Construction defects – who should pick up the bill?

Defects are a common issue in construction projects. Unless the contract says otherwise, the general rule is that, upon notification, the contractor is obliged to return to site and rectify the defective works at its own expense. This applies until the end of the ‘rectification period’, following which the owner’s remedy against the contractor for defective work is damages arising out of the contractor's breach of contract.

What if the nature or extent of the defects raises significant concerns about the contractor’s ability to rectify them? What costs can be recovered from the contractor? Could another contractor carry out the remedial works? Three key points to remember are:

There is no legal requirement to keep the contractor on

Following practical completion, there is no legal requirement on the owner to have the contractor back on site to repair its defective works, particularly if the contract does not include a rectification period (read more on practical completion here).

There might be a good reason to appoint a new contractor

There are a number of scenarios in which it might be reasonable to appoint a third party to carry out the rectification works instead of the original contractor, namely where:

1. due to the nature or extent of the defects, a reasonable owner would not be expected to have the contractor back on site;
2. the contractor has made it clear that it would not carry out the required works; or
3. the contractor has behaved fraudulently.

What costs can be recovered?

Not allowing the original contractor to rectify the defective works would allow them to claim that the building owner has failed to take reasonable steps to mitigate their losses. The result for the owner could be that the recoverable costs are limited to what it would have cost the original contractor to remedy the defects itself, had they been given the opportunity to do so. If, for example, the contractor employed a sub-contractor for the works, the cost of the rectification works to the owner and the contractor might be, in fact, zero.

If the rectification works by a third party resulted in a higher standard or a better building, it is highly unlikely that the owner would be entitled to recover the costs for the elements of the works relating to betterment.

To find out more about anything covered in the article, or to discuss your construction dispute, please get in touch with Eszter Lakos or a member of the Construction team.