Today’s video looks at how to navigate the Defects Liability Period, check it out here, or continue reading.
What is the Defects Liability Period?
It’s usually the final 12 months.
(It can be more or less depending on the contract.)
- You’ve finished work on site
- You’ve received the Practical Completion Certificate
- Half of your security payment has been paid back
So, the Defects Liability Period kicks in once the Practical Completion Certificate has been signed.
This is the period where you, as the contractor, promise to come back and fix anything that has happened as a direct result of the work you’ve done.
After this period ends, you get the rest of your security payment back.
Here’s Where It Could Go Wrong For You
Here’s a story about a contractor who worked on a solar farm.
They built concrete structures for the solar panels. They did a good job, got their Practical Completion Certificate signed, and received half their security payment back. Enter the Defects Liability Period. Some of the concrete structures started to crack within the Defects Liability Period.
So they were obligated to fix them.
Nothing wrong with this.
The problem is how Defects Liability was written in the contract.
The clause stated that if there was a defect, then the Defects Liability Period would be extended for another 12 months.
This meant waiting longer for the security payment.
But more than that… within the extended Defects Liability Period more and more concrete structures cracked…
Which meant more extensions of the Defects Liability Period.
This went on and on.
It cost them a fortune.
What’s The Lesson?
Don’t be worried about having a Defects Liability Period, this is very standard.
The worry is the snowball effect.
You need to watch out for
The re-warrantee or rectification period
Try not to sign up for a re-warrantee or rectification period.
If there is a re-warrantee or rectification period make sure it’s limited to rectification works. This will prevent that dreaded snowball effect.
For more contractual advice, Quantum Contract Solutions is here to guide and assist you through everything contract related. Let’s reduce risk in your contracts and save time and money, just click this link to get our FREE case study to show you how clients just like you are doing it.
