It is common for building contracts to provide for a certain period following practical completion, often between six to twelve months, during which time the contractor is obliged to return to the site to rectify minor patent defects – usually referred to as the defects liability period (DLP), or “Rectification Period” in the Joint Contracts Tribunal (JCT) suite of contracts.
Typically, once the contractor has remedied the defects, the employer’s agent or contract administrator will issue a certificate of making good at the end of the DLP, which often activates the release of the remaining retention monies under the building contract. But what effect does the certificate of making good have in respect of the defects the contractor was required to make good during the DLP? This was one issue before the Technology and Construction Court (TCC) in the recent case of Swansea Stadium Management Company Ltd v City and County of Swansea & Anor (Swansea).
In Swansea, the City & County of Swansea (the Council) employed Interserve Construction Limited (Interserve) as the main contractor to design and build the Liberty Stadium in Swansea. The contract was in the form of the 1998 edition of the JCT’s Standard Form of Building Contract with Contractor’s Design (with bespoke amendments). Practical completion of the works was achieved on 31 March 2005. Meanwhile, the Council, Swansea City Football Club and Ospreys Rugby Club (the Stadium being home to both clubs) incorporated Swansea Stadium Management Company Limited (SSMC); initially as a joint venture, although SSMC is now wholly owned by the football club. The Council leased the Stadium to SSMC in April 2005, and SSMC was provided with a collateral warranty from Interserve in respect of the works.
Notwithstanding the existence of, inter alia, problems with both the concourse flooring and the paintwork, the employer’s agent issued the certificate of making good on 26 May 2011, certifying that the defects which the Council might require to be made good had been made good as of 14 April 2011. In June 2012, the Council and Interserve entered into a settlement agreement in respect of the final account.
Following earlier proceedings commenced by SSMC against Interserve and the Council, which were struck out by the TCC due to limitation expiring, SSMC brought further proceedings relying on its secondary claims. In particular, SSMC alleged Interserve was in breach of its obligations under the building contract (and therefore the collateral warranty) to identify and make good the flooring and paintwork defects during the DLP.
In dismissing SSMC’s claims, the TCC held that the effect of issuing a certificate of making good “was to deem “for all the purposes” of the building contract that the parties had reached completion of the discrete and more limited obligation to make good defects in accordance with the contractual machinery in [the DLP clauses]”. Effectively, under the JCT standard form contracts, a certificate of making good provides conclusive evidence that defects have been made good under the DLP provisions (even where they have not). However, the TCC also stressed that a certificate of making good is not conclusive as to a party’s right to contend that a contractor “was in breach of its core obligations under the building contract”. Meaning that a claim under the main terms of the building contract is still possible against the contractor for incomplete or inadequate works following the DLP, in this case, such a claim was statute-barred and therefore not open to SSMC.
Where a contractor has been engaged under one of the JCT standard form contracts, Swansea is animportant reminder that the developer should ensure the contractor’s obligations to make good defects during the DLP are robustly enforced. Further, the developer should always retain control over identifying defects that require rectification during the DLP, rather than reversing the standard position and putting the onus on the contractor to identify defects itself (as happened in Swansea). Finally, a certificate of making good should only ever be issued once all outstanding defects have been made good by the contractor. It is worth remembering that, generally, an employer’s agent or contract administrator is not obliged to issue a certificate of making good at the expiry of the DLP where patent defects remain to be rectified by the contractor under the building contract.
If you require further information about anything covered in this briefing, please contact Jonathan Came, or your usual contact at the firm on +44 (0)20 3375 7000.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, June 2019