We recently attended a seminar at Pinsent Masons’ offices, presented by Sam Boyling and James Clarke. The topic was defective work; something that is all too familiar to those involved in the construction industry. Defects can range from de minimis items often included in a snagging list at practical completion (PC), to undetected problems, such as issues with the design of foundations, which may compromise the structural integrity of a building.
After a quick canter through the basics, such as “what is a defect?” and patent and latent defects, the seminar considered the risks that may arise from defective work at the various stages of the project and provided a number of practical tips, which apply equally to the employer and contractor (and sub-contractors).
At the procurement stage
It is important to manage the risks associated with defects at the procurement stage, so that if or (less optimistically) when defects arise, the risks can be managed. This means the parties should:
- Clearly define the scope of works in the contract, with a precise and detailed specification including design/construction standards that have to be met for completion.
- Include back-to-back provisions in sub-contracts.
- Put in place other contractual routes to recovery (such as novation agreements for professional appointments and collateral warranties/third party rights).
- Ensure the works are adequately insured.
During the works
- Ensure the works are regularly monitored, so that instructions to inspect and test the works can be given, if necessary, and any defective work can be rectified as soon as practicable.
- Keep good contemporaneous records – photographs, test results, meeting minutes, letters and so on – you might need these later on.
- Record in writing any agreement to relax the specification, or accept work to a different standard.
- Operate the payment terms of the contract, to ensure the appropriate notices are issued and money is properly withheld from the contractor (or sub-contractor) (section 111, Construction Act 1996). The parties should also remember their common law rights of set off and abatement.
Just before PC
- Arrange to meet and agree what the key drivers to achieving completion of the works are. For example, the employer may:
- have a different view of what works are critical to completing the project; or
- be willing to negotiate on the standards that have to be achieved.
- Consider whether independent third party advice may be required to review the whole or any part of the works.
- Ensure the specification and other design/construction standards have been met and record in writing those that have not.
- Ensure that the works are free from patent defects.
- Agree and include on a list those items that are to be completed as part of the snagging process.
- Consider what commercial (or legal) pressure can be applied to ensure the contractor (or sub-contractor) completes the works.
- Ensure that any agreement reached on how defects will be dealt with is recorded in a side agreement that specifies:
- which defects will be remedied; and
- what remedial works will be carried out.
If defects are discovered after PC has been certified, the employer should:
- Review the contract to establish what the rectification or defects liability period is (most standard form contracts provide for a period of between 6-12 months).
- Establish whether there is a contractual right for the contractor to return to site to remedy defects.
- Consider whether it is appropriate to instruct the contractor to return. Arguments about a failure to mitigate its loss may arise if the original contractor is not allowed to return, unless the refusal is justified. For example:
- the employer may have lost faith in the contractor’s ability to carry out the remedial works; or
- the works are urgent and the contractor is unable to mobilise quickly enough.
- Record in writing why the original contractor is not being instructed to return.
- Ensure there is a contemporaneous record of the defective works (such as photographs or test results) before any remedial work is undertaken.
and don’t forget one very important thing
If the parties adopt a collaborative approach, with good communication and record keeping throughout the project, potential pinch points may be identified early and the parties may avoid many of the problems that defective works can cause.