Making Good with Rectification Periods

Blog author: Hugh Saunders – 3PB

Do you still talk about the “defects liability period”? So do I, and I don’t blame you because the phrase has been around for so long, even though modern JCT contracts use the term “Rectification Period”. Whatever you call it, problems can arise because although the clauses look quite simple there is actually a number of things going on.

First, neither term really describes what the contract actually means; second, on the expiry of the Rectification Period, there is another chance for Employers and Contractors to get into conflict about the two things that matter most to them: the Works and payment; finally, issuing the certificate of making good triggers the entitlement to retention and starts time for the Final Certificate to be issued.

Let’s start with the terminology. At first glance, the idea of a “defects liability” or “rectification” period can suggest that, after that period expires, so does liability for defects. I have had cases where my clients – surprised to have received a claim – thought this was the case. However, this is not what the clauses say – liability for latent defects survives the end of the Rectification Period even if a certificate of making good has been issued. There is an argument that liability continues even for patent defects that have not been notified to the Contractor. (In both cases, this is because the certificate relates only to the defects notified to the Contractor within 14 days of the expiry of the Rectification Period). Parties should also be aware that the Employer can claim for consequential losses caused by defects, even if they are notified and rectified.

Under the JCT contracts, the default position is that the Contractor must make good “defects, shrinkages or other faults” in the Works that are notified to it in time, at no cost to the Employer. In effect, this means the Contractor can be called back to site and this is often seen as an onerous obligation. There is another side to this, however, which is that unless the Employer chooses not to have the defects made good by the Contractor, it is the Contractor’s right to return and make good. In theory, this a benefit to the Contractor because, first, the Contractor knows the works better than a third party and should therefore be able to make good more quickly; and second, although the rectification is done at the Contractor’s cost, at least it is not being charged for another contractor’s profit on the work.

The Employer can choose not to have the Contractor make good, and to make an “appropriate deduction” from the Contract Sum in respect of the defects. That deduction could be more than the amount of the outstanding retention, requiring the Contractor to make a payment. This is an obvious opportunity for a dispute to start. In my experience, Employers usually take this course of action either when problems during the works have led to a breakdown of trust between the parties, or where the Contractor seems to be being unreasonably reluctant to rectify the defects. There is no easy solution to these problems, but the obvious answer to the second issue is for the Contractor to engage as much as possible in the process of identifying defects during the Rectification Period (and that does not mean having to accept without question everything put forward by the Employer).

This all leads to the most important thing – for contractors at least – about the end of the Rectification Period – the release of retention and starting the clock for the Final Certificate. Different JCT contracts treat retention in different ways (for example, there is no formal “retention” under the Intermediate Form, but there are specific clauses dealing with Retention in the Standard Form and the Design & Build Contract). Whichever contract is being used, following the issue of the certificate of making good the Contractor becomes entitled to claim the retention in any payment applications thereafter. Some employers may (either by accident or design) be slow to certify making good, which leaves the Contractor in a difficult position because it is unable to claim the retention and the issue of the Final Certificate is also delayed. A failure to certify making good in time is a breach of the contract, but it rarely makes commercial sense to threaten an adjudication or legal proceedings as a result. It is easy to see the potential for matters to get heated.

In practical terms, and at the risk of being accused of idealism, I advise both employer and contractor clients to be open and proactive about the way that they operate the defects rectification provisions of their JCT contracts. The way that the contracts are drafted is intended to be beneficial to both sides – the Employer gets defects rectified by a Contractor who is familiar with the works, and the Contractor gets its money. The key remains positive engagement from both sides.

Note: Blog posts are the views of the author(s) and do not necessarily reflect the views of JCT