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SNAG
THOSE DEFECTS
1999 has been a
bumper year so far for important new developments in building law, with
disputes ranging from multi-million pound commercial contracts to minor
residential works going before the courts.
Two developments which
have particular significance for smaller contractors and sub-contractors
are the enforceability of Adjudicators` decisions and the interpretation
of "defects liability" provisions in the JCT Minor Works
Contract.
Adjudication, introduced by the Construction Act 1996 has
been with us for some time but it was until recently in doubt whether an
Adjudicator`s decision could be enforced. Adjudication is a "fast
track" way of getting a decision on construction disputes (it only
takes 28 days) and can be used while the contract is still going on,
instead of having to wait until the end to go to arbitration or the Court.
It is a particularly strong weapon for sub-contractors who are not
being paid on time, or at all, by main contractors. However,
the government failed to put in place any framework for forcing the
main contractor to pay up following an Adjudicator`s decision and many
contractors simply assumed that they could ignore Adjudicator`s
decisions against them.
In a recent case in which Macob Civil
Engineering claimed to have been underpaid by £300,000 by Morrison
Construction the Adjudicator decided that the mone had to be paid.
Morrison refused to pay and so Macob took the case to court.
The Senior Judge of the Technology and Construction Court, Mr
Justice Dyson, ruled that the money had to be paid immediately.
As a
result main contractors will now have to pay up on the Adjudicator`s
decision. They will still have the right to appeal against an
adjudication by going to arbitration, or the Courts, once the contract has
been completed, but the money must be paid to the sub-contractor in the
meantime. This decision by the Court should significantly ease
the payment log jams which have caused many sub-contractors to go into
insolvency.
Adjudication cannot, unfortunately, be used for
residential works where the employer is the house owner. Many
disputes arise in this sector, and contractors received a setback from the
Courts on the question of defects liability and release of retention.
In the case of Pearce and High-v-Baxter, the builder had completed
works to a £35,000 extension under the JCT Minor Works Contract.
Practical completion was certified and the 6 month defect liability
period went by. At the end of this time, the retention money
had not been paid and the builder sued. The house owners said
that there were outstanding defects, but the first Court to hear the
matter held that, as they had raised their complaint after the 6
month defects liability period had passed, the house owners were too late
and had to pay the builder the retention money. The house
owners went to the Court Of Appeal which decided that the passage of the
defects liability period does not mean that the house owner loses his
right to sue for defects for all time. During the defects liability
period the contractor has the right to re-enter the property to put
defects right at his own expense and the employer must reasonably let him
back in again to do this. However if, at the end of the period
there are still outstanding defects, the house owner can still claim for
defects.
The clear message to all contractors is to return to site
and carry out all snagging works promptly. However, there is
still the risk that, if defects appear after the 6 month liability
period, the house owner can keep all, or part, of any retention.
The matter of retentions does not arise where a C.I.T.A. Warranty is
placed on work, leaving the builder, and the client, secure in the
knowledge that the work carries an insurance backed warranty.
Source: Morgan Cole Solicitors
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