To Mandy se Tom Defective Construction Work Long after Iam gone, this book, like my love for you, will endure and the Project Team Kevin Barrett @)WILEY-BLACKWELL ‘Aa ley & Sons, ed, Pubieaion2 Defective Construction Work condemning work and materials that are not in accordance with the contract (which includes the employer's requirements) because they are Lunft for purpose does not amount to a variation. Some support for this proposition may be found in BrieKfild Properties Ltd v. Newton (1971), which confiems that architets (and by analogy engineers) are under a continuing duty to ensure that their design will work in practice and, if it will not, to correct it, This duty applies equally to designer ‘builders ‘who must then implement the necessary changes. There is therefore a tisk for designer builders engaged under these JCT conditions that until practical completion is achieved they may be required to achieve a fitness for purpose outcome even though after completion thei liability for design defects is subject to the less onerous care and skill obligation, The position does not appear to be greatly different under the ICE conditions. Under the 7th edition the builder is not responsible for the dlosign ofthe permanent works or any temporary works design supplied by the engineer, If the builder does design any part of the permanent works he is required to exercise ‘reasonable skill, care and diligence’ However, he must also construct and complete the works so far 2s legally and physically possible ‘to the satisfaction of the Engineer’, and ‘mast comply with the instructions given by the engineer up to substan- tial completion of the works. This means that ifthe engineer is not satis- fied with the design of those parts of the permanent works designed by the builder, then he may insist on changes at no cost to the purchaser, ‘Under the MFI conditions the builder is ‘responsible fr the detailed design of the Plant and of the Works in accordance with the require- iments ofthe specification’ and must comply with the engineer's instruc- tions. However, the builder gives no warranty that the design ‘will satisfy the Purchaser's requirements’. Instead, the builder accepts responsibilty fora period of 3 years after taking over of the works for rectifying defects that arise due to his gross misconduct In addition to the rebuttable common law fitness for purpose term concerning the overall design, the statutory term that goods and materi- als used in the works will be reasonably fit for purpose will apply where “appropriate. This term will be rebutted by those contracts tha limit the builder's design liability to that of care and skill, as the selection of ‘materials is an aspect of design. ‘Where a projectinvolves the erection ofa dwelling house the designer/ builder will, in accordance with the Defective Premises Act 1972, be ‘obliged to use proper materials and workmanship so that the dwelling will be fit for habitation when completed (see Chapter 7). However, “under the JCT conditions this duty is limited, as indicated above, to what is in effect a duty to exercise reasonable care and ski Chapter 11 The Builder's Obligations: Defects Before Completion Builders can put right defects discovered before completion. Any delay tocompletion caused by defects can be compensated ~ and thsi usually done by way of liquidated damages. It does not follow, however, that purchasers of building work need not be concerned about pre= ‘completion defects. Indeed, unlike purchasers of goods ~ whose concern bout quality is engaged only on delivery ~ the purchasers of building, {work have an immediate interest in the quality of work as it progresses. ‘This is because the work is carzied out upon, and becomes a fixture of, the purchasers’ land, and is usually paid for as it progresses. This imme- lacy of interest in the quality of work means that purchasers of building, {work are nat comfortable standing idly by while a defect-ridlled edifice is thrown up ~ and they may not be persuaded by protests that it will ‘be allright at completion “Apart from delaying completion, defects tend to undermine confi- dence in the builder's competence (especialy if they are quantitatively forsubstantively significant, they aise concems as to whether the defects willbe rectified ata if they are not rectified promptly, and may mean that the builder has been overpaid. The latter two concems are height ‘ened by the fact that builders sometimes becomes insolvent, resulting i bandonment of the work. If so, the purchaser will have to employ a replacement builder to complete the work, including rectifying defective ‘work which may increase the cos ofthe project: Further, the security ‘provided by the retention fund (if there is one) is diminished, or may ven be extinguished, if defects ate left unremedied. For these reasons ‘efective work discovered before completion is a serious and worrying matter for purchasers, IL1 Temporary disconformities ‘Whether purchasers can do anything about defects discovered before completion depends on whether one ofthe following two requirements fre satislied: either (a) the defective work must constitute a breach of| Contract, oF (b) the contract must expressly empower the purchaser 10 93Defective Construction Work take