Defects Liability Period in JCT Contracts 

 

We often need to argue the application of defect liability clauses within building contracts. The duration of such defect liability periods varies from contract to contract.

The defects liability period may go by a different name.  Since 2011, the JCT Construction Contracts ceased to use the term “defects liability period” and instead use the term “Rectification Period”.

Duration of Defects Liability Period / Rectification Period

Pursuant to most JCT forms of contract, the Rectification Period is 12 months following practical completion of the works. That is the default position. Note, under the JCT Minor Works Contract 2016, the Rectification Period is 3 months unless specified otherwise.

Although 12 months Is the standard length of Rectification Period in construction contracts, it is common to see extended Rectification Periods within contracts for residential developments, in our experience usually two years from completion.

The Rectification Period runs from practical completion of the Main Contract Works. What this means for the subcontractor is that it may have finished works and left site some considerable time previously.

The issue of protection of Subcontract Works once the Subcontractor has left site is something that the Subcontractor needs to be concerned about, particularly in those circumstances where it has accepted a contractual obligation to protect its works until completion of the Main Contract Works.

Liability for Defects after the Defects Liability Period / Rectification Period

Most Contractors will know that their liability for defects is not limited to the Rectification Period.

The Contractor is liable for defects in its works for at least six years from Practical Completion.

Where contracts have been executed as a deed this liability is extended to 12 years from Practical Completion.

Where a Contractor has agreed to give an indemnity for defects or general breaches of contract, often liability is significantly extended because time does not accrue pursuant to the Limitation Act until a claim under the indemnity is made. This may be many years after the limitation period expired.

All of this must be caveated. What we are talking about is liability for defects and not liability due to wear & tear or failure to maintain. If the works are not defective, then the provisions do not bite.

Note some bespoke contract clauses may extend the obligation to remedy defects to an obligation to maintain or repair. Where possible that extension should be resisted.

What is the Purpose of the Rectification Period?

The Rectification Period typically affords the Contractor with a right to remedy defects when notified. It also usually imposes an obligation to rectify.

The Contractor can be required to  return to the  site to rectify, even after the liability period has expired on the construction project. The obligation upon the original contractor to rectify may be exercised within the defects liability period, but can also relate to a period of time that only arises after the defects liability period has expired 

The release of the 2^nd instalment of Retention is often linked to the making good of defects within the Rectification Period, but the primary benefit of Rectification Period is to give the Contractor a right to remedy defects that are notified within the stipulated time as prescribed by the construction contract.

What does the JCT Design & Build Contract 2016 say about making good of defects?

2.35       if any defects, shrinkages or other faults in the Works or a Section appear within the relevant Rectification Period due to any failure of the Contractor to comply with his obligations under this Contract:

.1            such defects, shrinkages and other faults shall be specified by the Employer in a schedule of defects which he shall deliver to the Contractor as an instruction not later than 14 days after the expiry of that Rectification Period; and

.2            prior to the issue of that Schedule, the Employer may whenever he considers it necessary issue instructions requiring any such defect, shrinkage or other fault to be made good, provided no instructions under clause 2.35.2 shall be issued after delivery of that schedule or more than 14 days after the expiry of the relevant Rectification Period; and

Within a reasonable time after receipt of such schedule or instructions, the defects, shrinkages and other faults shall at no cost to the Employer be made good by the Contractor unless the Employer shall otherwise instruct. If he so instructs otherwise, an appropriate deduction may be made from the Contract Sum in respect of the defects, shrinkage is, or other faults not made good.

 What does the JCT Design & Build Sub-Contract 2016 say about making good of defects?

2.22.1      The Subcontractor shall make good at his own cost and in accordance with any direction of the Contractor all defects, shrinkages and other faults in the Subcontract Works or in any part of them due to materials, goods or workmanship not in accordance with his Subcontract or any failure of the Subcontractor to comply with his obligations in respect of this Subcontractor Designed Works.

