Dismissing contractors

The risk of incurring defects during the construction period is a serious concern for employers. Access, outages and unplanned maintenance can be costly and such costs are not always fully recoverable from the wrong-doer. The bigger the project, the bigger the potential problem, and the possible commercial, technical and practical implications for those undertaking large construction projects have the capacity to spiral out of control and cause a project to end in disaster.

With so much at stake, an employer will often, unsurprisingly, attempt to minimise damage once a defect is identified. Not wanting to delay matters until the completion date, a common course of action is for an employer to dismiss the contractor for breach of contract and call in a third party to rectify the defect, attempting to recoup the costs of changing contractor and rectifying the damage at a later date. The contractor may also pursue legal action to challenge their dismissal.

Both employer and contractor therefore find themselves faced with an extremely difficult dilemma when deciding on the best way to proceed, particularly with regards to protecting both themselves and their assets.

Employers should be wary if the status of the disconformity is unclear, and make sure there is actual expert evidence of the defect before taking any rash action

If a contractor is dismissed and legal action is taken, a complex web of legal issues may arise, made particularly difficult when the “temporary disconformity” card is played. Contractors may claim that work cannot be deemed non-conformant until completion. This means that an employer would be wrong to dismiss the contractor for a defect in the construction phase, as technically so long as the defect is rectified before the set completion date, the contractor is not legally in the wrong, or can at least claim that it was their intention to rectify the damage by the takeover date had they not been untimely dismissed.

Historically, there has been a great deal of support for the contractor’s argument of temporary disconformity. Most recently in the case of HDK (trading as Unique Homes) vs Sunshine Ventures, the judge ruled that although at one point it was viewed as the contractor’s obligation to perform its work perfectly in relation to each aspect of it the first time the work was done, the better view for many years has been that it is only on completion that the work should be expected to be of the proper standard; the employer is not at liberty to complain until completion.

Contractors cannot assume that this is a fail-safe card to play. When it has been deemed that a contractor clearly had no intention of rectifying the defects to the contractual standard either before or after the completion date, the court has ruled that the employer was right to intervene.

Employers should be aware of their right to test and reject materials or works if they deem them unfit, but equally be cautious not to wrongly approve the defect. They should be particularly wary if the status of the disconformity is unclear, and make sure there is actual expert evidence of the defect before taking any rash action. If the status of the disconformity is unclear, then it is not advisable to instruct third parties to take out remedial works - it is best to reserve your position and expressly state that the contractor will be liable if the disconformity is not found to be temporary and consequently is not rectified exactly by the completion date.

Contractors should be mindful when claiming temporary disconformity. This claim will only hold water if it can be proven that the contractor has gone to sufficient lengths to explore remedial solutions and made every effort to ensure that any non-conformity was rectified by the time of handover.

The situation is greatly simplified if the express terms of the contract clearly set out the employer’s rights and the contractor’s obligations in the event of a defect. This ensures that both parties know where they stand from day one.

Hamish Lal is head of construction at Jones Day

This article was originally published under the headline ’Not so fast’