The last 5% of a construction project takes a surprising share of the effort. The building is open, the contractor's best people have moved to the next job, and a list of a few hundred small items sits between the owner and a finished project. Missing ceiling tiles, a door that won't latch, an exhaust fan wired backwards, manuals that haven't arrived. None of it is dramatic. All of it costs money if it isn't managed.
This guide covers how to run the deficiency process, how deficiency holdbacks differ from the statutory holdback in Ontario, and the closeout documents an owner should have in hand before the final cheque goes out.
Incomplete work and deficient work are different things
Closeout lists usually mix two kinds of items, and it helps to keep them apart.
- Incomplete work is scope that hasn't been done yet: the final coat of paint, the millwork that's still in the shop, the landscaping waiting for spring.
- Deficient work is work that's been done but doesn't meet the contract: a damaged finish, a leaking valve, a door closer set to slam.
The British Columbia Construction Association's 2023 closeout guide puts it bluntly: incomplete and deficient work "should not be conflated." The distinction matters because the two are valued and paid for differently, and because an owner who lumps them together tends to hold back the wrong amount.
How substantial performance fits in
In Ontario, the closeout clock is driven by substantial performance under the Construction Act. As law firm summaries explain, a contract is substantially performed when the improvement, or a substantial part of it, is ready for use or being used for its intended purpose, and the cost to complete or correct the remaining work is no more than a set formula: 3% of the first $1 million of the contract price, 2% of the next $1 million, and 1% of the balance.
That's why the deficiency list has to be priced, not just written. The payment certifier needs a valued list of incomplete and deficient work to decide whether the threshold has been met. The Ontario Association of Architects' practice tip on holdback release says to keep the backup calculations: an itemized list, any agreed deductions, and the allowable cost of completion.
View the data
| Item | Amount |
|---|---|
| 3% of first $1M | $30,000 |
| 2% of next $1M | $20,000 |
| 1% of remaining $2M | $20,000 |
| Allowable cost to complete | $70,000 |
| Incomplete work (valued) | $34,000 |
| Deficient work (valued) | $18,000 |
| Total remaining work | $52,000 |
Once the certificate of substantial performance is published, the lien period starts running, and the 10% statutory holdback becomes payable when that period expires without liens. Our post on substantial performance in Ontario explains the certificate, and our guide to holdback release covers the timing and the newer annual release rules.
Statutory holdback is not a deficiency holdback
This is the most common closeout mistake owners make. The 10% holdback under the Construction Act isn't the owner's money to keep until the deficiencies are fixed. It exists to protect subcontractors and suppliers further down the chain, who often have no contract with the owner.
The Ontario Association of Architects and the Ontario General Contractors Association said so in a joint statement in 2012, under the previous Construction Lien Act: lien holdback isn't meant to be held as leverage or a penalty for uncorrected deficiencies. They described a separate deficiency holdback, calculated by the architect at substantial performance from the deficiency list.
So an owner normally holds two different amounts at closeout:
- The statutory holdback, released on the statutory timetable once lien rights have expired or been dealt with.
- A deficiency holdback, held under the contract against the valued deficiency list and released as items are corrected.
How much to hold for deficiencies depends on the contract. The BCCA guide says it's typically two times the value of the deficient work, and that incomplete work shouldn't be included in it. That's a British Columbia industry view, not an Ontario rule, but the logic travels: hold enough to get the work done by someone else if you have to, and no more. Get legal advice on how your contract and supplementary conditions handle it.
Running the deficiency process
Good deficiency management starts long before substantial performance. On programs we've supported, the projects that closed out cleanly had a few habits in common.
- Deficiencies are tracked as the job goes. The consultant's field reports record deficient work when it's seen. Waiting for one big walk-through at the end produces a list nobody can finish.
- The contractor inspects first. The BCCA guide recommends the contractor complete its own inspection before asking the consultant for a final one. That keeps the consultant's list for things the contractor missed, not things it never looked for.
- There's one list. Architect, engineers, commissioning authority, owner and tenant all add to the same list, with one numbering system. The BCCA guide recommends agreeing in writing that a single list governs completion.
- Every item has an owner, a value and a date. Items are assigned to a trade, priced, and given an agreed completion date.
- Items are closed by verification. The contractor marks items done, and the consultant or owner's representative confirms. The list is reissued weekly with what's open, what's closed and what's overdue.
