The defects liability period is a form of warranty that is guaranteed either by the retention of the contractor’s performance security and corresponding bank guarantee, at the end of the period of performance of the contract. The defects liability period can also be covered by retentions made from payments to the contractor over the life of the contract. These retentions are usually no more that 10% of the contract value.
The defects liability security is kept to cover any repairs or defects found in the infrastructure built by the contractor. If a defect in the infrastructure is detected during the defects liability period, the contractor is notified and given the opportunity to repair the defect southafrica-ed.com. If the contractor is unable or unwilling to repair the defect, the purchaser has the right to use the funds retained for such purposes from the contractor.
Once the defects liability period passes, if no defects were discovered or those discovered were satisfactorily repaired by the contractor, the retention money is returned to the contractor or the defects liability guarantee released as stipulated in the contract.
What are your thoughts on defects liability?
Leave a comment!
Yator Kamuren says
Is the defects liability applicable in low values procurement? I learnt that about 10% retention fee for larger projects which is paid after a period of six months.
Thanks…
Jorge Lynch says
Thanks Yator, interesting question.
Defects liability is applied primarily in works procurement and can be used independent of the value of the contract. The percentage retention and the period of time is dependent on what is stipulated in the contract. 10 percent retention is the standard, but it could be different, and it’s returned to the contractor after the stipulated defects liability period if no defects were noted.
Ako Osayamen says
Where I work in Nigeria, the defects liability is 1 year and the retention fee is 5 percent. Is this in line with the standards or is it wrong practice?
Jorge Lynch says
Ako,
It is normal practice for the defects liability period to be one year. The highest level of retention I’ve seen is 10%. The practice cannot be considered “wrong” if clearly stated in the bidding documents. Important is for the practice to be fair and in line with the governing procurement rules. I see no problems with it.
Oswald Mnana says
Is the defect liability period forming the part of the contract?
Jorge Lynch says
Yes, Oswald,
The defects liability period (DLP), also called defects notification period (DNP) under FIDIC, is the period after the construction is completed and accepted (also called practical completion), and where the contractor is responsible for fixing (at their cost) any defects arising in the infrastructure during the DLP/DNP. It is usually one year (could be less) and is clearly stipulated in the construction as well and the supervision contract.
Tahir says
If DLP clause is not mentioned in RFQ but made part of service order is right or wrong practice? And do DLP obligations covers only repair of 10% of contract value which is retained or it may go beyond to extent of 100%?
Jorge Lynch says
First Question:
If DLP clause is not mentioned in RFQ but made part of service order is this right or wrong practice?
Introducing a Defects Liability Period (DLP) clause in a service order when it was not mentioned in the Request for Quotation (RFQ) is generally considered poor practice in procurement. This approach can lead to several issues:
1. Fairness and Transparency: The inclusion of significant contractual obligations, like the DLP, after the bidding process compromises the fairness and transparency that should govern public procurement. Bidders are entitled to know all contractual requirements upfront to submit informed and competitive bids that reflect the full scope of work, including any post-completion obligations.
2. Risk of Disputes: Introducing a DLP clause at the service order stage, absent from the RFQ, may lead to disputes. Contractors could argue they were unaware of these obligations when calculating their bids, potentially leading to claims for additional compensation or legal challenges.
3. Compliance and Enforcement Issues: Enforcing a DLP not previously agreed upon or communicated can be challenging. Contractors might resist compliance, arguing that the obligation was not part of the original contract terms they bid on, making it difficult for the procuring entity to ensure rectification of defects post-completion.
Best practices in procurement dictate that all contractual terms, including DLP obligations, should be clearly stated in the RFQ. This ensures all parties are fully informed from the outset, fostering a competitive, fair bidding process and facilitating smooth contract execution and compliance.
Second Question:
Do DLP obligations cover only repair of 10% of contract value which is retained, or it may go beyond to extent of 100%?
The obligations under a Defects Liability Period (DLP) are not limited to the repair of defects up to the value of the 10% retention or any specific percentage of the contract value. The primary responsibility of the contractor during the DLP is to rectify all notified defects arising from their workmanship or materials used, to ensure the delivered work complies with the contract specifications and quality requirements. This obligation extends to covering the full cost of necessary repairs, regardless of whether these costs exceed the retained amount or any predetermined percentage of the contract value.
The retention amount, often set around 10% of the contract value, serves as a financial guarantee to ensure the contractor’s compliance with their obligations during the DLP. However, it does not cap the contractor’s liability. If the cost of rectifying defects exceeds the retention amount, the contractor is still required to fulfill their obligations and complete all necessary repairs to meet the contractual standards, potentially up to 100% of the contract value if necessary.
This approach ensures that the focus remains on achieving the contractual outcomes and maintaining the integrity of the work, rather than limiting the contractor’s liability to a predetermined financial threshold.