appropriate measures. Ifthe contract does not address the second requirement, then the position is entirely dependent on whether the ‘common law treats pre-completion defects as breaches of contract. Unfortunately, there is some debate about the precise status of pre- completion defects in building work. Thisis because ofthe development ofthe temporary disconformity theory, which posits that defective work discovered before completion is nota breach of contract at all but rather «2 “temporary disconformity’. The rationale for this proposition is that builders cannot be in breach oftheir quality obligations until completion because, until then, they ean put right any defects that arise ‘14 The theory ‘The temporary disconformity theory is derived from non-binding obser= vations (oiter dicta) made in the judgments given in two decisions. Fist, in Jars v. City of Westminster (1970), the judge at frst instance observed that a builder who makes an error in the course of performance is enti- Hed to remedy it if he can, and if fully remedied it does not constitute ‘breach of contract. Second, in P & M Kaye Limited v. Hosier & Dickinson Ld (1972), it was observed in a dissenting speech that: “Upon a legalistic analysis it might be argued that the temporary disconfoem ity of any pat ofthe works withthe reqnirements ofthe contract even though remedied before the end of the agreed construction period constitute a breach of contract for which nominal damages would be recoversble. I do no think that makes business sense, Provided thatthe contractor puts it right {imeously 1 do not thnk that the parties intended that any temporary discon formity should of itself amount toa breach of contract by the contractor” ‘This observation was made inthe context of defects discovered but put ight before completion, but where the purchaser sought to characterise them as pre-completion breaches of contract in an effort to bypass the consequences ofthe final certificate (see Chapter 13). Although said in 2 dissenting judgment ~ and even though strietly non-binding ~ the latter observation, in particular, has frequently been deployed since to support claims that bad work occurring before completion does not amount to a breach of contract. As the Kaye observation was mace by a Law Lord, itis one that inferior courts have found themselves unable to lightly ignore. 11.12 The theory confined Despitits distinguished parentage the temportydsconormiy thea has not prospered snc the Kaye detonator hast bo ste Defects Before Completion 98 outright, It survived scrutiny by both the High Court and the Court of "Appeal in Lintest Builders Lu v. Roberts (1978) and (1978) respectively. In this case an assessment had to be made of the value of work done after termination of a building contract. The builder argued that defects (hich had not been corrected by the time of termination) had to be ignored, asthe work could not be treated as defective until completion, ‘which would no longer occur ~ so all work should in effect be treated properly done. If this argument had been accepted, the purchaser stood to be prejudiced by the temporary disconformity theory, by being required to pay for badly done work. The potential prejudice was avoided by the court applying specifc provisions of the contract in ques- tion, under which the purchaser acquired the right, atthe time the defec- tive work was done, to require that it be remedied, and therefore was entitled to have any defective work omitted from the valuation ‘Although both cours, in the Lintest decisions, avoided the need to confront the temporary disconformity theory directly, they both never theless expressed reservations about it In this respect the judge a frst instance observed that: ‘the technicalities may be that there is a technical breach each time the defective work is done.’ The Court of Appeal declined to accept that prior to completion the builder was free to do defective work 'as often and as long andl as frequently as he liked pro- vided that by the time the contract comes to an end and the defects period comes to an end he has remedied those defects’ I also ques- tioned whether the dissenting observation in the Kaye decision was: ‘on | any view intended ,.. to be of universal application’. These remarks are peshaps unsurprising given that, but for the availability of specific con fractual remedies, the temporary disconformity theory could, iFapplied to the facts of the Linlest case, have required the purchaser to pay for bad work. Its perhaps equally unsurprising that on subsequent occasions the courts have taken strides to distance themselves from the temporary disconformity theory ~ frst, in Nene Housing Society id. National West~ ‘minster Bank (1980), where the Kaye observation was cited but again sidestepped by applying the specifi provisions ofthe Bond under which "Nene’s claim was made ~ which required the bondsman to pay in the ‘event of ‘default rather than “breach Ia this case the court was satisfied that non-conforming work (which had not been put right by the time the building contract was terminated) amounted to default, whether or not it also amounted to a breach. However, the cout also distinguished the facts from those of Kaye and Jars, and as a result regarded neither ‘observation from these eases as helpful. It also treated the terms of the building contract as creating two separate obligations: namely, a duty to carry out the work properly, as well as a duty to complete it. ‘A further disengagement from the temporary disconformity theory appeared in Surrey Heath Borough Council v. Lovell Construction Lid (1988),Defective Construction Work were Kae was once aan ings i facts which were 0 ett cl ue otros opie foray dnconfomiy" dow notional sone eae destruction of building by fire when neaing eompleton. in urn Hah the Der fad rected Nes oa rc bythe fee and compte the wrk bet ner an lane bathe ree wether mer ura net sw al ‘Nora on cpa danny oar ee tenet elude Sonal st ct he bulder coment at he ac onde a ay ‘ry ofan ped tem, ely set compe here Sipe the work acndonce ih he degen an snp ht, hving dane so, Baldr awed aes eg Futchcer intone deta at ena ee he Cottons apps, anced nde ae Sea ocular afore ot heaps sigan meres duty bound, by a much wider implied term teary ot thecontct ‘ort tcding bot eagn and Corton see et “onknonie manner and wih te pee eee ae eae 8 shed contr Ths much wider ple oe ene eee say that wae nt dshged merely setng eet ‘ctor ory evel eagles ee ee a wea dy tat had bos Be oe ee Se tt woth te ow dion the cate Sry ash ae aon {cnet of dnl day teary ot Werk Popeyes ale pee pepesh Pts nether thee the Sry Hath dein ata nly reese pertan when ues nae oes ce tovemety defects wil gt de ey ave (ateritnhve done) tec tow spe ne Cramton pucasen dosnt hes tae a watch, pending completion? me fan By and The doco in Pilon Tino Sos ET Pol Ch Counc tate (1980) Suge at pants eet al son powers by. In esas soe eed ee Somes n ape of unread es Reena ee rf praca completion Bathe hat erin eee tithe out ar ing hte lag a ima be cnc, a mater of onstnacton ofthe cot htt vasnotinnded ht drapes suite neoverbeln petal ees ‘ect nthe wore poe beig comet Hose ee it that hee wort al shor te sated eed contact and he employe ones peo rata compl ee ta recht or he emplger sot ented oem saa seta in remedying he ene won Dafects Before Completion 7 ‘This approach not only indicates thatthe purchaser may do something, about pre-completion defects, but also implies that temporary deficien- ces are constituted as a breach only if the purchaser rectifies them prior to practical completion. If, however, the builder remedies them before ‘practical completion: the contract may be construed as impliedly exclud- ing any right to nominal damages in respect of them.” This approach ‘was followed in Guinness Ple v. CMD Property Developments Ltd (1995), ‘except that the court concluded, in addition, that the obligation to pay damages arose irrespective of instructions from the architect to the builder to remedy those defects that had arisen. “The decisions in Lintest, Nene, Surrey Heath, Wilinm Tomkinson and Guin ress are not easily reconciled with Jaros and Kaye. The former group of, tlecisions indicate that pre-completion diseonformities have conse- quences, whereas Jarvis and Kaye suggest that they do not, at least within the narrow factual confines of those two cases, One possible approach to the reconciliation ofthese cases isto note that the dissent {ng observation in Kaye addressed the intention’ of the partes. It may rot have been possible, in Kaye, to deduce a common intention that temporary disconformities should be treated as breaches of contract, but this does not prevent such an intention being deduced in other cases ~ including cases where the facts are otherwise identical to those of Jarvis fot Kaye. In this sense the Nene, Surrey Heath, William Tomkinson and Guinness decisions can all be reconciled with Jarvis and Kaye on the basis| that the implied term adopted in each of those cases can be seen as deriving from the pressimed intention ofthe parties. Itis much less easy, however, to see them as terms implied as a matter of necessity for, in| truth, the contract in each case would have worked without the implied term (see Chapter 3). Inaddition, there are two other factors in the dissenting speech in Kaye to bear in mind. Fist, Kaye envisaged the ‘timeous’ rectification of defects, Second, it envisaged that the defects should be ‘temporary’ These two factors are really opposite sides ofthe same coin, and each is fact clependent. If, on the facts, itis found that a particular defect was rot remedied promptly ois not, or was not, temporary, then it may be treated as a breach of contract. In this respect in Surrey Heath the court found it difficult to treat the total loss of the structure as temporary, while in the other cases the defects were neither timeously repaired nor temporary. In this sense it may be said that none of the latter eases is inconsistent with Jarvis or Kaye. This approach does not seem to be inconsistent with the decision in Cow! (717) Lid v. Aegon Insurance Co (UK) Lid (1987), where it was decided that purchasers do ‘not expectDefective Construction Work inital perfection in on-site performance by all operatives engaged in the works a all times, and that ‘such temporary disconformities would not constitute either non-performance of non-observance ofthe terms of the construction contract In this respect the Ora! decision was approved. subsequently in McGinn, These latter two