Defects liability periods in construction contracts

Sam Bawden, construction disputes lawyer, discusses some misconceptions surrounding liability periods.

In all areas of law we, as solicitors, encounter various legal misconceptions that are commonly (but understandably) held among our non-lawyer clients. We think that it is worth clarifying such points from time to time.

In construction law, one mistake that contractors often make relates to the length of time for which they believe they might be liable to answer claims brought against them by their employer in respective of defective works.

This misunderstanding arises from the common inclusion in construction contracts of a defects liability period (also referred to as rectification periods). Such periods usually run for 6 or 12 months from practical completion.  The contractor will be obliged (or at least have the right) to return to rectify any defects that arise during that period.  The employer will usually retain a small percentage of the contract sum which will be paid to the contractor at the end of the period, provided of course that any defects that arise during the period have been rectified.

Contractors often assume this means that, provided they have rectified any defects which arise during the defects liability period, there can be no further claims brought against them by their employer in respect of the works carried out. That is, unfortunately for the contractor, not the case.

After the end of the defects liability period, the employer will still have a right to bring a claim against the contractor in respect of any defects which arise within the relevant statutory limitation periods (as set out in the Limitation Act 1980). For a claim arising out of a contractor’s negligence, this can be as much as 15 years from the date of the negligent act or omission. 

Where a defect amounts to a breach of contract (which will usually be the case), the default limitation period for bringing a claim against the contractor is 6 years from the date of practical completion. However, if the contract is executed as a deed, that period is extended to 12 years.  If contractors have not yet realized why their employers insist on their contracts being executed as a deed, here is your reason.  Main contractors should obviously have particular regard to this situation and seek to ensure that the liability of their subcontractors runs for an equal length of time.  Failing to do so could leave a main contractor liable to its employer for defective works carried out by its subcontractor, with no ability to seek an indemnity from the subcontractor.

Anyone with any doubts about the operation of defects liability clauses and/or the Limitation Act 1980 should seek legal advice before entering into a construction contract. This will reduce the risk of construction disputes arising.