2.22.2      When the Subcontractor considers any such making good has been achieved, he shall notify the Contractor and, soon as the Contractor is reasonably satisfied that that has been achieved, he shall notify the Subcontractor. Making good shall be deemed to have taken place on the date notified by the Contractor or on such other date as is either agreed or determined in accordance with the dispute resolution procedures of this Subcontract. The data shall in any event not be later than the date of issue of the relevant Notice of Completion of Making Good under the Main Contract. Any agreed date shall be confirmed by the Contractor to the Subcontractor.

2.22.3      Compliance in respect of defects, shrinkages, or other faults notified to him by the Contractor shall not limit the Subcontractor’s other obligations under clause 2.22.1

2.22.3      Where an appropriate deduction is made under clause 2.35 of the Main Contract Conditions, then, to the extent that such deduction is properly attributable to inaccurate setting out by the Subcontractor or to defects or other faults in the Subcontract Works, the deduction, or the appropriate proportion of it, shall be borne by the Subcontractor and shall ever be taken into account in the calculation of the Final Subcontract Sum or  be recoverable by the Contractor from the Subcontractor as a debt.

What do the JCT defect liability clauses mean in practice?

The defect liability clause gives the Main Contractor a right to remedy defects that are discovered within the defects liability period. If the Employer does not allow the Contractor to remedy such defects, then the Employer is said to have not mitigated its losses.

 Notwithstanding the existence of the defect liability clause, the Contractor is still separately liable for the defects because such are a breach of contract.

 Where the Employer has failed to allow the Contractor a right to remedy the defects,  then the quantum of damages is not that which the Employer would pay to remedy the defects, but the cost to the Contractor of remedying the defects. These costs may be considerably lower than what the Employer would pay out.

 The Contractor may well argue that the Employer should recover no damages because the Contractor could have rectified the defects at no cost to it. The reason the Contractor may be able to raise such an argument is because the Contractor will argue that its subcontractor was liable to it to undertake the remedial works – there are cases that support such a position.

 The Subcontractor is liable to the Main Contractor under the JCT to rectify the defects whenever it is asked to do so. This may be within the Rectification Period, as defined in the Main Contract, or prior to completion. The Subcontractor will be liable to the Main Contractor under JCT because of the general indemnity given to the Main Contractor for losses.

 Under the standard JCT subcontract, the Subcontractor could also seemingly argue to the Main Contractor that it has a right to remedy defects. Whether or not this is correct does not really matter because the Main Contractor must mitigate its losses. A refusal to allow a Subcontractor to rectify its work would expose the Main Contractor to a claim that it has not mitigated its losses.

 It will be noted though, that under the JCT contracts the Architect is entitled to request that the defects not be made good and that the contract sum be reduced by an appropriate deduction instead. To some extent this cuts across the concept that the Contractor has a right to remedy defects within the Rectification Period. The Architect can expressly instruct otherwise and make an appropriate deduction.

 What is an appropriate deduction? It includes many matters depending upon the particular circumstances.

Where an appropriate deduction is made against the Main Contractor under the JCT, the Main Contractor is entitled to pass this on to the Subcontractor.

Points to note on defects and defect liability clauses

     To summarise the points raised in this post:

 

• • defect liability clauses confer upon the Contractor both an obligation and a right to remedy defects within the Defect Liability Period/Rectification Period.

 

• • The Contractor’s liability for defects extends beyond the Defects Liability Period.

 

• • Failure to allow the Contractor to remedy defects often means that the Employer has failed to mitigate its losses and its ability to recover damages is limited.

 

• • The law concerning mitigation of damages applies both within the Defect Liability Period and thereafter. An Employer may be found not to have mitigated losses even where no Defect Liability clause exists.

 

• • The JCT contracts provide an exception which permits the contract sum to be deducted by an appropriate sum rather than the defects being remedied. Such a provision is unlikely to be implied in the absence of an express provision.

MJD Solicitors frequently act for Contractors and subcontractors on the issues of defects, defect liability clauses and retention disputes. The issues raised herein are frequent topics for adjudication. To discuss further please contact Matthew Dillon of MJD Solicitors on 01277 280761

This article is for information purposes, does not constitute legal advice and should not be relied upon. For terms and conditions of this article please read here

Matthew Dillon LLB, Solicitor, MCIArb

MJD Solicitors

14 November 2023