Best Practices for Project Closeout During Construction Management

Construction project closeout is the final phase in the construction management process, marking the transition from the completion of the physical building to its handover to the owner. This phase, often overlooked due to its heavy administrative and documentation work, is crucial for the financial well-being of a contracting business. Delaying or mishandling this phase of the construction management process can lead to severe financial repercussions, as successful closeout is directly linked to getting paid.

Surprisingly, about 68% of contractors encounter problems during project closeouts, impacting their profitability due to extended project timelines and delayed payments. This can have a huge impact on the cash flow of the business.

If you want to avoid the same fate, continue reading to learn about the project closeout process, why it’s essential to the construction management process, and some key steps to consider. In the end, you’ll be able to finish your projects faster and grow your business.

In this article, we cover:

What is Project Closeout?

Project closeout is the final phase in the construction project management process. It happens after the physical building has been completed but before you hand over the project to the owner. The closeout process includes a variety of physical and administrative tasks, such as collecting documents, ensuring compliance with specifications, site cleanup, and finalizing contracts. It’s a complex process and, if not done right, often takes as long as the physical construction itself. According to a survey from Michigan State University, you can expect equal time spent on project closeout as you did on the physical completion of an entire project.

Why is a Successful Project Closeout Important?

Successful project closeout is essential for several reasons. It fulfills contractual obligations, is time-sensitive, and significantly affects a company’s cash flow and reputation. Nearly 60% of contractors face project delays, and only 31% complete projects within budget, emphasizing the importance of an efficient closeout process.

In other words, if you can’t complete the project closeout on time, you’ll face penalties, permit extension fees, and paying your subcontractors late. This can impact your company’s cash flow but also your reputation.

The bottom line is if you want to have a successful construction business, you must ensure the successful completion of every project you undertake.

Types of Closeouts in Construction

There are various types of closeouts in construction, each focusing on different aspects of the project: contract, finance, and the building itself.

• Document Closeout: Involves handling documents to confirm all project requirements are met. This phase can be a nightmare if the project is not managed well.  From contracts, as-built drawings & images, change orders, and more, a construction project generates more than 100 such documents. A cloud-based Construction Management System that automatically categorizes and manages all construction documents will make this part simple & straightforward.
• Client Closeout: Presents an opportunity to reinforce client satisfaction through comprehensive documentation and feedback. During this step, you should give the client all necessary paperwork, including warranties and usage manuals, for all installed equipment and appliances. This is also a great way to solicit honest feedback on various aspects of project management, communication, and quality.
• Organizational Closeout: This part of the closeout concerns your company moving completely out of the site. Plan and remove all equipment, toolboxes, cameras, and even the construction trailer from the site. Communicate closeout to your team so no crew shows up at the job site.  You will also have to do inventory for your tools and equipment to make sure every asset is accounted for and moved back to the equipment yard or to another job site.  It is possible for costly assets to get lost in this move.  An equipment tracking system that can verify which equipment was onsite and track their movement can make this process smooth.
• Subcontractor Closeout: Subcontractor performance tracking should be a regular part of the build process. Regular inspections, site walk-throughs, and punch list management are crucial for successful completion. Ensuring all subcontractor work meets quality standards before final payments is crucial. A cloud-based CMS with an integrated budget and finance application will make it easy to tally the contract and change orders with payments to generate a final payment schedule.  Also, conduct a survey to assess how your team managed the project. This can help you build a trusting relationship with the subcontractors.
• Team Closeout: The final step is to consult your team and evaluate the project’s success. How did the project go? What are your learnings? What went well and what did not? Were there any problems you can avoid on future projects? How can you optimize your future project operations? Did you meet budget & time goals?  Having good communication with your team can ensure you’re not making the same mistakes in the future.

Potential risks during closeouts mainly revolve around communication issues, loss of important documentation, and failure to collect information consistently throughout the project. A well-planned approach can mitigate these risks. While the types of closeout defined are the different activities involved, the essential steps listed below can mitigate the closeout risks and also provide a safeguard against legal issues.

Essential Steps of Project Closeout

1. Final Project Review:
   Conduct a thorough review of the entire project against the original plan and specifications. Identify any discrepancies and ensure they are addressed. A punch list tool can help manage these issues to completion.
2. Completion of All Construction Work:
   Ensure all construction activities, including any remaining punch list items, are fully completed. All systems should be operational and functioning as intended.
3. Safety and Compliance Checks:
   Conduct a final safety audit and ensure all work complies with relevant building codes and regulations. Obtain necessary safety certifications where applicable.
4. Final Inspections and Approvals:
   Arrange for and pass all final inspections by the relevant authorities. Obtain the Certificate of Occupancy and other required approvals.
5. Documentation Assembly:
   Gather and organize all project documentation, including design documents, contracts, change orders, inspection reports, and safety records. Prepare as-built drawings and any operation and maintenance manuals. Compile and hand over all warranty documents for materials, equipment, and workmanship.
6. Financial Reconciliation:
   Perform a final accounting of the project budget. Ensure all bills and invoices are paid and reconcile any discrepancies. Process the release of retainage to subcontractors and suppliers once all contractual obligations are met. Confirm that all subcontractors and suppliers liens have been released.
7. Client Training and Orientation:
   Provide training or schedule technicians to train the owner or end users on operating and maintaining systems and equipment. Offer a detailed walkthrough of the facility to demonstrate functionality and address any questions.
8. Project Handover:
   Formally hand over the project to the client, including all keys, access codes, and necessary operational information. Solicit feedback from the project team, subcontractors, and the client. Conduct a lessons-learned session to identify areas for improvement in future projects.
9. Archive Project Records:
   Securely archive all project records for future reference and legal compliance. Ensure electronic files are backed up, and hard copies are stored safely.

Conclusion

The key to successful construction project closeout is organization. It starts before you’ve stepped foot on the construction site, and you should include it in your initial planning process. Remember that construction projects involve many people, a pile of documents, and regular inspections to ensure you adhere to codes. This final phase will be easier to manage if everyone is on the same page from the start. Construction Management Systems (CMS), when deployed from the beginning of the project, will streamline project closeout by centralizing documentation, automating approvals, and fostering collaboration. Benefits include quick access to critical data, enhanced accuracy, and improved compliance. The CMS expedites workflows, reducing manual tasks and facilitating efficient communication, ultimately accelerating project closeout. While precise time savings vary, a well-implemented CMS can potentially reduce closeout time by 20-30%, promoting a seamless, timely, and organized conclusion to construction projects.