NEC3 ECC: Liabilities for defects around take over

In a scenario where the Employer takes over part of the works, and then begins operation of this, only to discover a defect which prevents use of the works, what is the Contractor’s liability to the Employer, beyond rectification?

If the Employer has taken over the works, then delay damages under X7 cannot be enforced, but is the Contractor then open to the full costs of the Employer not being able to use the works, i.e. loss of revenue?

Also, does the contractor have any protection from the defects correction period during this time?

The first thing to do is establish who is liable for the defect - has it been caused by the Employer not operating / maintaining the works correctly, the design (who’s design was it?), or workmanship and materials. It would be a good idea for the Project Manager to notify this as an early warning if there is any doubt so that all parties can agree a plan for resolving the problem. If you are before the defects date then the Supervisor may instruct the Contractor to search for a Defect (clause 42.1).

Prior to the defects date, once liability has been established, the Supervisor should notify the Defect in the usual way and the normal timescales for correcting will apply to the Contractor, so defect correction period after Completion for Defects notified before Completion, and defect correction period for all others.

In terms of liability see the 4th main bullet point under clause 80.1 which makes “loss of or wear or damage to the parts of the works taken over …” an Employer’s risk subject to three exceptions.

In respect of the Employer’s loss of revenue, the ECC does not expressly deal with this, however legal commentary on the potentially wide interpretation of clause 81.1 suggests this may be recoverable. However, the likelihood of this is affected by many fact-specific variables. Inevitably the Parties will end-up with at best a commercial settlement over this, but at worst a formal dispute.