INTRODUCTION

Under construction contract, the contractor is liable to make good defects which appear within the
defects liability period (DLP). A defect liability period commences on the date of practical completion
and continues for a period as stated in the contract. Defective works are works which fail to comply
with both the express descriptions or requirements in the contract (drawings and specification), and
implied terms of the contract which affecting the quality of the works, whether due to faulty
materials, workmanship or even design (if such design is part of contractor’s obligations under the
contract). The employer’s claims and the liability of the defect by the contractor to the rectification
works generally cover the following activities: -

1. Preparation of defect lists identifying deficiencies against standards/ requirements (i.e.

snagging list)
2. All remedial works are to be carried out within the specified time under the supervision of
qualified and experienced contractor’s personnel
3. Joint inspection, by the Architect/ Engineer/SO of the rectified works
4. Further defects (if any) identified by the Architect/Engineer/SO to be listed on a schedule of
defects, to be rectified within an agreed period for subsequent inspection, leading to the
issuance of the CPC
5. Upon completion and inspection of the rectified works, to be signed off by the
Architect/Engineer/SO i.e. to “close-out” all rectified works.
6. Any further defects occurring/ identified within the DLP, to be rectified periodically, unless
those requiring urgent repair

3.2 Provisions in the Standard Forms of Contract

Under a construction standard form of contract, the contractor's primary obligation is to carry out
and complete the works to the standard set out in the contract. The defects liability period provision
under the standard form of contract is intended to complement this liability by setting out how and
when the contractor must remedy defective work which becomes apparent during the defect’s
liability period. In addition, provision in standard form of contract include the defects liability
obligation which recognises that defects will arise in the period following completion and the
obligation to repair those defects in the general obligation to complete the works to the required
standard124. On the other hand, the employer is generally required to give the Contractor notice of
the defects as soon as practicable, stating the nature of the defect and supporting evidence

Defects Liability Period

Upon completion of the works, the architect will usually issue a certificate of practical completion
(CPC) to certify that the works have been completed in accordance with the contract101. Then the
defect liability period (DLP) begins. The exact status of the „Defects Liability Period‟, is a period
defined in the construction contract which during this period, the appearance of defects is at the
contractor’s own risk in that he may be called upon to return to site to rectify them as necessary.
This was traditionally a period of six months but is now commonly specified as twelve (12) months
after issuance of CPC

The Contractor will be liable to rectify any defects, shrinkages or other faults arising during this
period due to defective materials or workmanship at the contractor’s own cost. In practice, such
defect liability period clauses also work to the advantage that making the ordinary contractor
responsible for carrying out the repairs is usually cheaper and more efficient than either the
employer repairing the defect himself or engaging a third party to repair the defect.

The contractual procedure for dealing with defects arising during the Defects Liability Period is that
the contract administrator should issue a schedule of such defects to the contractor not later than
fourteen days after the end of the defect’s liability period, and the contractor then has a reasonable
time to rectify the defect works. Once the work had been rectified, the contract administrator will
issue a „Certificate of Completion of Making Good Defects‟, and following the contractor becomes
entitled to the remaining part of the retention money.

It is during the defects liability period that the employer has the right to call for the contractor’s
physical return to the site after the employer has taken over the works. The employer must serve a
notification of defect on the contractor and the contractor is required to make good the defect
within a reasonable period. Remedies available to the employer in the event the contractor fails to
make good defects during DLP may include the right to:

a) carry out the remedial works himself or employ other contractors and deduct all reasonable costs
incurred from the retention monies;

b) determine a reasonable reduction in contract price to reflect the diminution in value of the works
by reason of the defects;

c) call on the performance security;

d) terminate the contract

Defects Discovered during Defect Liability Period

Defects discovered during defect liability period normally covers the period from the date of
completion or handing over up to the certification by the contract administrator of the contractor’s
obligation to remedy defects, i.e. by the issue of the Certificate of Making Good Defects107. In all
cases, the strict entirety of the contract is modified and provision is made for the making good of
defects by the contractor subsequent to handing over possession. Standard forms of contract
generally give the contractor a licence to return to the site for the purpose of remedying defects. In
effects, such condition of contract confers upon the contractor a right to repair or make good its
defective works108. In fact, the employer’s right to have defects remedied within this stipulated
period after completion is in substitution for his rights to a damage claim in respect of the cost of
remedial work.

