Defects in construction projects

– current issues: Part 1

Donald G Gavin
Akerman Senterfitt LLP, Design and construction defects – and the resulting efforts to allocate
Vienna, US responsibility, correct, remedy and deal with the cost and additional time
of such remediation – are frequently a problem in construction whatever
the set of contractual agreements used. New allocations of risk are
primarily influenced by amended contract language and defences utilised
to shield parties from liability, while various insurance products may offer
partial solutions. Limitations on individual parties’ liability are sometimes
provided for by contract. Legislatures seek to provide specific relief for
certain groups, so that assumptions once valid as to responsibility, burden
of proof and remedies available need to be re-thought and verified
depending on what contractual documents have been utilised and the
applicable law in the jurisdiction. The concluding Part 2 of this article will
be published in the next edition of Construction Law International.

The boundary between snags and or compliance within whatever contractual

defects period is provided for before allowing the
A tension can exist on a constr uction contractor to proceed with the remaining
project where the employer’s inspectors work. The FIDIC Conditions of Contract for
or owner’s agents identify work as either Works of Civil Engineering Construction
improperly installed or not meeting plans (4th ed 1987, as amended in 1988 and 1992)
and specifications and require its correction provides for the contractor’s obligation to

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‘remedy any defects’ in Clauses 8.1, 13.1, The contractor could seek to exercise this right
37.4 and 48.1. While the contractor believes in order to create a record with the owner of
that the work is properly installed and in the the contractor’s efforts to repair expeditiously.
worst case it is an item to be added to the Under the FIDIC Conditions of Contract,
punch list and to be addressed after beneficial the contractor can give notice commencing
occupancy or completed during the warranty the issuance of the Taking-Over Certificate
period or just prior to the issuance of the and the entitlement to receive such a
‘Taking-Over Certificate’. The employer may certificate within 21 days of completion, thus
choose to delay acceptance of the work based putting pressure on the employer/owner to
on the existence of the defect. Sometimes the take over the works.
cause of this conflict can be attributed to the The FIDIC Conditions of Contract for
suspicion that the employer is motivated by Works of Civil Engineering Construction
the objective of not taking over the works any (4th ed 1987, as amended in 1988 and 1992)
earlier than necessary so as to shift the cost of provides in Clause 48.1 for a Taking-Over
upkeep and maintenance to the contractor for Certificate upon request from the contractor:
as long as possible. ‘When the whole of the Works have
While the resolution of such conflicts can been substantially completed and
be important, the outcome is usually have satisfactorily passed any Tests on
factually driven and dependent on the Completion prescribed by the Contract,
language of the relevant contractual clauses the Contractor may give a notice to
as well as the availability of a dispute that effect to the Engineer, with a copy
resolution process that is prompt and to the Employer, accompanied by a
readily available. written undertaking to finish with due
The FIDIC Conditions of Contract for expedition any outstanding work during
Works of Civil Engineering Construction the Defects Liability Period. Such notice
(4th ed 1987, as amended in 1988 and 1992) and undertaking shall be deemed to be a
provides in Clause 37.4, Rejection: request by the Contractor for the Engineer
‘If, at the time and place agreed in accordance to issue a Taking-Over Certificate in respect
with Sub-Clause 37.3, the materials or Plant to the Works. The Engineer shall, within 21
are not ready for inspection or testing or if, as days of the date of delivery of such notice,
a result of the inspection or testing referred either issue to the Contractor, with a copy
to in this Clause, the Engineer determines to the Employer, a Taking-Over Certificate,
that the materials or Plant are defective stating the date on which, in his opinion,
or otherwise not in accordance with the the Works were substantially completed
Contract, he may reject the materials or in accordance with the Contract, or give
Plant and shall notify the Contractor thereof instructions in writing to the Contractor
immediately. The notice shall state the specifying all the work which, in the
Engineer’s objections with reasons. The Engineer’s opinion, is required to be done
Contractor shall then promptly make good by the Contractor before the issue of Such
the defect or ensure that rejected materials Certificate. The Engineer shall also notify
or Plant comply with the Contract.’ the Contractor of any defects in the Works
The operative words are ‘promptly make good affecting substantial completion that may
the defect’, which usually means the contractor appear after such instructions and before
has the obligation to proceed without completion of the Works specified therein.
substantial delay. The FIDIC Conditions of The Contractor shall be entitled to receive
Contract for Design-Build and Turnkey (1999 such Taking-Over Certificate within 21 days
edition) provides in Clause 11.5, Removal of of completion, to the satisfaction of the
Defective Work: Engineer, of the Works so specified and
‘If the defect or damage is such that it cannot remedying any defects as notified.’
be remedied expeditiously on the Site and the The engineer is required to notify the
Employer gives consent, the Contractor may contractor of any defects in the works affecting
remove from the Site for the purposes of repair substantial completion.
such items of Plant as are defective or damaged. Consequently, a project with a frequently
This consent may require the Contractor to convening disputes resolution board may be
increase the amount of Performance Security able to address this issue before it becomes a
by the full replacement cost of these items, or major cost.
to provide other appropriate security.’

