Arkansas' Statute of Repose and Substantial Completion
By Larry Watkins, Esq. (AR)
This purpose of this article is help you understand Arkansas’ statute of repose, see the need to use the term substantial completion in construction contracts, require in contracts a specific definition of the term – so that you can realize the protections of a Arkansas’ statute of repose.* A statute of repose is a state law that bars claims or relief for an injury if the injury occurred more than a specified number of years after substantial completion of a construction project. The statute applies primarily to claims by third parties, but a number of statutes of repose also bar claims by the owner. Arkansas and every other state have enacted a statute of repose for construction projects.
Arkansas Statute of Repose
Arkansas’ statute of repose is the state legislature’s response to the breakdown of privity of contract defenses. Prior to state courts obliterating the privity defenses, injured third parties, such as the owner’s employee or an invitee, could not sue a contractor, architect, engineer, or subcontractor (project participants) because there was no contract between the injured party and any of these project participants. The courts opened a Pandora’s Box when they began allowing third party claims against project participants. For example, an Architect who received a small fee for a design could be liable for millions of dollars in injury damages resulting from the design for many, many years after the project was built and occupied. State legislatures decided to bar such actions if the injury occurred more than 5 years, 10 years, or 15 years from the date of substantial completion.
Arkansas’ statute of repose in the Arkansas Code Annotated is located at A.C.A. § 16-56-112. Subsection 112(a) applies to actions in contract arising from (1) design, observation, or construction work or (2) injury to property resulting from such design, observation, or construction work. With the author’s emphasis, 112(a) states:
No action in contract, whether oral or written, sealed or unsealed, to recover damages caused by any deficiency in the design, planning, supervision, or observation of construction or the construction and repair of any improvement to real property or for injury to real or personal property caused by such deficiency, shall be brought against any person performing or furnishing the design, planning, supervision, or observation of construction or the construction or repair of the improvement more than five (5) years after substantial completion of the improvement.
The statute of repose also covers damages arising from injuries to persons or wrongful death in subsection 112(b)(1). This subsection is nearly the same as the previous one; however, the time period for such actions – whether in tort or contract – is 4 years. With the author’s emphasis, 112(b)(1) states:
No action in tort or contract, whether oral or written, sealed or unsealed, to recover damages for personal injury or wrongful death caused by any deficiency in the design, planning, supervision, or observation of construction or the construction and repairing of any improvement to real property shall be brought against any person performing or furnishing the design, planning, supervision, or observation of construction or the construction and repair of the improvement more than four (4) years after substantial completion of the improvement.
There are additional provisions of the statute, such as the statute of repose not extending the 3 year period for breach of contract claims, but the emphasis of this article is on the two provisions above. In short, after 4 or 5 years from substantial completion, as the case may be, your claim is barred if it is based on or caused by design, construction, or observation of a project.
The Importance of Substantial Completion
Although a statute of repose provided much needed protection for construction companies, design firms, and individuals working for them, another problem arose: If a claim is barred after 5 years from substantial completion, when does substantial completion occur? Across the US, state courts have defined substantial completion differently. This problem is further compounded when the customs and terminology for diverse types of industries and projects either define substantial completion differently or do not use the term at all. For example, some contracts for energy and industrial projects define the point when the project has been completely built but not operational as mechanical completion . On the other hand, the same contracts may define a completely built and fully operational project as commercial operations or final completion.
The good news is that Arkansas courts have generally recognized a contractual definition and design professional’s designation of substantial completion on construction projects (see Zufari v Architecture Plus, 914 S.W.2d 756 (1996); Taylor v. Green Memorial Baptist Church , 633 S.W.2d 48 (1982)). In Arkansas, presumably, if substantial completion is a defined term in a contract or a point in time when an Architect certifies that substantial completion has occurred, the courts will use the contract term or certification for purposes of starting the clock in the statute of repose.
However, this means architects, engineers, contractors, and subcontractors must ensure they do two things: First, besides the schedule, progress payment, retention release, and liquidated damages reasons, make sure the term substantial completion is used in the contract. Second, define substantial completion in such a way that requirements for its achievement are clear and that the definition does not conflict with the applicable statute of repose for the project. Don’t roll the dice and allow a court to decide what substantial completion means during your $10 million lawsuit.
In conclusion, Arkansas has provided design & construction professionals and firms with a valuable protection against third party claims long after the project has been turned over to the owner. Make sure you take full advantage of Arkansas’ statute of repose.*
*The information in this article does not constitute legal advice and is for general educational purposes only.