Accordingly, it is generally accepted that if the original contractor had failed to comply with the said
notice for rectification, the employer would be entitled to appoint another contractor to make good
the defects. However, the issue would be raised up if the employer employs another contractor to
rectify the defects without first giving the required notice and rights to the original contractor. In
another words, it deprives the original contractor from having their rights and opportunity to
undertake the remedial works himself. Therefore, it must be noted that the employer cannot
employ another contractor to do work that the original contractor is obliged to do under the
contract110. The common law principle has justified that the works under the contract cannot be
omitted with an intention of giving it to another contractor.
Clause 15 of PAM 2006 Form, Clause 48 of PWD203A 2007 Form provide two ways of notifying the
contractor for rectifying the defects during DLP as follows112:

a) At any time during DLP, the Architect/Superintending Officer can request the contractor in writing
to make good the defects within reasonable time; and

b) Architect/Superintending Officer not later than fourteen (14) days after the expiry of DLP issues
schedule of defects to be made good by the contractor within reasonable time; but in PWD 203A it
clearly specifies that the defects to be made good by the contractor not later than three (3) months
after receiving the schedule.

Provisions Deal with Defects Liability Period

Under Clause 15.4 of PAM 2006 Form, it allows the architect or superintending officer to specify in
the schedule of defect any defect, imperfection, shrinkage or any other fault appearing within the
defect liability period which arise due to materials and workmanship not in accordance with the
contract. The architect or superintending officer should subsequently deliver the schedule of defect
to the contractor within 14 days after the expiry of the defect liability period. Once contractor
receives such a schedule, he is obliged to make good such defect, imperfection, shrinkage or any
other fault within a reasonable time, entirely at his own cost. What is a reasonable time to make
good the defects is dependent on the nature of the defects and the methods used by the contractor
to rectify them?

PWD 203A (Rev.2007) Form sub-clause 48.1(b) is similar to the above PAM 2006 Form sub-clause
15.4, except that it also requires the Contractor to make good the defects no later than three
months after receipt of the defects Schedule.

However, when in the circumstances that the contractor fails to make good, the employer may
recover such a cost of making good defect under clause 15.4 and 30.4 of PAM 2006 Form and clause
48.2 of PWD 203A (Rev.2007) Form, from the money due or become due to the contractor or from
the performance bond. Apart from deducting money from performance bond and money which is
due or become due to the contractor, the employer is allowed under clause 15.3(b), Clause 15.4 and
Clause 15.5 to engage and pay another person or third party to rectify such defective work.
Definitely, the cost which is incurred by employer to employ a third party to carry out the
rectification work is recovered from the original contractor.

In addition, sub-clause 48.3 of PWD 203A Form further provide that, if the defects, shrinkages or
other faults are impracticable or inconvenient to the Employer to have the Contractor make good
these defects and faults, it allows the Engineer to ascertain the diminution in value of the Works due
to the said defective or faulty works and deduct such value in the same manner.

PAM 2006 Form sub-clause 15.6 requires the Architect to issue the Certificate of Making Good
Defects (CMGD) when the defects, shrinkages or other faults have been made good. PWD 203A
(Rev.2007) Form sub-clause 45.4 are similar to PAM 2000 under the same sub-clause further
provides that the said Certificate is to be copied to the Employer and Nominated Sub-Contractor(s)/
Nominated Supplier(s) and it shall discharge the Contractor from any physical attendance at the
Works for the purposes of remedying defects. It will not however prejudice the Employer’s right on
latent defects or other breaches of the Contract.
Defective Work Claims by Employer during Defect Liability Period

When a party performing a contract does not do so in accordance to the standard as set out by the
contract, the said party is in breach of contract. Therefore, in most circumstances, when contractor
is in breach of his contractual obligations, employer will wish to seek for the relevant remedy that
available to him. In terms of construction defects, the most common form of remedy is damages 149
. It is irrespective during the defect liability period, a contractor who is in breach of contract in
respect of failing to rectify the defective work, has to pay damages to the employer, who being the
injured party of contractor’s default.

In respect of defects, the employer is not entitled to terminate the contract but the remedy that is
available to him is through seeking damages from court if the contractor fails to rectify the defects.
The employer has the right to set off and claim damages for main contractor’s default in respect of
defective work during the defect liability period. In fact, the right to set-off by employer is well spelt
out in the Malaysian standard form of building contracts, i.e. PAM 2006 Form and PWD 203A 2007
Form.