Construction Contract Law Report: Defects, Liability, and Retention

This report delves into the intricacies of construction contract law, examining the concepts of construction defects, which are categorized as manufacturing, design, and failure-to-warn defects, and their implications on liability. It differentiates between obvious and latent defects, emphasizing the differing timelines of detection and the progressive nature of latent defects. The report explores the liabilities of contractors, who are responsible for adhering to contract specifications and the potential exemptions they may have, and designers, who are expected to exercise reasonable care. It also addresses the significance of retention money in construction contracts, detailing its role as a security measure for the employer and the conditions under which it is withheld or released. Furthermore, the report references relevant legal cases to illustrate key principles of construction law, including the determination of causation in breach of contract and the recovery of damages for losses, and the effects of default and substantial completion in relation to retention money.

Running Head: CONSTRUCTION CONTRACT LAW
CONSTRUCTION CONTRACT LAW
Name Of the Student
Name Of the University
Author’s Note

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ANSWER 5:
A construction defect is meant when finished or partially finished constructed building
fails to perform as it was required or expected to perform in accordance with the applied contract
details or the accepted standards of such buildings. Such defects includes situations like flexing
and snapping of the bridge cables, the understrength or structure deficiency of the concrete, the
leakage of the roof, the non-bonding of the adhesives and the peeling of the paint and so on.
Section 2.1 of the Standard Form of Building Contract 1998 defines the duty the contractor.
There is a slight difference between the obvious and the latent defects. While the former
deals with the defects which are clear at the time of the construction and the liability arising from
such defects are clear and the correction cost is minimal as compared to the latent defects. On the
contrary, the latent defects are those which also exists at the time of construction but is
undetected until the time after the completion of the construction while the structure and systems
of the buildings are in usage. Latent defects are also progressive in nature determining the wear
and tear of the building with time along with the defect worsening with time, and the application
of natural forces. Thus, the basic difference between both the defects are where the obvious
defects are detected at the time of construction, the latent defect, even it is present at the time of
the construction, but its detection only happens after the completion of the construction of the
building while its structure and systems are in use. Thus, in the broad sense, the defects of the
building constructed can be classified as the manufacturing defects, design defects, and the
failure to warn defects. These defects form the grounds for negligence or strict liability and other
actions involving civil consequences.

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The liability for the defects in construction can be discussed under two heads. The first is
the Contractor Liability. It is the responsibility of the constructor to ensure that the construction
work is performed in accordance with the requirement of the project. The contractor sublets the
work to the subcontractors like ironworkers, plumbers, electricians, carpenters and so on. The
primary duty of the contractor is to purchase the raw materials required for the construction. The
obligations of the contractor is defined in the construction contract and the breach of any
provision would amount to the breach of contract and hence the liabilities in accordance to the
suit initiated. The contractor is supposed to work fully in accordance with the plans and the
specifications as per the construction contract (Schenck and Goss 2015). Most contracts state
these duties and obligations explicitly to avoid any discrepancies with respect to the duties of the
contractor and if, a specific contract provisions are absent at any stage, the law generally implies
the general and specific duties as per the common law principles into every construction
contract. However, a contractor is exempted from his or her liability on the ground that if the
owner’s attention was brought into notice if any defect or deficiency or failure was noticed by
the contractor at the time of the construction, before the performance of such task.
The second liability that can be discussed is the Designer Liability. Architects and
engineers are the project designers who may be engaged for some or most or all of the services
ranging from total control over the responsibility of the project to the limited role to prepare the
design scheme along with the quotation and leave the decision at the will of the owner (Santrolla
2017). The designers may get involved with the project along with the control of the construction
or the designer may only be limited to the preparation of the design schemes and prepare plans
for others to implement and execute. The basic duty of the designer to exercise duty of
reasonable while performing his or her duties as any reasonable professional would have done in

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that situation. Hence, the duty of the designer can be examined to exercise the duty of reasonable
care any professional would have exercised in that situational analysis to prevent the loss or
harm caused to the owner (Grover and Elliot 2008). In HW Neville (Sunblest) Limited vs.
William Press & Son Limited [1981] 20 BLR 78, laid down the provision for the architect’s duty
of care by way of stating that if there are any patent defects, then the architecture could not have
given a certificate of practical completion. Therefore, the liability in a construction contract
arises when two of four typical defects including the material and workmanship deficiencies or
the specification and design deficiencies have been found. In Great Eastern Hotel Co Ltd vs.
John Laing Construction Ltd and Another [2005] EWHC 181, it was held by the court that the
formal test of causation shall not be required for the determination of the cause of action. In such
cases, it should be the common sense which shall guide the establishment of causation in the
determination of the breach of contract amounting to loss or damage to the other party.
It is a common notion that if the damages or loss suffered by the owner of the building is
a monetary loss, then the suit can be initiated for compensation as a part of remedy. In Farley vs
Skinner [2002] 2 AC 732, it was held by the court that law on the recovery of the loss for non-
pecuniary damages is stated in the form of recovery of an award on the general damages for loss
of amenity. As a general rule, all losses are calculated on the terms of monetary damage.
According to McGlinn vs. Waltham Contractors Ltd & Others [2007] EWHC 149 (TCC) it was
held by the Court that the purpose of damages or compensation to ensure that the position of the
owner has been retained to the point where it was ought to have been at the time of proper
completion of the construction.
It can be concluded that the owner’s rights arises by the virtue of the duties and
obligations been held by the contractors and designers. Such duty include reasonable duty of care

