Discussion Topics

Defects Liability and Rectification Period

The concept of a defects liability period is to be found in the Joint Contracts Tribunals' publications. Historically it referred to a set period (commonly 6 or 12 months) following practical completion. Following the publication of the 2005 suite of JCT contracts, the term defects liability period has been replaced with rectification period. By either title, the period is one during which the builder has a right and an obligation to return to rectify certain defects. This bestows benefits on both the party who employed the builder and the builder who contracted with the employer. In the absence of such a provision under the building contract, the employer may have no contractual mechanism on which it can rely to arrange rectification by the builder and the builder no right to return to put right his own work.

What is a Contractor's Liability under a Design & Build Contract?

Fitness for Purpose

Previous case law has indicated that in the absence of any contractual indication to the contrary, a design and build contractor will be obliged to ensure that its works are reasonably fit for purpose.

The main rationale being that design and build contractors should be equated with sellers of goods, not that of professional advisers. Statute dictates that under a supply of goods contract, goods must be of satisfactory quality and reasonably fit for purpose. Whereas under a contract for the supply of services, the services need only be carried out with reasonable skill and care.

However, this can be contrasted with the case of Trebor & Cadbury v ADT.

Reasonable Skill and Care

ADT provided a fire suppression system for Cadbury's popcorn factory. A fire developed which the system failed to extinguish. The High Court found that ADT had failed to exercise reasonable skill and care in designing the system. However, the Judge found that Cadbury had contributed to its own loss and reduced the damages by 75 per cent.

Cadbury appealed. It argued that ADT's system was a supply of goods and therefore subject to the statutory requirements of satisfactory quality and fitness for purpose. Crucially, as these went further than the duty to exercise reasonable skill and care, this would preclude any defence of contributory negligence so that ADT would be 100 per cent liable.

The Court found that the system was not 'off-the-shelf' and rejected the argument that what was being provided equated to goods. The most important thing that ADT did was to decide to use a particular piece of equipment in a particular location - this was design.

Reasonably Fit for its Intended Purpose or Performed with Reasonable Skill and Care

Implied and Expess Terms

In the UK, fitness for purpose may be implied in to a design and build contract unless expressly excluded. In other contracting arrangements, fitness for purpose is not ordinarily a term of the building contract unless expressly included. In its place there is likely to be a requirement to perform the contract with reasonable skill and care. There is no guarantee that the product of reasonable skill and care will satisfy the employer.

Contracts may introduce fitness for purpose liabilities without using the term ‘fitness for purpose’ and a fitness for purpose liability may be created where, for example, a contractor undertakes to design, supply and install something which was not included in the original contract and where the contract does not exclude fitness for purpose. A term such as; 'on completion, the work shall comply in all respects with the requirements of the Employer as defined in the Contract', may impose no less a fitness for purpose liability than the FIDIC expression; “When completed, the Works shall be fit for the purposes for which the Works are intended as defined in the Contract.”

Fitness for purpose requirements may be imported by reference to specifications, standards, written authorities, etc. Take for example an NHBC draft proposal for a standard for waterproofing below ground structures, which, in relation to structural design, states that; "All elements (including foundations, walls and floors) forming a below ground structure requiring waterproofing shall be suitable for their intended purpose." This may be interpreted to impose a fitness for purpose liability on the structural designer. Without a careful reading of the whole of the documents this may not be noticed when entering the contract for structural design.

Benifits and Risks

The advantage to the employer of a fitness for purpose requirement is that, if work is defective, it is not necessary to prove negligence, i.e. a lack of due skill and care. The disadvantage is the risk that there will be no professional indemnity insurance, as much standard professional insurance for building designers will not cover a fitness for purpose liability. As the uninsured may not be able to satisfy a claim for breach of contract, some care is needed to ensure those who are invited to undertake work on a fitness for purpose liability are aware of this and have informed their insurers.

Whether or not the finished building is fit for purpose may be subject to differing interpretations. Some contracts restrict fitness for purpose to that which is stated in the contract documents. For example some FIDIC contracts state; “When completed, the Works shall be fit for the purposes for which the Works are intended as defined in the Contract.”