- Holdback comes down as items close. The BCCA guide recommends releasing deficiency holdback progressively as items are completed, not holding the full amount for the last item.
Watch for items that belong to someone else. Damage caused by the owner's movers, furniture installers or IT contractors often ends up on the contractor's list, and the contractor will rightly refuse it. Log owner-caused items separately, with photos and dates, so they don't stall the list or turn into a dispute over who pays.
View the data
| Track | Days from publication | Governed by |
|---|---|---|
| Lien period | 0–60 | Construction Act |
| Statutory holdback payable | After day 60, if no liens | Construction Act |
| Deficiency correction | 0–45 (illustrative) | Contract |
| Deficiency holdback release | Progressive, as items close | Contract |
| Closeout documents | 0–30 (illustrative) | Contract |
| Warranty | Runs from substantial performance | Contract |
Warranty starts sooner than many owners think
Warranty periods usually start at substantial performance, not at final completion. The OAA practice tip notes that a subcontract's warranty period starts on the date of substantial performance of the prime contract. That means every month the deficiency list stays open is a month of warranty used up. A system that never worked properly at turnover can reach the end of its warranty before anyone has proved it works.
Partial occupancy creates a similar trap. If you move into part of a building early, or start using systems before substantial performance, the BCCA guide recommends documenting it in writing and getting written confirmation of when the warranty starts for those systems. Check your insurance at the same time: the guide notes that under CCDC 2-2020, the contractor's broad form property insurance continues only for a short period after the work is ready for takeover unless the work is in use.
Before the warranty period ends, walk the building with the operators, list everything that's failed or been patched, and issue written notice to the contractor while the obligation still applies.
The closeout documents checklist
The documents matter as much as the physical work. Specifications vary, but on most commercial and institutional projects the owner should collect:
- Record drawings showing what was actually built, including concealed services, and the record specifications
- Operation and maintenance manuals for every system and piece of equipment, in digital, searchable form
- Warranties and guarantees from the contractor and manufacturers, with start dates and contact details
- Commissioning documentation: completed test reports, the closed issues log, the systems manual and training records (our post on commissioning and turnover explains these)
- Inspection and test certificates: fire alarm verification, sprinkler, backflow, elevator, electrical and any other approvals the authorities require
- Attic stock and spare parts delivered, counted and signed for
- Keys, access cards and passwords for controls, security and building systems
- Statutory and payment documents: statutory declarations, a WSIB clearance certificate, and the certificate of substantial performance and its publication
- A final change order reconciliation showing every approved, rejected and withdrawn change, so the final account has no surprises
Tie these items to money. The BCCA guide suggests valuing closeout items such as manuals in the schedule of values from the start. A contractor that knows a line of its contract pays only when the manuals arrive will deliver them.
What owners should do
- Write closeout into the contract. Define the deficiency holdback, the single-list process, closeout deliverables and their value in the schedule of values. Get legal advice on the drafting.
- Price the deficiency list. Separate incomplete from deficient work and value both, so the substantial performance test and the deficiency holdback rest on numbers.
- Never use the statutory holdback as deficiency leverage. Release it on the statutory timetable and hold deficiencies through the contract.
- Track the list weekly with open, closed and overdue counts, and escalate items that miss their dates.
- Collect documents before final payment, not after. The final cheque is the last real leverage you have.
- Diarize the warranty expiry and book the pre-expiry review before the project team disbands.
The bottom line
Closeout is where projects quietly leak value: deficiencies that never get fixed, manuals that never arrive, warranties that expire unused. Owners who price the list, keep it to one version, hold the right money for the right reasons and tie documents to payment finish projects properly. Owners who rely on the statutory holdback for leverage usually end up with neither.
Heading into closeout and want an independent view of your deficiency list and holdbacks? Book a 30-minute call with Benjamin R. Consulting.
Sources: Miller Thomson, Substantial Performance – What You Need to Know (2019); Miller Thomson, Holdback – What You Need to Know (2019); Mann Lawyers, Construction Act – Completion or Substantial Performance Date; Ontario Association of Architects, Practice Tip PT.10.2, Procedures for the Release of Statutory Lien Holdbacks (2024); OAA and OGCA, Joint Statement: Lien Holdback Is Not for Deficiencies (2012); British Columbia Construction Association, Guide to the Closeout of Construction Contracts and Projects (2023). The worked example is illustrative. This article is general information, not legal advice. Get legal advice on your contract and specific circumstances.