Punch Lists: Best Practices for General Contractors

Closing out projects, including completing the punch list, is one of the most challenging aspects of a job. Delays in finishing the punch list tie up the general contractor’s cash, one of your most important assets because cash allows you to make payroll, pay bills, fund equipment, and cover overhead costs. Let’s walk through a solid punch list process that will help you close jobs out faster and get paid on time.

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Key Takeaways

• The punch list must be finished before the owner can issue final acceptance, which marks the completion of the project and indicates that the GC has completed its contractual requirements.
• Delays in completing the punch list often delay the release of the final payment, including the retention, which can be 10% of the contract amount.
• GCs should develop a process for managing punch lists based on best practices.
• A punch list log tracks punch list items, which is critical for quickly completing the punch list.

Project Close-Out and the Punch List

One of the most critical phases of a construction project is the project closeout. During this phase, the general contractor and their subcontractors get the project ready to turn over to its owners. This includes preparing and submitting the closeout documentation (like the as-built drawings, equipment manuals, and warranties) and completing the punch list work.

The construction industry uses construction punch lists (also known as punch-out lists or snag lists) at the end of the project to ensure that they have met their contractual requirements to the owners.

The punch list contains items that must be completed before the project owner can take possession of the building. It commonly includes incomplete work, work that deviated from the contract specifications and plans (including change orders), incorrect installations, minor defects and cosmetic issues, and code violations. The GC and its specialty contractors must rework these items before final acceptance of the building.

Final Acceptance

Final acceptance is an essential milestone in the construction industry for several reasons.

First, when granting final acceptance, the project’s owners accept that the project work meets the contract requirements, including any known deficiencies. This acknowledgment that the job is complete prevents the owner from claiming that the GC needs to perform additional work on the project other than the work covered by the warranties and latent defects (hidden defects that cannot be found by reasonable inspection). For this reason, the punch list needs to be completed before the owners grant final acceptance.

Second, the owner takes possession of the project, and the risk of loss is transferred from the GC to the owner. Should a fire damage the project before final acceptance, the GC and its insurance company would likely shoulder the loss. Once final acceptance is granted, the owner bears the responsibility for losses. This also applies to losses due to theft and vandalism.

Third, it marks the commencement of the warranty period. Delays in obtaining final acceptance, in effect, increase the warranty period, as the GC is responsible for equipment failures during the close-out period and the warranty period.

Fourth, the release of final payment, including any retention withheld, is often tied to final acceptance. This payment can easily equal 10% of the project costs. Getting the retention released should be an incentive for the GC to streamline the closeout process.

Finally, after final acceptance, the GC can close out the project. Now that work is no longer being done on the project, the project management team can focus on other projects. Additionally, the project’s accounting can be closed out, except for warranty work, and the GC finally knows how much profit they made on the project.

Timely Completion of the Punch List

The final impression GCs leave with the client is how they close out the project, so finishing up the punch list in a timely fashion is essential to ending with a satisfied client. Quickly closing out the project helps establish the GC's reputation as a professional and often leads to repeat work. Punch lists that drag on forever ensure that the owners will be less inclined to hire the GC in the future.

Perhaps even more motivating for a GC — delays in completing the punch list delay the final payment and the release of the retention, tying up the GC’s cash. Maintaining a healthy cash flow is as critical to construction companies as turning a profit. Without sufficient cash, GCs can't pay their employees and suppliers. With today’s shortage of construction workers, one missed payroll can cause a GC to lose their entire workforce. Similarly, suppliers will often stop material deliveries and lien the project if they are not getting paid.

GCs with significant cash tied up in incomplete projects may have to pass on additional work, reducing the company’s profit. It is in the GC’s best interest to close out projects quickly so that they can move on to the next project.

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The Punch List Process

Best practices in construction project management include establishing and following a construction punch list process. Let's walk through seven steps that should be included in your workflow to ensure your team properly manages their punch lists.

1. Address quality problems in real time. The GC’s employee responsible for quality control at the construction site should inspect the work daily and note deficiencies so that quality problems can be addressed in real-time. Additionally, the project management team should inspect the work of each in-house crew or subcontractor before they leave the job site. In effect, these on-site inspections generate a rolling punch list.
2. Walk the project before the owner does. The project management team members should walk through the project before the owner’s inspection and identify items that need to be fixed before the inspection. The goal is to have a zero-punch list when the owners inspect the job. Having a job well prepared for owner inspection shows that the GC is a professional who cares about the project and its owners. Additionally, it establishes trust that the work was done correctly and helps the walkthrough go smoothly.
3. Generate a thorough project punch list with stakeholders. The project’s stakeholders (owners and designers) walk the project with the GC and generate a project punch list. The punch list should document each defect and its location. The location should include the room number, the wall, and other information needed to find the defect quickly. Pictures of the defects and sketches of their locations are used to communicate what needs to be fixed. Tape that will not damage the finish may be used to mark cosmetic issues, making them easy to find. For work that is out of compliance with the contract documents, the location where the requirement can be found in the contract documents should be identified.
4. Divvy up the punch list items appropriately. The punch list is sent to the crew or sub responsible for remedying the defect. Ideally, they should only receive a list of the items for which they are responsible. Providing a complete punch list increases the chances of them overlooking an item. This list should include the required action, the priority for completing the item, and the timeline for completing the work (the punch-out period).
5. Track punch list items completed. The crews and subs address the punch list items and notify the GC when they are done. During the punch-out period, the project manager should check in with the crews and subs to make sure that they are on track to complete the work on time.
6. Inspect the completed work. The GC’s project management team inspects the punch list items to determine if they are ready for the final walkthrough. It is crucial that they do not sign off on the work as complete but that it is ready for the owners to inspect, as the owners may still reject the work.
7. Do a final walkthrough to verify the work. The GC, the owner, and the designers walk through the project, verifying that the punch list items are complete and identifying any items that still need rework.