NEC3 payment and defects

What are the options to the Project Manager of Employer, regarding payment, where an activity may be completed and the Defects are not ‘…Defects which would either delay or be covered by immediately following work.’ under Core Clause 1 11.2 (27) e.g where work is not to specification?

Assuming the works are still being constructed, the answer is “not a lot” until the Contractor thinks he should get Completion, then :

  • if the Defect is a major one and prevents the Employer from using the works or Others from doing their work, then the Contractor has NOT actually achieved Completion, may be liable for delay damages if Completion is after the contractual Completion Data and will also have insurance type liabilities for the Site (as opposed to being transferred to the Employer).
  • if it is a more minor Defect then, on Completion, the Contractor has the ‘defects correction period’ to correct the Defect and needs to work around those using it. If they do not do this, then the PM may decide to get someone else to correct it for which the Contractor will ultimately pay.

This depends a little on which option you are using. If you are using option A (which your mention of 11.2(27) suggests that you are) then you potentially you could choose not to pay for that period for an item that has defects – although I would recommend that you adopt the same principle for Completion of an activity schedule as for that for the whole of the Works. Completion is defined as when the works are complete and are without defects that would prevent the Employer from using the works. Therefore option A if there are major defects then you could claim that they are not complete and therefore not payable. I would not use this approach for “minor” defects under option A as this restricts the Contractors cashflow which may affect their ability to carry out the works that you want them to do.

For option A and indeed all ECC contract options, minor(and all other) defects the Contractor are already obliged to correct in accordance with section 4 of the contract.Option C onwards the Contractor is paid for actual Defined Cost regardless of how many defects they appear to have done. Certain costs(but by no means all) resulting from correcting defects could be disallowed (see the Disallowed Costs definition within clause 11).

At the end of the day Contractors are obliged under the contract to correct their own defects. Under clause 45 if the Contractor has not corrected a defect within the defect correction period(after Completion as Jon has already pointed out) the Project Manager could assess the cost of correcting it and charge the Contractor accordingly (probably out if the retention money that will often be held against the Contractor if secondary option X16 has been chosen). Contractor’s are obliged to correct their defects whether or not you have included X16 and whether or not you have put any other amendments to withhold money during the life of the project. Which ever way the Contractor looks at it there is risk and financial cost to a Contractor if they are doing anything that is not in accordance with the Works Information and hence a defect