Review Your Defects Liability

When you are a subcontractor, you often receive bespoke subcontracts, under which the contractor is trying to pass all its risk (and more) to your company. I recommend getting these contracts checked as they can hide some seriously unusual terms.

Deep in a subcontract this week I came across a fairly usual defects clause:

The Contractor shall notify the Subcontractor of any defects that appear in the Subcontract Works during the defects liability period under the Main Contract and the Subcontractor shall, at its expense, make good such defects within a reasonable time from notification.

Nothing really wrong there, except that the contractor has subtly adopted the defects liability period from the main contract. We haven’t yet been provided with that contract (its not been entered into) and have no control over it so we have no idea how long this obligation will last…

The real shock came in the next clause:

The Subcontractor undertakes and warrants to the Contractor to maintain the Subcontract Works in good repair and condition during the progress of the Subcontract Works and until the expiry of the defects liability period under the Main Contract.

Defects liability

The purpose of a defects period is to provide a short period of time (6-12m) during which the original (sub)contractor returns to site to repair or rectify for defects.

Defects periods are a common remedy on construction projects. They don’t tend to apply to consultants, only to contractors. The clause avoids having to bring in another company or to sue for breach of contract. It suits both parties as it reduces the cost to the client and ensures continuity.

The purpose of a maintenance period is to allow the client to carry out performance tests, check that the works do meet the requirements of the specification and operate the plant for a period of time (6-12m). For all of this the client needs the plant to be in a specific state of repair or a specific condition.

Maintenance periods are common on engineering and process plant projects. A maintenance period is more extensive than a defects period, as it requires the subcontractor to maintain the works in good repair and condition at its own cost with two exceptions:

  • fair wear and tear – the subcontractor does not have to ensure that the plant/works stay pristine
  • repairs not caused by defects – if a repair is required which does not arise from a defect (i.e. a breach of contract by the subcontractor) then the subcontractor is entitled to be paid for that repair work.

The clause I was reviewing contains neither of those caveats.

I don’t know if this is copy & paste nonsense, deliberate underhandedness or reckless indifference. A mere skim of the conditions would not have revealed this potentially expensive and wholly unexpected obligation – I had to read the contract twice before it leapt out at me!

What should you do?

Review bespoke contracts and amendments to standard forms carefully. Don’t assume that any clause is ‘standard’.

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