Defects liability period DLP

http://www.designingbuildings.co.uk/wiki/Defects_liability_period_DLP

The defects liability period (now called the 'rectification period' in Joint Contracts Tribunal (JCT)
contracts) begins upon certification of practical completion and typically lasts six to twelve
months.
During this period, the client reports any defects that arise to the contract administrator who
decides whether they are defects in the works (i.e. works that are not in accordance with the
contract), or whether they are in fact maintenance issues. If the contract administrator considers
that they are defects, then they may issue instructions to the contractor to make good the defects
within a reasonable time. NB. It is the contractor's responsibility to identify and rectify defects,
not the clients, so if the client does bring defects to the contractor's notice, they should make
clear that this is not a comprehensive list of all defects
At the end of the defects liability period, the contract administrator prepares a schedule of
defects, listing those defects that have not yet been rectified, and agrees with the contractor the
date by which they will be rectified. The contractor must in any event rectify defects within a
reasonable time.
When the contract administrator considers that all items on the schedule of defects have been
rectified, they issue a certificate of making good defects. This has the effect of releasing the
remainder of any retention and results in the final certificate being issued.
It is important to note that the defects liability period is not a chance to correct problems
apparent at practical completion, it is a period during which the contractor may be recalled to
rectify defects which appear. If there are defects apparent before practical completion, then these
should be rectified before a certificate of practical completion is issued. This can put the contract
administrator in a difficult position, where both the contractor and the client are keen to issue the
certificate (so that the building can be handed over) and yet defects (more than a de minimis) are
apparent in the works. Issuing the certificate could render the contract administrator liable for
problems that this causes for example in the calculation of liquidated damages.
In practice it is not unusual, particularly if it is in the clients interests, for a certificate of
practical completion to be issued with an attached list of minor omissions and defects to be
rectified in the defects period. An example of this would be if the certificate of practical
completion might trigger tenants fit out and subsequent payment of rent when it is nobodys
interest to delay the programme for delivery of a piece of door furniture or a replacement light
fitting.
If the contract administrator is pressured to certify practical completion even though the works
are not complete, they might consider informing the client in writing of the potential problems of
doing so, obtaining written consent from the client to certify practical completion and obtaining
agreement from the contractor that they will complete the works and rectify any defects. If the

contract administrator is not confident about the potential problems they may advise the client to
seek legal advise.

NB. Some forms of contract allow for an alternative position of 'substantial completion'.
NB. On construction management contracts, a separate certificate of practical completion must
be issued for each trade contract. This means there may be a number of defects liability periods.
The same is true on management contracts, where each works contract must be certified
individually.
Certificate of making good defects

The certificate of making good defects is now referred to as the 'certificate of making good' in
the new JCT '05 suite of contracts.

Contents
[hide]

1 The purpose of the certificate of making good defects

2 Particular circumstances relating to the certificate of making good defects.

3 What are defects?

4 Difficulties surrounding practical completion

5 Find out more

o

5.1 Related articles on Designing Buildings Wiki

o 5.2 External references

The purpose of the certificate of making good defects

Once practical completion has been certified, the defects liability period begins (now called the
'rectification period' in Joint Contracts Tribunal (JCT) contracts). Typically, the defects liability
period is six to twelve months.
During this period, the client reports any defects that arise in the works to the contract
administrator who decides whether they are in fact defects (i.e. works that are not in accordance
with the contract), or whether they are maintenance issues. If the contract administrator considers
that they are defects, then they may issue instructions to the contractor to make good the defects
within a reasonable time.

At the end of the defects liability period, the contract administrator prepares a schedule of
defects, listing those defects that have not yet been rectified, and agrees with the contractor the
date by which they will be rectified. Defects must be made good within a 'reasonable time', and
at the contractor's cost. NB. It is the contractor's responsibility to identify and rectify defects, not
the client's or the contract administrator's, so if they do bring defects to the contractor's notice,
they should make clear that this is not a comprehensive list of all defects.
When the contract administrator considers that all items on the schedule of defects have been
made good, they issue a certificate of making good defects. This has the effect of releasing the
remainder of any retention and brings about issuing of the final certificate.
Particular circumstances relating to the certificate of making good defects.

