Defects

Page contents:

• Defects liability
• Latent defects
• Post occupancy problems – resolution
• Defects rectified by owner

Defects liability

The defects liability period (most commonly 12 months) is identified in the building contract. While it is the contractor's responsibility to identify and rectify defects progressively as they arise, the architect (when providing a full service) should inspect the works when the contractor advises that the works have almost reached practical completion and provide the contractor with a list of defects to be rectified. This list may also include a list of incomplete work.

Defects lists

As the construction nears practical completion the architect (as contract administrator) and other relevant consultants should inspect the works and prepare a list of defects that are evident and that must be rectified before practical completion. The defects list may also identify incomplete works that must be completed and equipment not yet installed or operating that must be installed, tested and fully operational. It may also be the case that there are defects that are evident, that will not materially affect the owner's occupation and use of the building, which may not be rectified before practical completion.

It is the contractor's responsibility to advise the architect and relevant consultants of the date that the contractor anticipates that the works will reach practical completion and give sufficient time for the inspection(s) to be undertaken, the defects list(s) to be prepared and rectification to be completed. 

The timing of the contractor's advice is important. If given belatedly with little time for the inspection(s) and rectification, the anticipated date for practical completion is unlikely to be met which may lead to dispute with the contractor and disruption for the owner. Conversely if the advice is given too early and a significant amount of works remains to be completed the extent of the defects will be difficult to establish and the defects list is likely to be mainly a list of incomplete work.

Defects liability period

The defects liability period (which may be called the maintenance period) commences on the date of practical completion. From that date, for the period identified in the building contract, the contractor is responsible for rectification of defects that arise in the works due to the quality of workmanship, the failure of materials due to poor construction techniques and for the repair of equipment that fails to meet the performance specifications. The contractor is not responsible for defects or equipment failures that are the result of normal wear and tear or misuse. This includes failures due to poor design or detailing, the incorrect use of materials or the selection of inappropriate equipment.

During the defects liability period, if a defect arises, the architect or relevant consultant should inspect the works to assess the cause and extent of the failure and establish who is responsible for rectification. If the contractor is found to be responsible the architect should notify the contractor as soon as possible and agree on the program for rectification. Based on the severity and nature of the defect or failure, once rectification has been completed a new defects liability period may be established (subject to the provisions of the building contract).

Immediately prior to the end of the defects liability period, the works should be inspected to identify all outstanding defects that are the contractor's responsibility that require rectification. The list of all remaining defects must be provided to the contractor before the end of the defects liability period with sufficient time for the rectification to be completed within the defects liability period. Once all defects have been rectified and the defects liability period(s) have expired, the final certificate may be issued (subject to the provisions of the building contract).

In the ABIC contracts defects liability is covered in Section M – Completion of the works.

For information provided to the owner and contractor when the works are nearing practical completion and at the end of the defects liability period, refer below:

• Guide letter 33: Advice to client – works nearing completion
• Guide letter 34: Advice to contractor – practical completion
• Guide letter 35: Confirmation to client – defects
• Guide letter 36: Advice to contractor – defects.

For guidance on the identification of defects, and what is reasonable to define as a defect, refer to the Victorian Building Authority publication, Guide for Standards and Tolerances. 

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Latent defects

A latent defect is a defect in workmanship or materials which reasonable inspection or examination could not have disclosed at an earlier time and which does not become apparent until after a passage of time following execution of the work (Standen, 2000, Construction Industry Terminology). 

A latent defect in building work is usually classified as such because it does not become obvious, or the effects of the defect do not become obvious, until after the end of the defects liability period.

The critical test for the classification of a defect as a latent defect is that no amount of reasonable inspection during the course of construction or during the defects-liability period could have revealed the existence of the defect. A defect that becomes evident, for the first time, after the end of the defects-liability period, that could have been identified by reasonable inspection during construction or during the defects liability period cannot be classified as a latent defect.

Latent defects could include:

• failure of waterproof membranes
• water leaks or water penetration
• cracking or adhesive failure in ceramic tiling

Latent defects are only recognised in construction, and not in design because construction is subject to inspection and certification.

In standard-form contracts, administered by an architect, including the ABIC contracts, the effect of the final certificate is that it provides evidence that the works have been completed in accordance with the contract with some exceptions. Latent defect(s) are a notable exception.

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Post occupancy problems – resolution

After practical completion and occupation of a building, problems may arise which the client will report (or complain about) to the architect. Most problems are likely to arise during the defects liability period and can be quickly addressed with the assistance of the contractor. However, other problems may arise of a potentially more serious nature, either during the defects liability period or at a subsequent time.

It is important when dealing with problems that arise after the completion of a project that the client has realistic expectations with regard to quality and finish. Clients may have unreasonable expectations unless they have been adequately prepared for the level of quality or finish of their project with regard to the project type and budget.

Broadly, problems are likely to fall into three main classes:

• those due to faulty construction (eg flashings failing, expansion joints improperly made, inappropriate materials used)
• those due to misuse, mismanagement, incorrect use or a change of use by the client or occupiers
• those related to design defects

On hearing of any such problem, the architect should respond promptly, generally by visiting the site to inspect the problem, accompanied by the contractor where appropriate. The architect should avoid any admission of liability, as this may void professional indemnity insurance.  

