Evaluating Defects

In Claims Class Case Studies, we present a case study of a real situation for the reader to study and decide on the correct contractual outcome. The author’s opinion of the solution is presented underneath.

The following describes the situation for this case study.

  1. The project is an international airport terminal constructed for the exclusive use of the country’s flagship airline and also to accommodate the new Airbus A380 airliner. The form of contract is the FIDIC 1999 for Building and Engineering Works Designed by the Employer.The project was designed and procured in a very tight time-scale and this led to several major variations for additional work being instructed during the construction period. The Engineer issued extensions to the Time for Completion due to the variations, but these were significantly less than the Contractor had claimed for.
  2. The Employer, facing immovable deadlines from his operations division, insisted on completion being achieved in a very tight time frame, despite the additional work instructed through the variations and this placed significant pressure on the Contractor to carry out finishing works in a rushed manner and also allowed very little time for snagging. The result was that when the project was handed over, certain of the finishing works including, plasterwork, ceramic floor tiling to the main concourse, ceramic wall and floor tiling to the toilets and painting and decorating were not in accordance with the standards required by the Specification.
  3. The Engineer produced extensive snagging lists and when issuing the Taking Over Certificate, recorded these as being defects to be made good during the Defects Liability Period. The recorded defects were not disputed by the Contractor, who nevertheless made the point that the sub-standard workmanship was a direct result of not being allowed a reasonable time to complete the Works. On reviewing the defects list, the Employer however, advised the Engineer that the rectification of many of the items included on the snagging lists would cause an unacceptable level of disruption to the airport operations and that he would accept some of the defects without them being made good.
  4. Given the instructions of the Employer, what would be an appropriate course of action for the Engineer to take?

Claims Class Case Studies – Author’s Opinion

  1. The fact that the Contractor has not carried out some of the finishing works in accordance with the standards of workmanship included in the Specification is a breach of his obligation sunder Sub-Clause 7.1 (Manner of Execution)which provides that: ‘The Contractor shall carry out the manufacture of Plant, the production and manufacture of Materials, and all other execution of the Works: in the manner (if any) specified in the Contract, in a proper workmanlike and careful manner, in accordance with recognised good practice …’
  2. Whilst the Contractor has committed a breach of contract, he is willing to remedy the breach by making good the defects. The Employer has however denied the Contractor the opportunity to do so by deciding to accept the works without many of the defects being made good. The Employer is obtaining beneficial use from the defective finishes, so it cannot be contemplated that the Contractor should not be paid for the defective work. On the one hand therefore, the Contractor has not provided the Employer with workmanship to the specified standards, so it is inequitable that he should pay the agreed price for the sub-standard work. On the other hand, however, the Employer is gaining a benefit from the work in the condition that it was provided, so the Contractor clearly deserves to be paid for this work.
  3. Some guidance of a suitable solution can be found under Sub-Clause 9.4 (Failure to Pass Tests on Completion),which provides that: ‘If the Works, or a Section, fail to pass the Tests on Completion repeated under Sub-Clause 9.3 [Retesting], the Engineer shall be entitled to: order further repetition of Tests on Completion under Sub-Clause 9.3; if the failure deprives the Employer of substantially the whole benefit of the Works or Section, reject the Works or Section (as the case may be), in which event the Employer shall have the same remedies as are provided in sub­paragraph (c) of Sub-Clause 11.4 [Failure to Remedy Defects]; or issue a Taking-Over Certificate, if the Employer so requests.In the event of sub-paragraph (c), the Contractor shall proceed in accordance with all other obligations under the Contract, and the Contract Price shall be reduced by such amount as shall be appropriate to cover the reduced value to the Employer as a result of this failure. Unless the relevant reduction for this failure is stated (or its method of calculation is defined) in the Contract, the Employer may require the reduction to be (i) agreed by both Parties (in full satisfaction of this failure only) and paid before this Taking-Over Certificate is issued, or (ii) determined and paid under Sub-Clause 2.5 [Employer’s Claims] and Sub-Clause 3.5 [Determinations].’
  4. Snagging and final inspection by the Engineer should reasonably be regarded as comprising tests on completion. The Employer has requested that the Taking Over Certificate be issued without the defective work being made good, so the provision contained in Sub-Clause 9.4 that ‘the Contract Price shall be reduced by such amount as shall be appropriate to cover the reduced value to the Employer as a result of this failure’ should be applied.
  5. Obviously, calculating a value that is ‘appropriate to cover the reduced value to the Employer’could be a challenge to the Engineer, but I would suggest that if this were based upon what it would reasonably cost the Contractor to remedy the defective work, this could be an acceptable solution to both parties.

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