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and complete disclosure of all the deficiencies and defects that could happen after proper
investigation of thye performance before the work has been performed on that particular area.
Therefore, the duty of care and full disclose forms the essence of relationship between the
owners and the contractors and designers along with the exemptions being available to the
contractors and the designers from the liability arisen from such deficiencies.
ANSWER 4:
In the modern world, the construction projects involve a huge amount of monetary
transactions and costs. The constructions take a long period of time due to the complexity of
their job, labour and materials involved as well as the involving if the technical expertise.
Therefore, for the execution of such purposes, the project is entered into by the owner and the
contractor by the way of construction contract and due to the high costs involved , the
expectation of the owner is high-ended and in order to achieve the expectations of the owner the
concept of retention money has been brought into consideration and it forms the essence of the
construction contract.
Retention money is the amount withheld by the owners or the employers in a construction
contract from the total agreed price payable to the contractor by the employer as a form of
security and the same can be retained by the owner or the employer in case the contract has been
breached in terms of quality of the work, finishing of the work done, defects in the construction
and so on (Hughes, Champion & Murdoch 2015).
The concept of the retention money is covered in Part I of the “Conditions of Contract for
Works of Civil Engineering Construction” 1987, forming the part of the general conditions of
most construction contracts of the world. In legal terms, the retention money is retained by the

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employer as a part of the guarantee towards the quality of work being performed by the
contractor and the employer holds the money as its trustee until the performance of the work is
complete and the work is either satisfactory or dissatisfactory. The contractor holds the position
of the beneficiary of the money and the employer acts as the trustee to the money and the money
is held in two positions: firstly, the money is held by the employer and is paid in full as a portion
of the settlement money payable to the contractor upon the completion of the construction.
Secondly, if the employer is dissatisfied with the work, he or she is entitled to retain the money
on the grounds of quality or deficiency defaults. The other conditions where the employer is
relieved of his or her position as a trustee to the retention money is waiver by the contractor
stating that he or she no longer requires the money (Marsh 2017).
Retention of money and withholding such amount is strictly dependent upon the terms
and conditions of the contract. However, as a general rule, the most of the contracts allow 10%
of the total payable amount as the retention money being deposited with the employer. In
addition to such conditions, the retention of such money is also levied on the advance payments
meaning the contractor makes the advance payments towards the performance of the contract
and recovers such advance payments from the employer as the form of the retention money and
the settlement amount (Cunningham 2013).
Essentially, a contractor who is at default is not entitled for the payment of the retention
money. However, a contractor who has substantially completed the construction is entitled to the
50% of the retention money and at the same time, such money is paid upon the condition of
waiting the defects liability period. In addition, such payment is made only after the issuance of
the certificate of substantial completion. If any defect is detected during the defect liability
period, then the employer is entitled to claim for the remedy against the defect and if the

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contractor refuses to do so, the employer has the right to withhold the retention money and use it
for the correction of the defect. After such correction, the employer to pay the remaining amount
back to the contractor. On the contrary, if there are no defects detected within the defect liability
period, then the employer is bound to pay the retention money to the contractor without any
delay.
In Grove vs. S&T (No. 008654 of 2017), it has been held by the court that failure to give
payment or pay less notice amounts to erroneous and incompletion of the performance of
contract. In Rock Advertising vs. MWB [2018] UKSC 24, it was held by the court that the oral
modifications do not form the basis of the changes in the contract for construction.
It can be concluded that retention money is meant to save the employer and his interest in
the construction project. As a security for the due performance of the contractors and their
workmanship skills in the project, the employer retains a portion of the total settlement money
being payable to the contractor at the time of the completion of the contract. The defect shall be
analysed in the defect liability period. and if any defect is detected, the employer can retain the
money for the re-correction of the defects and if no defects are detected, then the money can paid
to the contactor in full along with the remaining consideration amount to be paid as the
settlement to the contractor in exchange of the performance of the construction duty.

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REFERENCES:
Cunningham, T., 2013. Will The Construction Contracts Bill Improve Subcontractor Cash
Flow?.
Farley vs Skinner [2002] 2 AC 732
Glover, J., 2008. Liability for Defects in Construction Contracts-who pays and how
much. Fenwick Elliot: London.
Great Eastern Hotel Co Ltd vs. John Laing Construction Ltd and Another [2005] EWHC 181
Grove vs. S&T (No. 008654 of 2017),
Hughes, W., Champion, R. and Murdoch, J., 2015. Construction contracts: law and
management. Routledge.
HW Neville (Sunblest) Limited vs. William Press & Son Limited [1981] 20 BLR 78
Marsh, P., 2017. Contracting for engineering and construction projects. Routledge.
McGlinn vs. Waltham Contractors Ltd & Others [2007] EWHC 149 (TCC)
Rock Advertising vs. MWB [2018] UKSC 24
Santorella, G., 2017. Lean culture for the construction industry: Building responsible and
committed project teams. Productivity Press.

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Schenck IV, J.S. and Goss, K.E., 2015. Liability for construction defects that result from
multiple causes. J. AM. COLL. CONSTR. LAW., 9, pp.45-49.