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Between a fault and a hard place

What should happen if something goes wrong with a new building after completion?

It’s a common conundrum in the world of construction.

Rectifying the problem

Normally it goes something like this – the employer tells the contractor they need to come back and sort it; the contractor tells the employer the problem wasn’t of their making, and that they could come back and fix things, but will charge.

What should happen, in legal terms, normally depends on who is ultimately found responsible.

It’s often best for the contractor to come back and do the work; the difference lies in who pays for it.

If the contractor’s at fault, then the contractor will be liable for the costs of rectification.

In this case, it’s likely to be cheaper for the contractor to just fix the problem: they won’t charge themselves the profit and mobilisation costs that another firm might.

If the contractor wasn’t responsible, however, the employer is going to be liable for the costs of putting things right.

Practically, it is often better for the employer to get the contractor back: the contractor is familiar with the site and may already have a site establishment, so mobilisation costs, which the employer will be responsible for, will be lower.

Theory v practice

And of course, that’s all very well in theory.

Knowing who will ultimately be found to blame - if anyone - for the fault will, in practice however, often require a crystal ball: where is a court likely to place the blame in any future legal proceedings?

If you are the contractor, do you do the remedial work either on the assumption that you are to blame, or in the hope that you’ll get paid for it? Alternatively, do you refuse to return until agreement is reached over who pays for what?

If the extent of the required remedial works is limited, then some sort of pragmatic solution can often be agreed between the parties fairly easily. A contractor may, for example, elect to do the remedial works without admission of liability as a good-will gesture with a view to securing repeat business.

Glendoe hydro electric scheme

What if, however, the remedial works costs are likely to be huge?

It’s doubtful a contractor will be happy to commit substantial resources if they don’t have to, and if there is no clear guarantee they’ll be paid.

And that is, essentially, what happened when there was a tunnel collapse within the Glendoe hydro electric scheme shortly after it was completed, where remedial costs were in excess of £100million.

Unsurprisingly, the original contractor refused to return to site to carry out remedial works until there was agreement on who was ultimately liable for those costs. No agreement was reached; the employer used an alternative contractor; then sued the original contractor to recover the costs.

The cause of the collapse was - and remains - unclear, but is likely to have something to do with the special geological conditions in the area: the Conagleann Fault Zone – no pun intended.

Crucially, however, the court found that the contractor had exercised reasonable skill and care in the design of the works and therefore wasn’t contractually responsible for the collapse.

The employer was, therefore, liable for the costs of the remedial works

Breach of contract

The twist in the tale at Glendoe was that the court found that under the contract terms -essentially those of the NEC3 ECC standard form - regardless of whose fault the defect was, the contractor was contractually obliged to rectify the problem.

Therefore, the contractor was in breach of contract by insisting that agreement on payment be reached prior to remedial works being started.

So, if you have an NEC3 contract, it would appear that a contractor has to return and carry out rectification works regardless of fault – who pays being left for argument later. Under NEC3, therefore, the contractual decision as to whether or not to return to site does not involve trying to second guess what a court may ultimately decide in relation to who was responsible for the problem.

SBCC/JCT contracts, however, don’t have an equivalent contractual obligation.

Under such contracts, there is only a requirement to return if the problem is due to a fault in the contractor’s workmanship or materials. But will a court find that the contractor was at fault?

Even under an NEC3 contract, there may well still be an argument later as to who is to pay: likely turning the argument on where the blame for the fault lies.

There does, therefore, appear to be no avoiding the “who’s to blame, and who’s liable” conundrum.

Time to polish that crystal ball or, better still, call your construction lawyer.

Jennifer Young

Jennifer was elected chairman in January, 2012, and became managing partner in June, 2020.

Posted, 18 January 2017 by Jennifer Young
Categories: Commercial property | Construction | Litigation