decisions do seem to indicate that purchasers should, if nothing ese, proceed with some sensitivity as to what constitutes a defect, because something that is merely less than perfection may not amount to a defect Finally, itis also worth bearing in mind that the proposition that ‘nominal damages are asa general rule recoverable where (among other things) there isa ‘technical’ breach of contract but no loss may not be entirely correct. It may be that nominal damages are recoverable only. when there is an unremedied breach and no loss, but ifthe breach is ‘remedied and there is no loss then there is no right to nominal damages, Some slender support for this proposition can be found in the decision of the Court of Appeal in Pagan & Fratelli v. Corsa Industrial Agropac- ‘urea (1970) I this isthe cozrect position then ~ without the need to Imply a term excluding fuominal damages ~ it protects builders when defects are rectified before completion (and is thes consistent with jarvis), but leaves a remedy in the hands of purchasers on those occasions when defects are not remedied promptly before completion, ot where despite ‘prompt rectification a real loss is nevertheless suffered (as occurred in Surrey Heath. 11.2 Opening up the work The temporary disconformity theory, to the extent that it continues to concem purchasers a all, does so only where the building contract does not make express provision for the purchaser to give instructions or to {ake unilateral action ifthe builder leaves defects as the wark progresses. In these circumstances any action by the purchaser may have unin- tended consequences. For example, if the purchaser enters the site to effect repairs (or employs others to do so), this may be characterised by the builder as a repudiation of the contrac. If so, the builder may abandon the work altogether, making legal proceedings inevitable as to who should compensate whom. Far better that the building contract should empower the purchaser to give instructions and/or to employ. ‘others to effect repairs, so that his actions cannot be treated as effecting, rescission ofthe contract. Provisions ofthis nature mean that the work will continue to progress, even though disputes may remain. as to whether the work in question was in fact defective, ot as to whether self-help was justified in all the circumstances, Model conditions do generally provide expressly forthe purchaser to take action inthe event of defective work pre-completion. This is usually achieved through all ora combination of three methods Defects Before Completion ” «+ by permiting the exclusion of defective work for the purposes of interim payment, This is achieved by requiring that interim payments ‘Should reflect only the value of work done ~ and defective work has zo value ~ something that has an iumediate, and no doubt salutary, effect on builders; « by adopting the lal obligation’ approach and requiring that build- crs carry out as well a8 complete the work. This i the appronch ‘Sdopted in the JCT conditions, which tend to stipulate tha buders trust ‘arry out and complete the Works. The ICE conditions by antrast use the words ‘construct anu complete, but itis unlikely that this formula produces a different result. Even the elaborate terminol- ogy of the MP/1 conditions, which requires that the builder: ‘Shall... with due care and liligenee, design, manufactur, deliver 9 Site, erect and fet the Plant, ewcute the Works and carry out the Tests on Completion, undoubtedly encompasses the dual obligation ‘within dhe phase ‘execute the Works”. The effet ofthese express dual ‘Obligation provisions is that purchasers may then exercise selhelp and claim damages if defects appear pre-completion; «by empowering purchasers to sist thatthe work should be opened. Lup for inspection. For example, the JCT SBC conditions empower the rchitect fo instruct the builder to open up for inspection any work Covered up,and toarrange for testing of materials and goods, whether te not aleady incorporated into the works. These instructions ae at the purchaser's expense unless the contract provides otherwise, or if the inspection test reveals non-conforming work. Where work does not conform, the architect has power to: (a) give instructions for the removal of non-conforming work, materials or goods; and/or (b) (Gubject to an appropriate reduction from the price) permit the non conforming work to remain; and/or (©) give instructions for eonse- {Guential variations at no adltonal cost tothe purchaser; and/or (8) {Bive instructions for such further opening up for inspection or esting ts is reasonable to establish the likelihood or extent of any further similar non-compliance ‘The latter of these powers is to be exercised having regard to the JCT Codle of Practice and at no additional cost to the purchaser, although they may result in an extension of time if further non-conforming work isnot revealed. ‘Model conditions generally provide that purchasers may employ others to undertake the necessary work if their builders will not do 80, nd charge the cost to them, Purther, they often provide that purchasers say also invoke the determination procedure, although sometimes they are prohibited from determining the contract unreasonably or vex Hioully. The JCT DB conditions