Be aware of serial defects clauses

With another contract for the civils work on a wind farm crossing my desk this week, it is worth highlighting a recurring clause in these contracts. That is the serial defects clause – a provision that identifies a new class of defect that might arise during the maintenance or defects liability period. It is a tough one for contractors and employers alike.

The definition of a serial defect is where the engineer considers a set percentage or more of the same part of the works is affected or likely to be affected by the same or a substantially similar defect or defects. The percentage is usually around 20% and upwards.

For contractors the best protection is to reserve the right to claim costs back if it is found that the identified problem is not their responsibility

With such a clause where the engineer or employer is of the reasonable opinion that a serial defect exists during the defects liability period, a separate regime of inspection and rectification will follow. This will potentially involve repair or replacement of works that may not yet even be damaged; they may in fact, if left alone, never show damage.

For contractors the best protection they can get is to reserve their right to claim these costs back if it is found that the identified problem is not their responsibility or indeed that the works are not necessary. They can, if the contract allows for it – and arguably it is the counterbalance to a serial defect provision – have them treated as a variation. This will depend on the drafting,

Nor is it all plain sailing for employers - such a “belt and braces” approach often insisted upon at drafting stage by funders, might well lead to significant shut down and consequential losses which may not be recoverable due to limitations of liability in the contract.

The consequences can be significant either way – and worth thinking through before agreeing to the clause.

Lindy Patterson QC is a partner in Dundas & Wilson