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?
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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…
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.
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?
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.
Is the defect liability period forming the part of the contract?
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.