08-08-2022
When
the final account and final payment must be considered when a construction
project reaches completion, it is common for the paying party to withhold
payment against what they consider to be defective works.
Most
standard forms of construction contract contain mechanisms/provisions for
dealing with defects in construction, normally in the form of a procedure which
includes a notice that practical completion has been reached, a defects
liability period and a notice of making good or defects.
NOTE: It
is important that the contractual procedure is understood so that any rights to
claim are not lost.
The
types of issue that arise under the heading of construction defects relate to
withholding payment on the grounds of defective work, pursuit of due retention
or pursuit of damages for defective, including latent defects. It is also not
unusual for one party to consider an item a defect and the other a variation,
the latter of which does not have to be carried out after practical completion.
This can often lead to dispute if other contractors are employed to carry out
the work. Sewn into the financial remedies pursued will also be arguments in
respect of what constitutes practical completion, valid service of notices and
failures to carry out timely defects inspections.
NOTE: If not defined in the contract, there is no hard and fast rule as to what constitutes practical completion unless expressly agreed. This can lead to issues regarding Liquidated and Ascertained Damages (LAD's) and defects. Often paying parties will accuse the Contractor or Subcontractor of non-completion for minor outstanding works whilst taking possession of the building which, in the absence of a definition, is likely to constitute practical completion.
Arbicon have dealt with numerous construction projects where works have been
significantly non-compliant. We adopted our management expertise and adjudicated
our Clients' rights, saving them from lengthy court proceedings and expense.
Non-compliant
Example
Arbicon acted on a project where an office building was converted into numerous
flats. The Contractor failed to obtain building control sign off due to a
defective sound test, which is critical on flats and dwellings that adjoin one
another.
The
Client had not only endured incompetence with the builder, but the Contract
Administrator was also negligent on numerous points, including certifying
non-compliant work. Arbicon prosecuted the Contractor in adjudication and prepared
the PI claim against the Contract Administrator which, in the end, became unnecessary as the Contractor was held liable for the defective
works and the matter was settled. If the Contractor had gone bust the Contract
Administrator would have had to pay for the negligence!
Pursuit
of the final account and final payment, including retention, can be difficult
when set off and defects are argued.
Other
Common Situations
It is often the case that an Employer or Contractor as the paying party,
will create contra charge claims that are very significant, these are often
over-inflated by hundreds of thousands and are designed to make the payee give
up so they can keep the money. We had a case recently where a contra charge
claim in a pay less notice for £800,000 was levelled at the Subcontractor who
was asking for £80,000. All of the contra charge claim was dismissed and the payment
asked for was due. Do not despair in such situations! Such contra claims are
nearly always worth nothing, we will use our expertise to evaluate such claims
and give you an expert risk assessment and assist in nullifying such adverse
tactics.
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