“Cost is more important than quality, but quality is the best way to reduce cost” ~ Genichi Taguchi
Quality of any product or services produced by a contractor is achieved when it conforms to the desired specifications. Quality holds significant risk to a contractor if not achieved or if the contract is not properly drafted to provide clear standards upon which the works can be objectively assessed.
This article will explore some key provisions in respect of ‘quality’ for a contractor to consider when undertaking a contract review, including:
- Warranties; and
- Defects liability.
The scope should, in detail, explain what works will be provided, including a description of materials, quality, grade, schedule of work and other specifications pertinent to the construction of the project.
The necessity for details in the scope is often overlooked and can result in significant time and cost impacts if it is incomplete or contains errors. For example, if it does not accurately reflect the expectations and intent of both the contractor and the principal it may lead to variations that otherwise would not have been necessary, cost overruns and disputes.
A contractor should also give substantive attention to the identified documents that describe the work, and verify that the correct plans (all of them) are adequately identified and incorporated into the contract.
A warranty is a promise that the work will be of a specific quality and that the contractor accepts responsibility to remedy certain issues that may arise. A contractor reviewing warranty provisions should:
- Read all warranties carefully to ensure you understand precisely what is expected of you and the potential liability in the event of breach;
- Carefully check for time-based warranties particularly with extended durations, and ensure they protect you for factors beyond your control (e.g., wear and tear, failure to maintain, misuse or deliberate damage, etc); and
- Pass through warranties to suppliers and subcontractors (where possible) to ensure you are protected should an issue arise.
Fitness for Purpose
Look out for attempts to shift design risk under the contract through Fitness For Purpose (‘FFP’) warranties. Such clauses impose a duty on the contractor to ensure works will satisfy specific purposes, therefore, avoid accepting excessive design liability (if any at all in circumstances where contractor has no design responsibility).
Express FFP warranties
Contracts may contain an express FFP clause (for example, unamended AS4902 subclause 2.2(a)(iv)(A)). Under this clause the contractor must carry out and complete work in accordance with the design documents so that the works, will be fit for their stated purpose (with the purpose usually stated in the Principal’s Project Requirements).
A common principal amendment to this clause substitutes the word “stated” for “intended”. A contractor may not accept this amendment where it places a more onerous burden on the contractor to achieve a purpose beyond any stated in the contract documents.
Disguised FFP warranties
Further, contractors beware of buildability clauses. Simply put, buildability clauses generally impose obligations on the contractor to:
- “study”, “analyse” or “examine” the designs (provided by the principal or its consultants) prior to works commencing; and
- Identify inadequacies or inconsistencies that may prevent the completed works from being used for the principals stated purpose.
This allows the principal to impose FFP warranties (i.e., design risk) on the contractor without mention of the words “fitness for purpose”. This is particularly an issue for construct only contracts as contractors are generally not involved in the design of the works.
If undertaking a construct only contract, ensure the principal provides the plans and specifications and warrants that such documents provided are accurate and suitable for their intended use. As a result, the contractor will not be held liable for defects in those documents, provided the contractor has adhered to the plans and specifications.
The contractor is liable for rectifying defects in the works. It is prudent for a contractor to expressly exclude an obligation to repair defects caused by factors beyond the contractors control (i.e., wear and tear or misuse).
Further, ensure the contractor has an exclusive right to rectify defects (as opposed to allowing the principal to immediately elect to accept the defect), as the costs of remedying the defect are likely be less than paying the principal for another contractor to perform such works. Therefore, consider drafting a clause that ensures the principal must, prior to entitlement to accept a defect, notify the contractor and provide a reasonable timeframe (i.e., 10 business days or such period as may be appropriate taking into account the nature of the defect) to rectify the defect.
A contractor should also look out for any extensions to the defect’s liability period, for example, for substantial defects. Seek to ensure the defect’s liability period is capped through the inclusion of the clause “Notwithstanding clause , the total defects liability period must not extend beyond  months after the date of practical completion”.
Lamont Project and Construction Lawyers have extensive experience in contract drafting and reviewing for both principals and contractors in the construction industry.
By providing clients a tailored approach to contract negotiations and project support, we can ensure that our clients are best positioned regardless of the particular circumstances.
If you have any questions about your current or future projects, please do not hesitate to contact Lamont Project and Construction Lawyers for a discussion on how we can assist you.
Contact: Peter Lamont or Stephanie Purser
Email: firstname.lastname@example.org or email@example.com
Phone: (07) 3248 8500
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Postal Address: PO Box 1133, Milton Qld 4064