At What Stage Of An Incomplete Construction Project Is the Statute of Repose Triggered In New Jersey?

The Statute of Repose is a law that provides a ten year bar for claims related to construction-related lawsuits for “any deficiency in the design, planning, survey, supervision or construction of an improvement to real property.” The ten years begins to run at the stage of “substantial completion”. For construction projects, the stage of “substantial completion,” occurs when most of the project is complete even if certain “punch list” tasks remain. However, the issue remaining is whether there can be different dates of completion for different contractors, based upon when their work was finished.

The issue was considered in a recent case considered by the Appellate Division of the State of New Jersey. New Jersey v. Perini Corp., 425 N.J. Super. 62 (App. Div. 2012). In that case, the State of New Jersey utilized Perini Corp. to construct the South Woods State Prison (“prison”) with a centralized underground hot water distribution system (“distribution system”). (Id. at 66) The State’s contract with Perini Corp. specified that the project would be completed in three phases, each with its own completion deadline. (Id. at 68) Perini Corp. subcontracted with several vendors that contributed in various capacities to the project. (Id.)

The Perma-Pipe Corporation was one such subcontractor, and it designed the layout of the distribution system and manufactured its materials. The distribution system exhibited defects from 2000, just a few years after construction of the prison. On April 28, 2008, the State sued five (5) companies responsible for the design, construction, and materials used in the distribution system. That date was ten (10) years after the prison began operating but three (3) days before ten (10) years from the date that the State issued the final certificates of substantial completion of the project. (Id.)   The State admitted that the distribution system was completed and in operation by April, 27, 1998, when the prison was in operation. Id. at 67-71.

The relevant issues considered were:

1) does the ten-year period of the Statute of Repose run from the substantial completion of a phase or component of a construction project or from completion of the entire project; and

2) what is the relevance of multiple and successive certificates of substantial completion in determining the date from which the ten-year period runs.

 Id. at 71.

The decision hinged on the interpretation of N.J.S.A. 2A:14-1.1a., which barred claims regarding an improvement to real property from being brought “‘more than 10 years after the performance or furnishing of such services and construction.’”  Id. at 72  Particularly, the Court considered the statutory interpretation of the words, “‘improvement to real property.’” Id. at 75.

After reviewing various state precedents, the Court decided that, “the trigger date is the date of substantial completion, not completion of every last task…, [that] separate trigger dates apply to subcontractors that have substantially completed their work, even if improvement as a whole is not completed…and [that] the trigger date for any single contractor runs from completion of that contractor’s entire work on the ‘improvement,’ not from discrete tasks.” Id. at 74.

The Court stated that components of construction may be substantially completed before completion of the entire project and that subcontractors who work on those components with no further duties may expect the Statute of Repose to run when their work is completed. Id. at 77. However, for the Statute of Repose to run under those circumstances, components of a project must have been documented as distinguishable components in the contract for the construction work. Id. at 78. In this case, the Court decided that the water distribution system was a component of an improvement, not a separate improvement to real property. Id. at 76.

The distribution system was not identified in the State’s contract with Perini Corp., as a separate  improvement that was substantially completed before the completion of the entire project. Id. at 79. Accordingly, the Statute of Repose did not run independently for substantial completion of the distribution system alone. Because the State filed its complaint three (3) days before ten (10) years of the official certification for substantial completion of the entire project, the Statute of Repose did not bar the claim.

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