14 Construction Law International Volume 5 Issue 4 December 2010

 The boundary between latent Is the employer/owner’s decision
defects and fair wear and tear to not have the contractor fix
the defect because of a loss of
Another source of tension on a construction
confidence a failure to mitigate?
project is distinguishing between latent
defects and fair wear and tear, which Sometimes the relationship between the
would normally occur as a result of use contractor and the employer/owner has
and for which the employer could have declined to the extent that the employer
responsibility both for its incurrence and for has lost confidence in the contractor’s, or
the maintenance costs of addressing this use. its subcontractor’s or supplier’s, ability to
This problem often arises after a Taking- cure or correct a defect and chooses to have
Over Certificate is issued and the employer someone else perform this work for additional
or owner takes beneficial occupancy of compensation. The contractor may assert as a
the works and thus should assume the defence that the expenditure by the employer
responsibility for its use and maintenance. is not recoverable because the contractor
The contractor who may have personnel on could have had under the relevant subcontract
site to perform punch list or warranty work or purchase order the corrective work
may believe that many of the listed defective performed at no or little additional charge to
items of work to be performed are more the contractor, and that the employer’s actions
properly fair wear and tear or maintenance are an unnecessary expenditure because of
work, which is the responsibility of the a clear failure to mitigate. Such a defence is
employer/owner. The FIDIC Conditions assisted by contractual language providing for
of Contract for Works of Civil Engineering the contractor’s right to cure the defect and
Construction (4th ed 1987, as amended a response by the contractor to notice of the
in 1988 and 1992) provides in Clause 49.2 defect that it will cure as soon as permitted.
that fair wear and tear is excepted from the The employer’s position is strengthened by
obligation of the contractor to deliver the the absence of a contractual obligation to
works in the condition required by contract. afford the contractor a right to cure, a failure
Likewise, the FIDIC Conditions of Contract of the contractor to assert a right to cure and
for Design-Build and Tur nkey (1999 a history of failed attempts by the contractor,
edition) provides in Clause 11.1 Completion its subcontractor or supplier to address the
of Outstanding Work and Remedying problem successfully. The FIDIC Conditions
Defects that fair wear and tear are excepted. of Contract for Works of Civil Engineering
The employer/owner might be withholding Construction (4th ed 1987, as amended in 1988
the Defects Liability Certificate, certificate and 1992) provides in Clause 49.4, Contractor’s
of final completion or acceptance on the Failure to Carry Out Instructions:
basis that the contractor has not addressed ‘In case of a default on the part of the
some of these disputed items. The FIDIC Contractor in carrying out such instruction
Conditions of Contract For Works of Civil within a reasonable time, the Employer
Engineering Construction (4th ed 1987, shall be entitled to employ and pay other
as amended in 1988 and 1992) provides persons to carry out the same and if such
in Clause 61.1, Approval only by Defects work is work which, in the opinion of the
Liability Certificate: ‘only the Defects Engineer, the Contractor was liable to do
Liability Certificate, referred to in Clause at his own cost under the Contract, then
62, shall be deemed to constitute approval all costs consequent thereon or incidental
of the Works.’ thereto shall, after due consultation with
Under Clause 62.1 the contract shall not the Employer and the Contractor, be
be considered as completed until the determined by the Engineer and shall
Defects Liability Certificate is executed. be recoverable from the Contractor by
Once again the ability to address these the Employer, and may be deducted by
issues through a disputes resolution the Employer from any monies due or
process is dependant on its speed and to become due to the Contractor and
availability. Often such issues are the Engineer shall notify the Contractor
compromised by contractors in order to accordingly, with a copy to the Employer.’
finish a project and to get its own personnel The FIDIC Conditions of Contract for Design-
and that of its subcontractors and suppliers Build and Turnkey (1999 edition) provides in
off the site. Clause 11.4, Failure to Remedy Defects:

