This is a detailed overview to educate talkers in regards to defective construction by the contractor. Other ideas, positive criticisms and educative clauses are welcomed!
It is an implied contractual term under Kenyan law that construction contractors are required to deliver works that meet the description and standard under the construction contract. Failure to do so, for example by using lower quality materials, constitutes defective work which is a breach of contract. The term for this period differs depending on the form of contract used, but is often referred to as the defects liability period (“DLP”).
Under typical construction contracts, at completion of the work by the contractor, there is customary a certificate of practical completion to be issued, following which the DLP starts to run. At the expiry of the DLP, it is customary for a certificate to be issued stating that all defects have been rectified, following which the works are certified as completed in accordance with the contract and a final certificate is issued, which discharges the contractor from its obligations and signifies completion of the contract.
The legal position following the issue of the final certificate is often misunderstood: this article considers the position under Kenyan law and provides an overview of the forms of security commonly used to protect the employer against defects.
The meaning of the final certificate
The issuance of the final certificate has far-reaching contractual and legal implications. It’s therefore, important in each case to review the provisions in the construction contract concerning the DLP and final completion certificate carefully in the context of the applicable governing law.
A common misconception is that issuance of the final certificate discharges the contractor in full from liability for all defects in the work. The final certificate customarily:
[li]signifies that the works have been accepted as completed in accordance with the contract;[/li][li]discharges the contractor from further liability for defects which would have been apparent from an inspection of the works;[/li][li]triggers the return to the contractor of all security held by the employer;[/li][li]precedes the drawing up of final statements of account and settlement of the contractor’s final account; and[/li][li]signifies completion of the contract. [/li][/ul]
However, the final certificate does not fully discharge the contractor from liability for defective works that only become apparent after the issuance of the final certificate. While the client no longer has the right to recall the contractor to site (and the contractor no longer has the right of access to site to remedy defects), as is customarily the case during the DLP, the contractor remains liable to the employer in respect of any defects arising.
Post-completion claims by the employer
After issuance of the completion certificate, the extent to which the contractor is liable to the employer will depend on the governing law of the contract and, in some cases, local laws in the project jurisdiction which apply regardless of the contract’s governing law.
Under Kenyan law, since the employer no longer has a contractual right to recall the contractor to site, the client will himself have to remedy any defects in the works which arise or become apparent after the DLP, and then make a claim for damages from the contractor.
It may be that other governing laws will afford greater rights to the client to force the contractor to return to the site and remedy any defects, even after the issuance of the final certificate. It is therefore worth clarifying this point at the contract drafting stage, so that the rights and obligations of the parties can be clearly stated in the contract to avoid any confusion at a later stage.
The client naturally wishes to be protected against the cost of repairing any defects that may arise during the DLP. The most common approach is to require the contractor to supply a bank guarantee, usually in the form of a stand-by letter of credit, of upto 10% of the contract price. This may take the form of a specific guarantee covering the DLP, or it may consist of a modification to an existing bank guarantee covering earlier stages of the works, which has been reduced in value.
While the use of bank guarantees is the most common form of DLP security, cash retention funds are also seen (whereby the client withholds some of the final payment due), either on their own or in conjunction with other forms of security, such as a bond or letter of credit.
These mechanisms provide the client with some protection during the DLP, but he/she will not enjoy such protection after the final certificate has been issued and all security returned to the contractor.
Contractors are naturally reluctant to provide further security after the issuance of the final certificate but depending on the particular circumstances of each project, this may be open to negotiation.
[li]it’s advisable when having large projects (project between 30m- 100m) to involve professions and at the same time take time to recheck details of contracts before signing.[/li][li]under most standard forms of construction contract, the contractor will continue to be liable for latent defects until the expiry of the relevant limitation period.[/li][/ol]
For more, consult your lawyer for legal address, or look for NATIONAL CONSTRUCTION AUTHORITY ACT- know your rights as a client!!