility for problems you didn't cause and shouldn't have to fix.
This has been adapted from an article that originally ran on our sister publication, JLC.
