Achieving a Successful Construction Closeout: A Guide for Subcontractors

As a subcontractor, you know that the completion of a project doesn’t signal the end of your involvement. The construction closeout phase, while often overlooked, is a critical step in ensuring complete (and timely) payment, maintaining a stellar reputation with other project stakeholders, and securing future work opportunities. However, this multifaceted process requires careful attention throughout the project’s lifecycle. Anything less can lead to money and communication issues down the road.

We created this guide in an effort to help you navigate the intricacies of the construction closeout process and finish strong on every project.

What is a construction closeout, and why does it matter?

A construction closeout is the final phase of a project, where all aspects of the work are completed and finalized. This includes everything from ensuring the punch list items are addressed and obtaining required inspections to submitting final documentation and securing lien waivers. For subcontractors, the project closeout process is pivotal to:

• promptly receiving all the money you’re owed for the work you’ve completed,
• demonstrating professionalism and reliability, and
• fostering positive relationships with general contractors (GCs) and owners, increasing the likelihood of future collaborations.

What are common challenges in the construction closeout process? 

The closeout process isn’t always smooth sailing. Subcontractors often encounter a number of challenges that can disrupt the process. Therefore, it's important to identify and address these issues as soon as possible to prevent them from escalating at inopportune times. Look out for:

• Delayed or Withheld Payments: Late payments from GCs or owners, withheld retainage, or disputes over payment amounts can significantly impact a subcontractor’s cash flow and financial stability. If unresolved by the project closeout phase, these issues can diminish subcontractors’ ability to cover outstanding expenses and fund future projects.
• Disputes and Claims: Disagreements over change orders, scope of work, performance, or payment can escalate into disputes that can delay closeout and require costly resolution—potentially through legal means.
• Documentation Issues: Missing or incomplete lien waivers, as-built drawings, warranties, or other crucial closeout documents can hinder the process and delay payments. Similarly, inadequate change order management can make it difficult to accurately track costs and justify final payment requests. (More on these closeout documents later on.)

Communication Breakdowns: Miscommunication or just a lack of communication between project stakeholders can lead to misunderstandings, delays, disputes, and unmet expectations regarding project responsibilities and deliverables.

What are some project closeout best practices for subcontractors?

That said, there are some simple things you can do throughout the entire project’s lifecycle to ensure the closeout process is as smooth and efficient as possible. (The big takeaway here? A proactive approach will save you a ton of headaches down the road.)

Closely review contract closeout specifics at the start.

I always say that construction closeouts start at the beginning of the job. From day one, you should review your contract to determine the specific closeout requirements for your scope of work—payment and retainage terms, submission requirements, required compliance documents, etc. These requirements are not one-size-fits-all and can vary significantly depending on the project and contract terms. If any aspect of the contract is unclear or ambiguous, ask the GC or owner for clarification. 

Establishing a clear understanding of the contract's closeout requirements prevents surprises down the road and sets a solid foundation for achieving the best practices listed below.

Maintain impeccable financial records.

It should come as no surprise that maintaining meticulous financial records from start to finish is paramount to your success. This encompasses both tracking all project costs and ensuring timely and accurate submission of pay applications and change orders.

Cost Tracking

Keeping a tight leash on your costs (labor, materials, equipment rentals, permit fees, etc.) will make the final billing process much smoother, especially as it relates to time and materials (T&M) jobs and change orders. This is because it:

• Justifies and supports your final payment requests by providing clear documentation of billable work performed;
• Provides a thorough audit trail in case any billing details need to be verified; and
• Helps prevent costly billing disputes by ensuring you have proof and backup for all charged expenses.

Accounts Receivables (A/R) Monitoring

Equally important is ensuring that your pay applications and change orders are accurately submitted on time, every time—and keeping organized records of these transactions. Remember, GCs may scrutinize every detail during closeout, so avoid giving them any reason to withhold your final payment. A well-organized paper trail can prevent misunderstandings, justify final payment requests, and preserve a positive relationship with the GC.

Negotiate favorable retainage terms.

Retainage can be a significant portion of a subcontractor’s profits, typically ranging from 5% to 10% of the contract value. To that end, it’s critical to thoroughly review retainage terms and ask any clarifying questions upfront. If the proposed terms aren’t favorable, don’t be afraid to advocate for your interests—the worst the GC can say is “no.” 

Coming to the GC with solutions at the ready can increase your chances of securing more favorable retainage terms. Consider proposing mutually beneficial alternatives, such as:

• Excluding certain line items from retainage, particularly those with minimal risk of defects or delays; or
• Releasing a portion of the retainage at specific project milestones, such as substantial completion or final inspection approval.

If negotiations prove challenging, you can also consider adjusting your bid to account for the delayed payment of retainage, especially if your work is completed early in the project timeline.

Communicate openly and often with GCs.

Clear and consistent communication with the GC is essential throughout the project, but especially during closeout. Regularly update the GC on progress, promptly address issues or concerns, and maintain a collaborative approach. Fostering open lines of communication will help resolve issues quickly—if not prevent them altogether. Plus, it also lays the groundwork for future collaborations.

Actively participate in punch list walk-throughs.

During punch list walk-throughs, architects and engineers (A/Es) meticulously inspect the work completed by each subcontractor, identifying any deficiencies, incomplete work, or deviations from the contract. By being an active participant in this process, you’ll gain firsthand insights into the problem areas—rather than them being communicated through someone else or through photos. 

A valuable tip, particularly for larger projects, is to request a trade-specific walkthrough as soon as your work is complete. This allows for focused attention on your specific scope of work, increasing the chances of identifying any deficiencies while the work is still fresh. In turn, this enables you to address and rectify these issues promptly—if not on the spot—to prevent delays later in the closeout process.

Coordinate closeout activities across all subcontractor tiers.

As the primary subcontractor for your specific scope of work, you're ultimately responsible for ensuring that all lower-tier subcontractors involved in your portion of the project have fulfilled their closeout obligations and have submitted any required materials. To ensure nothing is overlooked, consider scheduling dedicated closeout meetings with your lower-tier subcontractors. These meetings provide a forum for reviewing outstanding tasks, addressing any concerns, and confirming that all closeout requirements are met before final project completion.

Implement a proactive, centralized approach to documentation management.

One of the biggest oversights I’ve seen subcontractors continuously make is waiting until the project's end to gather their closeout documents for the submittal process. Instead, make it a habit to collect and organize documents in the right closeout folders (e.g., construction, accounting, insurance, safety) as the project progresses.

Better yet, utilize cloud-based document storage software—like Siteline—to digitize and store all of your compliance documents in one easily accessible location. This ensures that everyone has access to the most up-to-date versions throughout the project, preventing any last-minute scrambles during the closeout process. Additionally, Siteline's real-time notifications keep you informed of any document status changes, such as expiring certificates of insurance, enabling you to proactively address potential issues before they escalate.

For a detailed breakdown of the essential steps involved in the construction closeout process, check out this blog post.