By Charlotte Holmes and Kelly Wilshire
Solicitors, Kensington Swan Lawyers
A contractor’s primary obligation under any contract is to deliver up the work on final completion, free of defects, and in accordance with the terms of the contract.
While all reputable contractors will stand by the quality of their work, contractors are right to be wary of requests to correct so-called ‘defective’ works which are in fact outside the contract scope, particularly where this requires a return to site. The distinction is a fine one and will depend on the terms of the contract and often the attitude of the principal and/or engineer.
Below we consider the meaning of defect and then the contractor’s liability to correct defects at three different points in time, namely:
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Before practical completion,
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During the defects liability period,
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Outside the defects liability period.
What is a defect?
The term defect tends not to be defined in construction contracts. Generally, the physical works must conform to the requirements of the contract – most importantly in the present context the specification. Any physical works that fail to comply with the requirements of the contract amount to a defect.
To carry out the works in a defective manner amounts to a non-compliance with the contract for which the principal has two separate remedies. It may use the defects liability regime in the contract to compel the contractor to rectify the defect. Alternatively, the principal may sue the contractor in court or arbitration proceedings, claiming damages for breach of contract or even seeking an order for specific performance. This is discussed further below.
However, there is some judicial authority that suggests that some defects liability clauses may amount to a code excluding the right to general damages for breach of contract and limiting the principal’s remedy to the defects liability clause – at least until the contractor has failed to remedy in accordance with that clause.
Correction of defects before practical completion
The contract will generally enable the engineer, prior to practical completion, to:
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Direct the contractor to correct defective or non-compliant work or materials at the contractor’s own cost;
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Accept non-compliant work or materials and adjust the contract sum by the value of the defect or non-compliance;
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Order a variation for any work that is necessary to correct any non-compliant work or materials and adjust the contract sum downward by the corresponding value of the non-compliance.
Of course the principal will only have recourse to such measures if the work and materials do not conform to the requirements of the contract. If there is an argument over whether the works are conforming or not, any of the above measures will be subject to subsequent determination as to who is liable to meet the cost.
Correction of defects during the defects liability period
As its name suggests, the stage of practical completion is reached when the works are complete save for minor defects and omissions not affecting the intended use of the works. The defects liability period (or maintenance period) typically runs from the date of practical completion for a specified period. During the defects liability period, the contractor is obliged to return to site and rectify:
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Minor defects and omissions existing at practical completion;
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Defects notified to it during the defects liability period.
Defects may be notified any time up to the end of the defects liability period and must generally be rectified within a reasonable time.
The requirement for the contractor to rectify defects during the defects liability period is for the benefit of the contractor as much as it is for the principal. The contractor can usually rectify defects more efficiently than can a third party, generally being able to mobilise more quickly given its familiarity with the job. The contractor will want to avoid being charged for a third party doing the work which itself can do much cheaper.
Whether the contractor has a right as well as an obligation to rectify defects and therefore avoid liability for damages was considered by the Court of Appeal in Kaye v Hosier [1972]. While recognising the answer is likely to be dependent on the wording of the contract, the court held that in most cases the contractor will not only have the obligation to return to site to rectify, but also probably the right to do so.
The defects liability certificate signals the end of the defects liability period. It will be issued once the contractor has rectified all defects notified to it. The defects liability certificate will not generally release the contractor from liability for any defects subsequently arising.
Correction of defects outside the defects liability period
The contractor’s primary obligation is to deliver up the work upon final completion, free of defects. Accordingly, defects identified after the issue of the final certificate still amount to a breach of contract. A contractor can be sued for a breach of contract (provided the claim is brought within the relevant statutory limitation periods). In some cases the court or an arbitrator may compel the contractor to rectify the works under an order for specific performance. However, this is unusual as in most cases damages will be considered a satisfactory recompense for the principal.
The usual measure of damages for defective work is the cost of rectifying defects in order to produce conformity with the contract. Where this is considered an unreasonable or unnecessary course to adopt, the courts will consider an alternative measure of damages.
Conclusion
Contractors asked to correct works not considered to be defective should seek legal advice as to their obligations.
Contractor Vol.34 No.5 June 2010
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