Defects Liability Periods explained: Part 3 — What remedies are available to a principal if defects arise in the works?
By Swati Johri and Gerald Arends
Options during a ‘defects liability period’
When faced with defects in the works after practical completion and prior to expiry of a defects liability period, principals usually have the option to require the construction contractor to return to site and remedy the defect.
Rectification of a defect by the construction contractor during a defects liability period is often the more desirable outcome from the principal’s perspective than claiming damages from the construction contractor as:
- the construction contractor who performed the original work will be more likely to complete the rectification works efficiently given its familiarity with the works when compared with a third party;
- the original construction contractor will usually be required to rectify the defect at its cost, ensuring that the principal is not out-of-pocket; and
- a contractual defects liability mechanism often provides for an additional defects liability period to apply to rectified works which provides the principal with some protection against future defects in the rectified works.
However, if the general standard of work performed by the construction contractor has been poor or the relationship between the parties has soured, requiring that construction contractor to carry out the rectification works may not be an attractive option for the principal.
Despite this, principals should be aware that engaging a third party to carry out rectification work instead of notifying the original contractor of the defect and giving it an opportunity to remedy may mean that the principal will bear the cost of defect rectification. Australian courts have taken the view that a failure by the principal to follow the contractual mechanic of notifying the construction contractor of a defect and giving it the chance to rectify the defect will preclude the principal from recovering as damages any rectification costs otherwise incurred by the principal from the construction contractor.
By failing to adhere to a contractual defects liability period mechanic and denying the construction contractor the opportunity to rectify defects, the principal also risks repudiation of the construction contract which could give the construction contractor a right to terminate the contract and pursue the principal for damages.
Options after the ‘defects liability period’ has expired
Once the defects liability period has expired, the principal will not be able to require the construction contractor to return to site and rectify the defect. The principal will however be entitled to make a claim for breach of contract and bring a claim for damages, provided the limitation period has not expired.
For advice on construction law matters, please contact our Directors Swati Johri or Gerald Arends at Pegasus Legal. To find out more about Pegasus Legal and our experience in the construction and infrastructure sector, please visit www.pegasus-legal.com/experience.