If in any doubt, notify your professional indemnity insurer first.

Faulty construction

Problems under this heading, where work is not in accordance with the contract documents, are primarily the responsibility of the contractor. However, by failing to identify such faults, the architect may also have a responsibility, ranging from minor to almost total, depending on the circumstances.

There is an increasing body of legislation requiring builders to accept liability for building faults, particularly in domestic building construction. Various state acts are in force to achieve this. 

If the problem arises during the defects-liability period, the contractor's liability to make good will be clear. If, however, the problem does not arise until after the issue of the final certificate, resolution will depend on the nature of the defect and the terms of the particular building contract used. In some cases there may also be a warranty to be taken into account (if so, the matter should be referred to and inspected with the warrantor as early as possible).

If the cause of the problem is hidden, as it frequently is, particularly in the case of leaks, it may be necessary to open up the works. This will require the owner's permission, after any cost implications have been explained. Whenever possible, opening up should be undertaken by the original contractor. If this is not possible and the work is done by another contractor, they will have to be paid, whatever the findings. If the original contractor is uncooperative, a report to the local builders' licensing board, where applicable, may be considered.

When a serious defect is clearly the fault of the contractor, the architect may be entitled to an additional fee for the extra work. However, whether or not an account should actually be submitted will depend on all the circumstances.

Misuse by client or occupiers

Problems arising from misuse are unlikely to be the responsibility of the architect, unless they result from specific, incorrect advice given by the architect. Resolution of the problem is primarily a matter for the owner, assisted as necessary by the architect.

Depending on the circumstances and the amount of work involved, it may be appropriate for the architect to charge a fee for services in connection with rectifying such problems.

Design defects

Design defects are likely to be primarily the responsibility of the architect (although there could be exceptions, such as a design issue attributable to discrepancy by a consultant employed by the client).

Such problems raise the strong possibility of a claim by the owner against the architect. In all circumstances, the architect should avoid any admission (direct or implied) of liability. Professional indemnity policies for architects will usually carry a clause which requires that insured architects will as a condition precedent to their right to be indemnified under the policy, not admit liability for, or settle any claim, without the insurer's consent. 

The architect should also note that most professional indemnity policies prescribe immediate notification of claims:

• when a claim is made against the insured
• when the insured receives notice of intention to make a claim
• where the insured is aware of circumstances which may give rise to a claim

It should be noted that claims are often made against the architect where professional negligence has not occurred. This occurs due to the practice of lawyers joining all possible parties to an action as a means of preventing the negligent party escaping.

An advantage of early notification is that the insured then has the benefit of the advice provided by the insurer on how best to handle the claim or potential claim.

Clearly, where the architect is responsible for the error, no fee would be chargeable for the rectification. However, if the error was the responsibility of a consultant employed directly by the client, the architect may be entitled to charge a fee for the additional work associated with rectifying the fault.

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Defects rectified by owner

Most construction contracts provide for a defects liability period in which the contractor is required to return to the site and rectify defects or incomplete work which were minor and did not prevent practical completion, or have become apparent during the defects liability period. The ABIC contracts, as do others where there is a contract administrator, contain a power for the architect to instruct the contractor to rectify defects and finish incomplete work during the defects liability period.

However, ABIC contracts recognise that a contractor, for whatever reason, may not actually rectify the defects, despite the instruction (and without having successfully disputed the instruction). In these circumstances, the owner is permitted to use another person to rectify the defects and then to make a claim in their favour to adjust the contract price for the cost of paying that other person to do so. This is considered a fair and practical way to get defects rectified and the works completed, as the equivalent of the damages the owner is entitled to for the contractor’s failure to meet contractual obligations

Recent Australian case law strongly suggests that architects should ensure the procedures set out in the contract are closely followed to ensure the owner’s rights can be asserted – on the one hand by ensuring the contractor has been given the appropriate notice of the defect or instruction to rectify and, on the other, by ensuring the contractor is given the full amount of time stated in the contract for that rectification to be made.

If the owner’s rights are not available because the contract’s procedures have not been followed, these defects or incomplete works could present a potentially significant additional cost to resolve, particularly in the case of a contractor’s insolvency.

For example, under an ABIC Major Works contract, the architect should ensure that the instruction to the contractor clearly sets out the nature of the defects or work to be completed and the time in which the contractor is required to carry out the necessary remedial work.

The owner should, before engaging another person to fix the defects, consider whether the contractor should be given a further opportunity to fix the defects. This is consistent with any owner’s and contractor’s general obligation to limit the possibility of suffering losses under a contract. After all, the contractor is commonly in a position where it can rectify the defects a lot more cheaply (eg via its subcontracts) than having another person entering the site to undertake rectification.

The contractor should rectify defects or finalise work within the timeframes stated in the contract or initial instructions, and, complete or rectify the works to the standard specified in the contract. This will avoid further instructions to rectify or complete.

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