Author Morten Søjborg Partner +886 916 981 110 mos@jumbocg.com

Introduction – Defects

Under a construction contract, one of the contractor’s primary obligations is to carry out and complete the works to the standard set out in the contract including making good any defects. A defect’s liability period is intended to complement this liability by setting out how and when the contractor must remedy defective work which becomes apparent during the defect’s liability period.

A defect is an incident or occurrence that typically arises as a deficiency in the quality or quantity of the works due to a default by the contractor. Depending on the nature of the defect and when it arises, it can have a substantial impact on the project and can lead to an overrun of the completion timelines or intermediary milestones and production output.

How do defects arise?

A defect can take many shapes and forms. In construction contracts, the most common defect is one where the contractor has failed to deliver the works and services in accordance with the requirements of the contract for one of the following reasons:

  • Poor workmanship:

A contractor generally has to carry out and complete the works with reasonable skill and care. Do the contractor’s and/or subcontractor’s personnel have the right competencies/qualifications and are they applying the correct procedures? If the works do not comply with the contractual requirements, then consider issuing a notice or instructions for rectification or removal of the defective work.

  • :

Why is this happening, does the contractor have enough inspection and testing quality controls in place, are the materials used of good quality and suitable for the purpose? A contractor should be required to report quality control issues. It is important to investigate the issues as early as possible to establish the root cause of a defect and take steps to change the quality control/quality assurance.

The contract will usually require that the contractor complies with a certain specification which also refers to other codes/standards. If the codes/standards are erroneous or not specific enough, can the contractor avoid the code/standards or if the error in the codes/standards is not identified until after completion, does the contractor have the risk of remediation of the defect?

The contractor fails to perform the works in accordance with good industry practice or execute works in a professional and prudent and/or the works are not in accordance with the contract, hereunder inter alia technical requirements, permit constraints or third party agreements.

Why is this important?

Defects are detrimental to both parties. The employer, risk to lose a part or the whole of the benefit of the works performed for a period or for good as well as causing a disruption to the operation of the facility constructed. The contractor, having demobilised from site, risk to have to re-mobilise, make good the defect and demobilise, typically being liable to remedy for a long period of time.

In other words, instilling a defect avoidance behaviour in both organisations and setting up the contract to facilitate same, with clear scope, interface, role and responsibility descriptions, is key.

What to consider:

The thoughts set out below are a non-exhaustive list of points to bear in mind when dealing with defects and possible options, rather than a comprehensive checklist of universal application.

  • Liability and risk for defects under law versus liability and risk for defects under the contract: establishing the positions under the applicable background law (which can also be considered) sets the scene for development of the contract;
  • thorough due diligence of contractors and employers;
  • Focus on the procedures for review and approval of design, documents, and methodology as well as quality assurance, inspection, tests and audits;
  • Consider:
  • the trigger for commencement;
  • the duration; and
  • extensions

of the defect liability period;

  • Consider the implementation of defect register and to include root cause analyses measures to assess cause and effect of the defect, including the assessment as to whether non-defective items should be replaced; and finally,
  • How the consequences of defects can be covered through insurance.

If you are in need of further information or have an inquiry in respect to the article or otherwise, please feel free to reach out to us at CONTACT@JUMBOCG.COM.

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