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‘If the Contractor fails to remedy any Does the contract require that the corrective
defect or damage within a reasonable work be completed within a stated period
time, a date may be fixed by (or on after receipt of notice? Alternatively, does
behalf of) the Employer on or by which it give the contractor until the end of the
the defect or damage is to be remedied. Defects Liability Period plus 14 days, or until
The contractor shall be given reasonable Final Completion of the Project to finish
notice of this date.’ the corrective action? Has the contractor
Then the Employer’s alternatives are set forth. responded promptly to the notice from the
employer/owner that it is impractical or
uneconomical to undertake the corrective
The contractor who refuses to fix fix at that time because of some verifiable
defective work promptly on the factual reason, such as the unavailability
basis that the repair can more of replacement parts or the necessar y
economically be performed later presence of a factory representative of the
Where circumstances arise that the manufacturer which cannot be obtained
employer/owner provides notice of a for some time, or the necessity of bringing
construction defect and the contractor back on site a large crane which would
chooses to wait until sometime later more economically occur at some later
to per for m the cor rective work, the date in conjunction with other work. It
Contractor’s position is dependent in part then becomes incumbent on the employer/
on the contractual provisions providing for owner to respond that such delay is not in
such correction. The FIDIC Conditions of compliance with the contract provisions
Contract for Works of Civil Engineering and will be a critical controlling delay to
Construction (4th ed 1987, as amended in either the completion of the project or
1988 and 1992) provides in Clause 49.2, the carrying out of necessary performance
Completion of Outstanding Work and testing or other required functions.
Remedying Defects: Depending on the contractual language and
‘To the intent that the Works shall, at the facts, the employer/owner may be able to
or as soon as justify having the
practicable after ‘Where circumstances arise that corrective work
the expiration per formed
of the Defects
the employer/owner provides notice by others.
Liability Period, of a construction defect and the The FIDIC
be delivered to Conditions of
the Employer in contractor chooses to wait until Contract For
Works of Civil
the condition sometime later to perform the Engineering
required by the
Contract, fair corrective work, the contractor’s Construction
wear and tear provide for such
excepted, to the
position is dependent in part on the right in Clause
satisfaction of contractual provisions providing for 49.4; and the
the Engineer, the FIDIC Conditions
Contractor shall: such correction.’ of Contract for
Design-Build and
(a) complete
Turnkey provide for such right in Clause
the work, if any, outstanding on the date
12.4(a). Alternatively, the contractor may
stated in the Taking-Over Certificate as soon
assert that the costs incurred by the
as practicable after such date, and
employer/owner were incurred in non-
(b) execute all such work of amendment, compliance with the contractual language
reconstruction, and remedying defects, and are an unjustified failure to mitigate and
shrinkages or other faults as the Engineer can not be recovered from the contractor.
may, during the Defects Liability Period or Either way a failure of the participants to
within 14 days after its expiration, as a result agree will likely lead to a contractual dispute.
of an inspection made by or on behalf of the
Engineer prior to its expiration, instruct the
Contractor to execute.’

16 Construction Law International Volume 5 Issue 4 December 2010

 the objective of such laws is to prevent
‘Giving the contractor the opportunity to unnecessary litigation by first requiring
inspect and cure before the employer/owner consumers to comply with statutory
procedures. The typical statute will require
undertakes the correction of defects should the homeowner to provide the contractor
with written notice of the alleged defect,
avoid some unnecessary disputes and thus often 60 days or 90 days prior to filing suit. In
should normally be part of the contractual most states the legislation provides the
contractor with a stated period such as 30
terms and conditions.’ days to request an inspection of the home,
offer to repair the defect, negotiate a
monetary settlement, or reject the claim
altogether and proceed to litigation. If
Alternatively the contractor wants arbitration was called for by the contract,
to promptly repair the defect and such statutes usually preserve this election of
the employer/owner wishes the disputes resolution procedures. See Darin T
work to be performed during a Allen, Construction Defects Litigation And
plant shut-down which will cost the The ‘Right To Cure’ Revolution, Construction
contractor more Briefings N0.2006-03 (March 2006) and G
William Quatman and Herber O Gonzalez,
Here the roles are reversed with the Right-to-Cure Laws Try to Cool Off Condo’s
employer/owner not wanting its plant taken Hottest Claims, 27-5 The Construction Lawyer
out of ser vice until a scheduled routine 13 (Summer 2007).
maintenance shut-down so as not to lose What is clear from the enactment of Right
revenue, and the delay presumably costing to Cure legislation, is that giving the
the contractor more because of the costs and contractor the opportunity to inspect and
travel expenses to re-mobilise the necessary cure before the employer/owner undertakes
personnel and equipment together with the the correction of defects should avoid some
extended overhead to oversee and support unnecessary disputes and thus should
this operation. The contractor may also be normally be part of the contractual terms
concerned that the delay will increase the and conditions.
fair wear and tear on the effected equipment
increasing the replacement work beyond
that which should be necessary. Paramount
Donald G Gavin is a partner at Akerman Senterfitt
is the applicable contractual language,
LLP in Vienna, Virginia, US. This paper was utilised by
the notices and responses provided by the
the author as part of his participation in the ICP
employer/owner and the contractor, and Subcommittee presentation at the IBA Annual
how compelling are the facts that can be Conference in Vancouver in October 2010.
raised by both.
Because such factual circumstances create
significant potential disputes, contracts
often provide some fairly detailed
obligations on the parties. The FIDIC
Conditions of Contract for Work of Civil
Engineering Construction Clauses 13.1,
37.4, 48.1 and 49.2 are relevant and under
the FIDIC Conditions of Contract for
Design-Build and Turnkey Clauses 11.1,
11.2 and 11.4 are relevant.
Another approach has been taken in the
United States by approximately half of the
states which have enacted legislation
providing for ‘right to cure’, or ‘notice and
opportunity to repair’ rights. Such statutes
are generally applicable to home building
and do not deprive homeowners of any
remedy they would otherwise have. Instead,

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