Last edited 05 Aug 2014

Certificate of making good defects

The certificate of making good defects is now referred to as the 'certificate of making good' in the new JCT '05 suite of contracts.

Contents

[edit] The purpose of the certificate of making good defects

Once practical completion has been certified, the defects liability period begins (now called the 'rectification period' in Joint Contracts Tribunal (JCT) contracts). Typically, the defects liability period is six to twelve months.

During this period, the client reports any defects that arise in the works to the contract administrator who decides whether they are in fact defects (i.e. works that are not in accordance with the contract), or whether they are maintenance issues. If the contract administrator considers that they are defects, then they may issue instructions to the contractor to make good the defects within a reasonable time.

At the end of the defects liability period, the contract administrator prepares a schedule of defects, listing those defects that have not yet been rectified, and agrees with the contractor the date by which they will be rectified. Defects must be made good within a 'reasonable time', and at the contractor's cost. NB. It is the contractor's responsibility to identify and rectify defects, not the client's or the contract administrator's, so if they do bring defects to the contractor's notice, they should make clear that this is not a comprehensive list of all defects.

When the contract administrator considers that all items on the schedule of defects have been made good, they issue a certificate of making good defects. This has the effect of releasing the remainder of any retention and brings about issuing of the final certificate.

[edit] Particular circumstances relating to the certificate of making good defects.

If the contractor, having been given the opportunity to rectify defects, fails to do so within a reasonable time, they may be in breach of contract. In this situation others may be employed to rectify the defects, and the cost of such works deducted from the contractor's retention.

In particular circumstances where the cost of rectifying a defect is disproportionate relative to the impact of the defect on the works, the client may agree to have the certificate of making good defects issued anyway, but only on agreement that the contract sum is reduced by an amount that reflects the reduction in the value of the works as a consequence of the defect.

If a defect becomes apparent after the certificate of making good defects has been issued, but before the final certificate has been issued, the contractor may be given the opportunity to rectify the defect anyway, but the final certificate should not be issued until this has been done.

On construction management projects and management contract projects, a separate certificate of practical completion is issued for each trade contract (or works contract). This means that defects liability periods may be at different times for each trade contract (or works contract).

Where sectional completion (or phased completion) occurs, a separate certificate of making good defects may be issued for each section and then for the whole of the works. This may also be the case where the client arranges for partial possession of part of the works.

NB The Housing Grants Construction and Regeneration Act disallows 'pay when paid' clauses, this means that it is no longer acceptable for a contractor to withhold the release of retention to a subcontractor simply because they themselves have not had their retention released.

[edit] What are defects?

Defects are works that have not been carried out in accordance with the contract. Defects which are discoverable before the end of the defects liability period are described as 'patent defects'. Defects which could not have been discovered during the defects liability period are known as 'latent defects' (for example, a problem with foundations which have been covered up and does not become apparent until several years later when settlement causes cracks to appear).

Patent defects should be rectified as an ongoing process, and certainly, before the certificate of practical completion is issued, then before the certificate of making good defects is issued and ultimately before the final certificate is issued.

Latent defects can result in liability for damages for up to 15 years. The Limitation Act 1980 governs time limits for bringing different types of legal claims.

Latent defects can be highly problematic and very expensive to repair. If there is a suspicion of latent defects, it is sensible to have investigations carried out before the end of the defects liability period.

[edit] Difficulties surrounding practical completion

It is important to note that the defects liability period is not a chance to correct problems apparent at practical completion, it is a period during which the contractor may be recalled to rectify defects which appear. If there are defects apparent before practical completion, then these should be rectified before a certificate of practical completion is issued.

This can put the contract administrator in a difficult position, where both the contractor and the client are keen to issue the certificate (so that the building can be handed over) and yet defects (more than a de minimis) are apparent in the works. Issuing the certificate however could render the contract administrator liable for problems that this causes, for example in the calculation of liquidated damages.

If the contract administrator is pressured to certify practical completion even though the works are not complete, they might consider informing the client in writing of the potential problems of doing so, obtaining written consent from the client to certify practical completion and obtaining agreement from the contractor that they will complete the works and rectify any defects. It might also be possible to prepare a qualified practical completion certificate however care must be taken to use the correct wording. If the contract administrator is not confident about the potential problems surrounding practical completion, they might advise the client to seek legal advice.

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