The identification of defects in construction work often needs to be a considered view. Pointing out non-compliance of construction activities versus the design requirements is easy when identifying defects, but what has caused the issue in the first place and what is the root cause requiring remedial works? That’s the part that needs close consideration.
Also, how does the contract playback the remedy for such a situation, e.g., let’s say the employer decides that the works have not been constructed following the contract requirements, which has led to abortive works, and subsequently, the employer has issued a defect notice under the contract. The contractor may argue the design is simply unachievable, and whilst as an experienced contractor they have used reasonable skill and care in the construction, they are not liable for the design deficiencies. The contractor has stated that not only should the design be updated to correct this, but they should be instructed to work to the revised design information and paid in addition to the contract sum for dealing with the matter.
Even if the employer utilises the services of their supply chain on a design and build basis, they cannot admonish themselves from issues within the outline design entirely, albeit they are on a much stronger footing. This is because the contractor has an obligation to develop the design to a stage where it can be constructed, but they are not automatically responsible for the contents of the employer’s requirements, as they did not draft them, nor are they responsible for verifying the adequacy of the design handed to them.
Many clients step around this issue by including clauses to the effect that the contractor becomes liable for the design prepared by the employer to date, and in effect, it becomes their design. This position is supported by the case of The Co-Operative Insurance Society Limited vs Henry Boot Scotland Limited. It was ruled that the contractor was responsible for satisfying its own assumptions upon which the employers’ design had been developed and create the complete detailed design.
However, by contrast to the above, if the employer retains control of the design, the obligation upon them to avoid defective design will largely reside with them, and they should increase the resources employed to ensure the construction works are completed in accordance with the specification, particularly if operating on a management contracting basis.
How contracts treat abortive work and the cost of defects
In terms of abortive works, this is, by definition, work that will not form part of the final project as it requires re-work to be compliant. Examples include:
- Lack of design coordination leads to clashes with existing assets meaning abortive design work or changes in construction activities.
- Errors in survey setting out lead to works being constructed in the wrong location or to the wrong level. Sometimes, the issue may not transpire until much later in the works, causing maximum financial impact.
- Incomplete design upon starting construction, and then revisions of design are not communicated or missed leading to the works being constructed to an incorrect or superseded design.
- Changes in the law mean that, as a direct result, design changes are revised and imposed on any immediate construction projects.
- Concrete pours that do not achieve the required strength after curing and require to be demolished and re-built.
The parties will need to work together in coordinating the works such that a resolution is found. If operating a contract that is a lump sum or re-measurable, the contractor will only be paid once for works in accordance with the requirements. As an employer, you are well protected save for the case above where contractors could argue the works are not defective but are an issue with the employer’s requirements or inherent in their design, and they should be compensated to deal with the problem.
In NEC ECC contracts, the cost of defects is borne by the contractor if they are operating a lump sum contract unless the employer instructs the contractor to search for a defect that is not found, in which case, they need to compensate the contractor for their time and cost. This last point is also the case in JCT contracts.
However, for NEC target cost contracts where the contractor is paid on a defined cost basis, the cost incurred in dealing with defects can be disallowed. Some criteria apply to this being triggered though e.g.
- The cost of correcting defects, but this occurring after completion.
- If a defect occurs during the works, the contractor is paid their cost for correcting it, the logic being that as it is a target cost, the employer and contractor share in all risks and opportunities.
- However, if the defect is caused by the contractor not complying with a constraint on how they are to provide the works, as stated in the scope, this is disallowed.
It is not uncommon for employers to widen the terms of what can be disallowed when drafting contracts, as the thought of paying for defective work in any sense is often an emotive subject.
All the mainstream contracts will contain provisions requiring the contractor to return and correct defects if identified in the period. This will be referred to as the defect’s correction period, the maintenance period, the rectification period and so on. The period for this is typically one year.
After this period, the employer does not have a contractual right to instruct the contractor to return to the site and correct the defect, but if the contract were executed underhand, the contractor would be liable for latent defects up to a period of six years, typically after practical completion has been achieved and for contracts executed as a deed it is twelve years. The employer may have to employ and instruct a third party to carry out the remedial works and then seek to claim the costs from the contractor. This is not a straightforward process and largely depends on the strength of the argument the contractor was at fault, which led to the defect. Points to consider for the employer are:
- Notifying the parties involved in the construction of the works i.e., designer, contractor, specialist advisors, technical assurance providers etc. They will need to inform them of developments, and it may be prudent to tell them to notify their insurers to avoid being time-barred from making a claim at a later point in time.
