This came up in a seminar I delivered last week…
One of the ‘Disallowed Costs’ is ‘the cost of correcting Defects after Completion’.
Does this relate to:
- The cost incurred after Completion in correcting Defects whether they are notified before or after Completion; or
- The cost incurred in correcting only those Defects notified after Completion.
My understanding is that there are 3 issues to consider;
- there is a Defect, that is one which has been notified under the contract,
- the correction of the Defect occurs after Completion, (date as certified),
- there is Defined Cost associated with the Defect correction.
Where all of the above apply then I would suggest that the Disallowed Cost provision applies, whether the Defect was notified before or after Completion, so relates to 1.
That was my original thought, but:
If a Defect includes work that is not done; and
Completion can occur whilst certain Defects exist; and
If those Defects include work not done then, because of the disallowed cost provision, the Contractor does not get paid for that work when its carried out after Completion
In your example I suppose the question arises as to whether the ‘work not done’ should be included as part of the scope of the Defect. If that is the case then the cost of completing this work (correcting the Defect) would be a Disallowed Cost after Completion.
I have long had the view that you two have arrived at i.e. ‘snags’ - finishing off bits of work after Completion as opposed to correcting defective work done - could be counted as a Defect if notified by such by a zealous Supervisor and disallowed by ‘by the letter’ Project Manager.
Good question @Steven Evans
My interpretation is the same as (1). Any cost incurred after Completion in relation to correcting Defects is Diallowed Cost regardless as to if / when the Defect was notified.
For it to be (2) the word “notified” would need to appear in the clause and it does not.
@stevencevans Ellis Baker and Anthony Lavers wrote a good paper on this subject for SCL which in turn refers to Diplock in Kaye v Hosier and Dickinson  and the concept of temporary disconformity:
“Provided that the contractor puts it right timeously I do not think that the parties intended that any temporary disconformity should of itself amount to a breach of contract by the contractor.”
There are however different views about whether this approach is correct or not.
From a practical point of view, my view is that incomplete work or work not done is not defective unless and until the Contractor shows no intention of completing it or doing it. Also Completion should not be certified until said work is completed. Taking it to an extreme, on day one of the contract the Supervisor should issue a Defect notification in exasperation that the entire works are defective!
I heard of a consultant project manager from a firm with the letters “T” and “T” in it deliberately certifying Completion early so as to disallow costs, effectively the client got the incomplete works for free!
@Andrew_W-I NEC3 guidance notes say that work not done is included in the definition of a Defect. NEC4 guidance does not expressly say that, but every commentary I have read on NEC4 interprets the definition of a ‘Defect’ to include both work not done as well as work done incorrectly. As @Neil_Earnshaw says, the works start off entirely defective and are progressively made less defective as the contractor works its way to completion. As for notification, @Jon_Broome, I don’t think either the Contractor or the Supervisor have a choice but to notify, clause 43.2 places an express obligation upon them both to notify.
I also don’t think that defects that do not prevent Completion need to be minor. As long as the Defects don’t prevent the Client using the works, then Completion could occur. This could be the landscaping works to an office development which are left incomplete until the planting season. In that case the costs of carrying out that work would be disallowed, and that doesn’t seem particularly fair or collaborative and probably isn’t the intention.
But, as @Neil_Earnshaw says, the clause could have said ‘Defects notified after Completion’ and as it does not, we seem to be stuck with an unsatisfactory situation which some not to be named project management firms are taking advantage of.
I know you all know the above, I was just thinking out loud.
@stevencevans a good discussion thread. Although the NEC3 guidance notes include ‘unfinished’ work I agree with Neil’s view on the matter. If it meant to include ALL unfinished work then surely the wording would have been included in the contract definition, which it isn’t.
Good point about ‘notified’ Defects. I stand corrected … so delete the “if notified by such by a zealous Supervisor and a” from above.
Great discussion @stevencevans @Andrew_W-I @Jon_Broome
I’m writing an article entitled “What’s the snag with defects?” which will build on my NEC Advent Calendar post on the same theme. It would appear that we all agree that the drafting of the contract is not entirely clear and could lead to some unexpected consequences.
I’m not sure if that’s correct: I think we are clear about what the contract says, just don’t think it is correct to say that because it could lead to some unfair consequences. The example I give is where the you have a time driven contract, whether target cost or cost reimbursable, and the Contractor busts a gut to achieve Completion - i.e. a state where it can be used - for the Employer/Client, leaving non-essential work to be done after Completion.
The PM then disallows these costs.