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Construction Law/Defect Liability Period

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Question
Dear mr.Liaqat Hayat, may you answer my question?

Giving a situation, A developer company entered contract with Contractor Company to construct 50 units of bungalows. Under building contract, both parties agreed the Defect Liability Period is twelve (12) months. During the construction period, the developer changed his mind extended the defect liability period from twelve (12) months to thirty-six (36) months. Reason of extend the defect liability period is the developer initiative to boost his property sales. At the same time, government has also gazette such new statutory requirement for all developers to implement immediately. Question is in order to ensure a better quality of works, how the contractor going to demand for thirty percent (30%) or RM 750,000.00 increase on the construction cost from the client.

Question 1: What may be the reasons of Government gazette new statutory requirement of extend the Defect Liability Period (DLP)?

Question 2: What should Contractor respond upon government gazette such new statutory requirement and why?

Question 3: What are the effects after defect liability period extend from twelve (12) months to thirty-six (36) months?

Question 4: After comply the new statutory requirement, if Contractor feel his risk taken extended and/or have to extend warranty of equipment, can he/she claim for such additional cost? if so, how he/she claim for it?

Question5: Is that any case law before similar to such situation?

Question 6: Can Employer change mind to extend DLP during construction period?

Answer
Dear Alvin,
Thank you for your question. I have following in response to your question based on the assumption that your contract is based on FIDIC-IV conditions of contract.

Ans 1:
Its a policy matter and the government in your case may not have felt satisfied with 1 year defect liability period and increase it to 3 years after the award of the work.Regarding increase in defect liability period from 12 to 36 months, this can not be done unilaterally and is normally through an ammendment to the contract and is to be agreed by the contractor as well. I am not sure if such a procedure has been followed in your case.

Ans 2:
The contractor should study his contract and see if he can claim for the additional provision made in the statue by the government. I suggest please review clause 26.1 and 70.2 to see to what extent these are applicable.

Ans3:
The basic function of DLP is to rectify defects that may surface for a period of one year when the project is taken over and put to use. The retention money final installment is released thereafter. Normally there are 2 types of defects i.e latent as well as patent. The latent effects during execution are to be attended at the same time while patent effects are attended during DLP and even after that up to 10 year if the contract specifies decennial insurance cover. The effects for increase in DLP period, therefore, is delayed release of retention money, more period for staff and repair etc and finally longer period responsibility and all these mean additional expenditure.

Ans4:
As above and contractor should give notice for this claim under cl 53.

Ans5:
This can be searched on web for a case study but it is fairly straight forward case.

Ans6:
Yes but have to pay additional cost not envisaged to be covered in the original scope of work.

Regards,
Liaqat Hayat

Construction Law

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Liaqat Hayat

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I can answer questions based on FIDIC 4 and FIDIC 1999 [design-build] with particular reference to time extension , price adjustment and disputes. I am in particular more inclined for response to points pertaining to how claims should be framed and put up in case of technical or other contractual shortcomings. Regarding procurement matters I have spent over 5 years as procurement specialist for highway authority and dealt with numerous claims and disputes in the capacity of "The Engineer" .

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