- The above list of people should be asked for their position.
- If the employer opens the works and finds no defect in that location, they may well face the costs of such.
- Suppose a decision is not reached between the parties as to the root cause of the defect. In that case, they believe workmanship to be the issue, and they will likely have to pay for the corrective works and then launch dispute resolution proceedings to recover the cost. However, be mindful of the legal fees in doing so.
Design vs Workmanship
As courts will generally carve up defective works into either design, specification (design), material deficiencies or workmanship, it’s worth pointing out that both parties should seek independent advice. If an agreement can be found to source the independent advice together with an agreement, the recommendation of the advice can be taken as a determination of the cause.
If operating a JCT contract, the materials, goods and workmanship must be to the standard described and to the reasonable satisfaction of the architect. This places heavy emphasis on the architect checking the progress of the works and ensuring they identify issues as they arise.
However, whilst it is ultimately the job of the designer to specify the materials, size and details, the contractor is responsible for fixing them together and will divide up the trades that will support them in achieving this.
An example of poor workmanship could be the lack of compaction on road construction, which later leads to an uneven surface or dips as the stone below begins to break. This will need to be replaced in due course, but with small sections of remedial works, this can lead to longer-term problems and the requirement of continual remedial works. The employer will seek to determine that the level of compaction was not achieved, and that this is the underlying reason; however, this will be very difficult to determine accurately.
The contractor could seek to argue fair wear and tear and that they are not responsible. Equally, what if the problem was with the drainage design in this location – can this be ruled out 100% as not a factor? If the design can be undermined, questions should be asked as to how the contractor can be attributed with the costs to rectify the situation.
Obligations on the parties to raise concerns
The question here is: does an experienced contractor have an obligation or duty of care to identify issues within the design or specification to the employer where they are not responsible for the design? Under NEC contracts, the contractor is obliged to serve an early warning notice of anything that could affect time or cost as soon as they become aware. There are penalties for not doing so, but when compared to JCT, where the obligation is placed upon the contractor to flag issues once they have occurred, you could view the NEC ECC as a more pro-active contract and, therefore, as an experienced contractor, they do have an obligation.
However, are they also obliged to raise issues with the employer’s design if the contract is build-only? You would have to say that it would be best practice to do so as it is in the ‘spirit of mutual trust and cooperation’.
If a design was patently unsafe to build, then in terms of workmanship, the contractor should be raising concerns, but if they believed the design itself was defective, there does not appear to be an express obligation upon the contractor to make the employer aware of this save for the case that it may increase time and or cost.
Levying damages vs betterment
Suppose the works are abortive or an instruction to correct a defect is issued, and the employer takes the opportunity to change the specification. In this case, the recovery of damages should put the employer back into the position as if the abortive work or defect had not occurred. Therefore, if there is a suggestion of betterment in the remedial works, recovering costs in full would be seen as a penalty and not enforceable.
In an interesting case between Turriff Limited vs Welsh National Water Development Authority (1994) the Contractor, Turriff, was to construct joints between pre-cast concrete segments to a tolerance of exactly one-sixteenth of an inch with the contract used putting strict obligations on the contractor to construct the works in strict accordance with the contract.
The contractor stated that it was impossible to construct the works to this level of tolerance, to which the employer disagreed, and as the requirements had not changed from the tender competition, they could not understand why it was now claimed to be impossible to construct and presumably believed that workmanship was the issue.
As the dispute progressed, the court agreed with the contractor’s counsel that in the strictest terms, it was not impossible to manufacture to this level, but when you consider the ‘ordinary competitive commercial sense’ intended, then it was quite impossible. This is an interesting case, as a level of ‘reasonableness’ is applied to the requirements, which was not specifically stated in the contract, and interpreting the requirements in such a way has essentially enabled the contractor to relax the design to suit. Had the contract been fitness for purpose, the interpretation would surely have been that they need to achieve the tolerance, no matter what, in order to meet their obligations.