If the contractor, having been given the opportunity to rectify defects, fails to do so within a
reasonable time, they may be in breach of contract. In this situation others may be employed to
rectify the defects, and the cost of such works deducted from the contractor's retention.
In particular circumstances where the cost of rectifying a defect is disproportionate relative to the
impact of the defect on the works, the client may agree to have the certificate of making good
defects issued anyway, but only on agreement that the contract sum is reduced by an amount that
reflects the reduction in the value of the works as a consequence of the defect.
If a defect becomes apparent after the certificate of making good defects has been issued, but
before the final certificate has been issued, the contractor may be given the opportunity to rectify
the defect anyway, but the final certificate should not be issued until this has been done.
On construction management projects and management contract projects, a separate certificate of
practical completion is issued for each trade contract (or works contract). This means that defects
liability periods may be at different times for each trade contract (or works contract).
Where sectional completion (or phased completion) occurs, a separate certificate of making
good defects may be issued for each section and then for the whole of the works. This may also
be the case where the client arranges for partial possession of part of the works.
NB The Housing Grants Construction and Regeneration Act disallows 'pay when paid' clauses,
this means that it is no longer acceptable for a contractor to withhold the release of retention to a
subcontractor simply because they themselves have not had their retention released.
What are defects?

Defects are works that have not been carried out in accordance with the contract. Defects which
are discoverable before the end of the defects liability period are described as 'patent defects'.

Defects which could not have been discovered during the defects liability period are known as
'latent defects' (for example, a problem with foundations which have been covered up and does
not become apparent until several years later when settlement causes cracks to appear).
Patent defects should be rectified as an ongoing process, and certainly, before the certificate of
practical completion is issued, then before the certificate of making good defects is issued and
ultimately before the final certificate is issued.
Latent defects can result in liability for damages for up to 15 years. The Limitation Act 1980
governs time limits for bringing different types of legal claims.
Latent defects can be highly problematic and very expensive to repair. If there is a suspicion of
latent defects, it is sensible to have investigations carried out before the end of the defects
liability period.
Difficulties surrounding practical completion

It is important to note that the defects liability period is not a chance to correct problems
apparent at practical completion, it is a period during which the contractor may be recalled to
rectify defects which appear. If there are defects apparent before practical completion, then these
should be rectified before a certificate of practical completion is issued.
This can put the contract administrator in a difficult position, where both the contractor and the
client are keen to issue the certificate (so that the building can be handed over) and yet defects
(more than a de minimis) are apparent in the works. Issuing the certificate however could render
the contract administrator liable for problems that this causes, for example in the calculation of
liquidated damages.
If the contract administrator is pressured to certify practical completion even though the works
are not complete, they might consider informing the client in writing of the potential problems of
doing so, obtaining written consent from the client to certify practical completion and obtaining
agreement from the contractor that they will complete the works and rectify any defects. It might
also be possible to prepare a qualified practical completion certificate however care must be
taken to use the correct wording. If the contract administrator is not confident about the potential
problems surrounding practical completion, they might advise the client to seek legal advice.
Retention in construction contracts

Contents
[hide]

1 Introduction

2 Reform

3 Find out more

o

3.1 Related articles on Designing Buildings Wiki

o 3.2 External references.

Introduction

Retention is a percentage (often 5%) of the amount certified as due to the contractor on an
interim certificate, that is deducted from the amount due and retained by the client. The purpose
of retention is to ensure that the contractor properly completes the activities required of them
under the contract. Retention can also be applied to nominated sub-contractors, and the main
contractor may also apply retention to domestic sub-contractors.
Half of the amount retained is released on certification of practical completion ('substantial
completion' for Institution of Civil Engineers (ICE) contracts) and the remainder is released upon
certification of making good defects (or 'final statement' for design and build contracts such as
Joint Contracts Tribunal (JCT) DB 05).
Interim certificates should make clear the amount of retention and a statement should also be
prepared showing retention for nominated sub-contractors.
The contract may require that retention is kept in a separate bank account and that this is certified
to contractors. In this case, the client will generally keep any interest paid on the account.
NB. On construction management contracts, a separate certificate of practical completion must
be issued for each trade contract and so there are a number of defects liability periods. This
means that retention must be released as required for each individual trade contract. The same is
true on management contracts, where each works contract must be certified individually.
Reform

Retention can be a large amount of money and may cause cash flow problems for contractors. It
has even been suggest that retention clauses do not comply with the Housing Grants,
Construction and Regeneration Act ( which sets out requirements for the withholding of
payments) (ref Klein, Building, 30 June 2000).

A possible alternative to retention is a retention bond, where the client agrees to pay the amounts
which would otherwise have been held as retention, but instead a bond is provided to secure the
amount that would have been retained. As with retention, the value of the bond will usually
reduce after practical completion has been certified.
Other proposals include putting retention in a trust account, and the construction supply chain
payment charter proposes abolishing retention by 2025.
In 2014, Debbie Abrahams, MP said: There is evidence that cash retentions have been used to
shore up the working capital of local authorities and tier 1 suppliers... There is a key concern that
if tier 1 suppliers become insolvent, the small businesses in the supply chain are at risk of losing
their retentions. Ref Construction Enquirer 24 November 2014.