contain provisions that are broadly similar to the JCT SBC conditions, while the ICE, NEC3 and MP/1 condi tions all contain provisions concerning the inspection and correction ofDefective Construction Work defects found prior to completion, and allow for termination of the contract if instructions are not obeyed 113 Defects and interim payment Under the common law, builders are, subject to the doctrine of substan- tial performance, entitled to be paid only when work is complete unless the contract expressly provides otherwise. In practice most building contracts, with the exception perhaps of those of very shott duration. expressly include some mechanism for payment am account to the builder. Indeed, for most builders the cash flow generated by payments on account is generally crucial to their solvency. As Lond Denning famously said in Gilert-As (Northern) Ltd v. Modern Engineering (Bristol Led (1973): “There must be a “cash flow” in the building trade. Te isthe very lifeblood of the enterprise.’ This eash flow is so important thet Parliament intervened in 1996 to provide a mandatory statutory frames work for interim payment and deductions (see Chapter 3, section 3.43). ‘The object of the contractual and statutory regimes is broadly the same, however: it is to see that builders are paid on account for work done as a project progresses, but only ifthe work is done properly, If there are defects, then work cannot be said to have been done property, and so purchasers ought not to be obliged to pay for i ‘113.41 The contractual position ‘Model conditions tend to provide that builders are entitled to payment = including interim payment ~ only in respect of work properly exe cuted. in this respect the terms dealing with payment amount a dines. tion to the person charged with valuing the work. For example, under the JCT SBC conditions the architect is obliged to certiy for payment only ‘the total value of work properly executed’ and ‘the total value of the materials and goods delivered’. Similarly, under the ICE conditions the engineer is obliged to certify the amount that is ‘due’ in respect of fhe ‘value’ of the permanent works executed. The NEC3 conditions Provide for interim payment in respect of ‘the Price of Work Done to Date’. They aso define the term ‘defoet as including ‘a part of the works ‘which is notin accordance with the Works Information”. This convo. luted approach has the same effect as the JCT and ICE conditions. The ‘MF/I conditions similarly provide that interim payment certificates ‘must incluce the fotal sum due in respect of work done i the course of ‘manufacture and/or work duly executed on site, but expressly add that certificates must not include work or plant that ‘does not comply with Defects Before Completion 101 the Contract’. The effect of these dizections to the certfer under the [ME/1 conditions is that work must be dane properly before it ean be included in a valuation for the purposes of interim payment. ‘Those model conditions that do not provide for independent assess- ‘ment and certification of interim payments nevertheless contain a similar direction to include only the value of work properly done in interim valuations, and oblige purchasers to pay this amount (see, for example, the JCT SBCSub/C conditions). 11.32 Interim valuations, certificates and payments Inte valuation, carticates and payments do not amount to an acknowedgement tht work defect unless the contact provides otherwise which they rely do, Fathermore, and set ote eet ofthe Housing Grants, Construction an Regeneration Act 198 intern ceriats do not ines the contrat proves ors, gve rie toa “temporary inal oe'pay now ue ler rouivement This is because interim valuations, certcates and payments are usally provisional. ‘This means thatthe valuer may, ules the contact proves oerwse, adjust interim valuations /certcates by omiting the valve of work previously included and pai fori is cubsequely discovered 0 be Gefective. The values may addcess such acjstnents a he nest valine Son/certifation, ut im any event the purchaser may do-s0eicer icing er vation ha Ben nbc ers bat re ayment of the sum dae i fect are discover fer avalon or {erica toed othe builder, This commen lw rights contained, however ye tatty regi thes der he Howng o, Constrcton and Regeneration Act 186, which, nsome eeumstanee, requies that payment must be made despite the Gsaovery of defects atthe value of work has ben certfed or notified fo te bullet Gee seston 1133 below) Theprovisonal nature ofineim valuationsand cerifstesis reflected in the practice of assessing the grow vale ofall work done up fo the ‘alaaton date, rather than the value of work done Between vation dats This eas haf work tat hasbeen valued and ncaded na cevifate subsequent discovered toe defective, he gn Value can be adjusted inte net interim valuation or certificate by enc the fective work fom the goss valuation, This will ineiably have an ingen th et pay dH may be sha blir a ectng i may be naling, or - if negative cert results tay be cbliged fo pay money back Things got problematic if defects are discovered after acetate issued but Before payment made, particularly so if tis disputed that the workin question is defect, thi occurs builders sometimes isis that paynent of he cried sam