In the third article of the essential law series to look at the topic of defects, Chris Hadnutt explains whether an employer may be obliged to ask the original contractor to return to site to rectify its defectsa snagging item

Defects are, unfortunately, a fact of life in construction projects, and contracting parties need to know how they ought to be dealt with. There is a broad assumption in the industry that a contractor has a right to come back and rectify problems arising post-completion, but the true position is not quite so straightforward.

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Does a contractor have a right to rectify defects in its own work?

There is no common law right for a contractor to rectify its own defective work. Once practical completion is certified, the contractor can only return to the site with the employer’s permission. The presence of a defect amounts to a breach of contract by the contractor, which entitles the employer to damages, or rectification by the contractor or a third party at its election.

>>Also read: Essential law: Defects, part one

>>Also read: Essential law: Defects, part two

In practice, the common law position is often superseded by contractual arrangements, as the vast majority of construction contracts contain provisions establishing a defects liability period. Typically, this will run for six to 12 months, and should any defects appear during this period the contract will both grant a right to and impose an obligation upon the contractor to return to site and rectify those defects. In these circumstances, the contractor will have a contractual right to rectify any defects which appear in the defects liability period unless the contract says otherwise.

Can an employer instruct a third party to rectify defects?

If the contract does not contain defects liability period provisions, the employer is in principle free to instruct whoever it wishes to carry out the necessary remedial works.

Conversely, in circumstances where the contract grants the contractor a right to return and rectify defects, the employer should normally afford the contractor the opportunity to do so, as not doing so would potentially be a breach of contract.

An important question, however, is: what are the consequences for the employer if it instructs a third party to rectify the defects? The position is not particularly different whether the contract provides for a defects liability period or not.

The issue is one of mitigation. There is a general obligation on any party seeking damages for breach of contract to mitigate its losses, in other words to take reasonable steps to minimise any costs it incurs as a result of the breach that it will therefore seek to recover from the defaulting party. The amount recoverable is usually limited to the costs the claimant would have incurred had it mitigated its losses properly. Accordingly, the employer must always consider whether instructing a third party is effective mitigation of its losses, even if there is no contractual right for the contractor to return to rectify defects.

It will usually be more expensive for a new contractor to undertake the required remedial work than for the original contractor to do so. Courts have previously found that in such circumstances the employer’s claim against the original contractor is limited to what it would have cost the original contractor to rectify the works.

This is generally the case irrespective of whether the contract grants the contractor a right to return and rectify defects. The issue, again, is whether the employer has reasonably mitigated its costs. The fact that it should have allowed the contractor to address the defects itself will factor into this assessment.

When is it reasonable to appoint a third party to carry out remedial works?

In certain circumstances there will be very good reasons why an employer does not want the original contractor to address defects itself. The courts have recognised that remediation by the original contractor may not always be appropriate, and the case of Mul vs Hutton Construction Ltd provides guidance on when reasonable mitigation may not require that the original contractor be called back to site. This includes cases where:

  • The defects are so severe that no reasonable employer would allow the contractor back on site.
  • The contractor has behaved fraudulently.
  • The contractor has made clear that it is unwilling to rectify any defects.

The takeaway from this for employers is that it is very unlikely they will be forced to allow the original contractor back on site to remediate its own defects, but if they choose not to do so then a tribunal may want to know why. Employers will need to consider, setting aside the fact that they may be disappointed with the contractor’s work, whether it would be objectively reasonable to give it the opportunity to address the defects. If it is found that it would have been reasonable to do so, there may be difficulties in recovering the full remediation costs from the original contractor.

The next instalment in this series will look at how damages for defective work should be valued.

Chris Hadnutt is an associate at Charles Russell Speechlys