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Defects Liability Periods explained: Part 1 – Defects liability periods in construction contracts

Pegasus Blog 19

What is a defects liability period?

Most construction contracts contain a prescribed period of time within which the construction contractor has a contractual obligation to remedy any defects in the construction work it has performed. Such ‘defects liability periods’ typically range from one to two years after practical completion has been reached. Often, a further defects liability period will apply to defective works that have been remedied by the construction contractor within the defects liability period.

Benefits of a defects liability period

A defects liability period can help both the principal and the construction contractor in managing their respective risks under the construction contract.

From the principal’s perspective, a defects liability period is useful for the following reasons:

From the construction contractor’s perspective, a defects liability means:

Common misconceptions about defects liability periods

It is important for both the principal and the construction contractor to be aware that under Australian law, the expiry of a defects liability period does necessarily mean that the construction contractor’s obligation with regard to the works also comes to an end.

A defects liability period creates a contractual obligation under which the construction contractor is required to return to the site and rectify any defects identified in the works it has performed. However, the principal may still have a right at common law to pursue the construction contractor for damages for breach of contract if any defects in the works transpire.

The period of time that the principal has to make a claim at common law for damages will depend on whether the construction contract is executed as a deed or an agreement and applicable state legislation. If the construction contract is executed a deed, the principal will have up to 12 years from the date the defect occurs to bring a claim for damages against the construction contractor. If the construction contract is executed as an agreement, this period is up to 6 years.

A second misconception occasionally affects international parties that are less familiar with common law legal concepts as they apply in Australia. The standard remedy under common law for defects in the works is a claim in damages. Specific performance of a construction contract (namely defect rectification) may not be granted by the courts, unless exceptional circumstances apply. Providing for defects rectification is critical in common law-based construction contracts to create a period during which the principal is entitled to require defects rectification and the construction contractor is given an opportunity to rectify.

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