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04 May 2018

Can a contractor be liable after the defects liability period?

Usually, yes. A contractor will normally remain liable for defects after the defects liability period has expired. This article addresses a common misconception about the defects liability period under a construction contract.

The purpose of the defects liability period

The name ‘defects liability period’ is misleading, in that it implies that the contractor’s liability for defects will expire when the defects liability period comes to an end. However, for the vast majority of contractors in Australia, that is simply not the case.

The purpose of the defects liability period is threefold. It fixes the period of time when:

  • the superintendent’s role under the contract formally comes to an end;
  • the parties are intended to make a final reconciliation of the contract sum; and
  • the unused balance of the contractor’s security (if any) will be returned to the contractor, subject to the satisfactory resolution of all known defects and disputes.

However, a contractor’s liability for defects does not automatically end on the expiry of this period.

In some cases, a contractor’s liability may extend many years beyond. The only practical difference is that, after the expiry of the defects liability period, the principal will no longer hold any security.

Why is the contractor still liable?

In most cases, the contractor’s liability in respect of a defect can be characterised as a breach of contract. For example, under AS 4000, the contractor is required to:

  • complete work under the contract (WUC) in accordance with the contract (clause 2.1), which will include all drawings, specifications and other documents forming part of the contract; and
  • use suitable new materials and proper tradesmanlike workmanship (clause 29.1).

If the contractor fails to do either of these things, it will have breached the contract. The principal will have rights in relation to the breach, including a claim for damages.

Under most contracts, the contractor’s liability for a breach of contract does not automatically end when the defects liability expires.

There are also other ways in which a contractor could be held liable for a defect. These include:

When does the contractor’s liability end?

A contractor’s liability may not come to an end until years after the work has been completed and the defects liability period has expired.

In some cases, the exact date can be difficult to determine. The date will be determined by applying the relevant statute(s) of limitations, and will be a function of a number of considerations, including:

  • the terms of the contract and the extent to which any exclusions or limitations of liability might be effective as a matter of law;
  • the legal basis of the claim. There are different limitation periods for different causes of action (ie breach of contract, negligence, breach of the Australian Consumer Law, etc);
  • the date the breach occurred;
  • the date the breach was or could have been discovered (although this may be less relevant in some circumstances); and
  • the place where the breach occurred or the works were performed (as some limitation periods are State-specific).

If court proceedings have not been commenced before the limitation period expires, the contractor responsible for the defect will be exempted from liability.

If you are a principal or head contractor seeking redress for defective work performed by someone else, there are a number of reasons why you should take action earlier rather than later.

For example, usually you will have an obligation to mitigate any losses that arise as a result of the defect. If the passage of time results in additional losses being incurred (for example, because the defect gets worse), you may not be able to recover those losses from those responsible.New call-to-action

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About Turtons

Turtons is a commercial law firm in Sydney with specialist expertise in the construction and technology sectors.

We specialise in helping businesses:

  • improve their everyday contracting processes,
  • negotiate large commercial contracts and other deals that fall outside of "business as usual", and
  • undertake strategic initiatives, such as raising capital, buying businesses, implementing employee share schemes, designing and implementing exit strategies and selling businesses.
Greg Henry | Principal


Greg Henry | Principal


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Greg has supported clients through $3.5b+ in transactions in the construction and technology sectors. He assists medium sized businesses grow and realise capital value through strategic legal initiatives and business-changing transactions.

greg.henry@turtons.com | (02) 9229 2904