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
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 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.
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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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.
You can make life a lot easier by using punch list software to track your punch list items. The software may be built into a project management software package (like Procore), a separate punch list app, or a simple spreadsheet developed in Excel or Google Sheets.
The project management team should enter each punch list item into the software and then send each in-house crew and subcontractor a list of the punch list items they are responsible for fixing. The teams should check and update the software daily, making sure that they regularly follow up on the punch list items so they can close out the project as quickly as possible.
Here's a construction punch list template for tracking punch list items. It includes the following fields:
Item Number: A unique number assigned to each punch list item, which is used to track the item.
Description: A complete description of the deficiency and the work that must be completed to resolve it.
Location: The location of the deficiency, including room number, wall (such as the north wall), and other information needed to find the defect quickly.
References: The location in the contract documents where the requirements for nonconforming items can be found.
Attachments: This field contains links to the supporting documentation. This documentation may include photographs of the defect, sketches of its location, and screenshots of drawings, specs, and the contract.
Responsible Party: The in-house crew or sub responsible for remedying the defect.
Priority: The project manager should prioritize fixing the defects. Some defects, such as a broken heating unit, must be fixed immediately to prevent damage to the project. Some items may need to be completed so that other parties can perform their work. For example, drywall may need to be patched quickly so the painting sub can paint it. The template includes the following priorities: urgent, high, medium, and low.
Due Date: The latest date when the responsible party must have fixed the defect and notified the GC that it is ready for reinspection.
Status: The status of the submittal. The template includes the following states: identified by owner, sent to crew/sub, reported complete by crew/sub, ready for reinspection, accepted by owner.
Dates: The dates track the item’s progress and show when an item has been stuck at one stage for too long so the project team can follow up. The template includes the following date fields: the date the item was sent to the crew/sub, the date the crew/sub notified the GC that the item is complete, the date the GC inspected the crews/sub’s work and agreed that it is ready for the owners to reinspect, and the date the owners accepted the work as complete.
Comments: Any notes or comments about the punch list item, such as notes about following up on a late item.
The end of a project is a busy time for GCs. Having procedures for punching out a project and using a punch list log helps expedite the project completion and the release of the final payment and retention. Completing a project and obtaining final acceptance frees up the company’s cash and workforce to be used on the next project, generating more profit for your company.