Defects liability periods and final retention disputes: key considerations

In construction projects across England and Wales, the conclusion of the Defects Liability Period (DLP) often marks a pivotal phase – bringing final payments and project closure into focus. However, this period can also be a flashpoint for disputes, particularly around the release of retention monies and outstanding alleged defects. This article explores the legal and practical considerations surrounding the end of the DLP and the resolution of final retention disputes.

What is the defects liability period?

The DLP (referred to as the “rectification period” in JCT contracts) is a defined timeframe following practical completion (the point at which the works under a construction contract are certified as “practically complete”) during which the contractor remains liable to return and rectify any defects in the works.

Typically lasting 12 months, the DLP provides a mechanism by which notified defects are addressed before final payment is made.

During the DLP, the paying party reports any defects to the contract administrator, who will consider them and decide whether they constitute proper defects (which are building works which have not been built in accordance with the contract and which are not maintenance issues). In respect of issues which are assessed to be proper defects, the contract administrator will then issue instructions to the contractor to remedy the defects.

At the end of the DLP, the contract administrator will prepare a schedule of defects, listing those which have not yet been rectified and will agree a date with the contractor by which they will be rectified. Once they have been, the contract administrator will issue a certificate of ‘making good defects’ and the final payment can be made.

It is important to note that, under most standard forms of contract, such as JCT or NEC, the DLP does not relieve the contractor from liability for defects notified after the DLP has expired. Rather, the mechanism provides a structured process for defects to be identified and rectified as pre-conditions for the making of the final payment. Responsibility will generally remain for at least 6 or 12 years for other defects, and potentially for longer for defects related to building safety issues.

What is retention?

Retention is a common contractual mechanism in which a percentage (usually 3-5%) of each payment is withheld as a financial incentive for the contractor to complete works properly and return to remedy any defects.

This is typically split into two parts:

• Half is released upon practical completion
• The balance is released at the end of the DLP, subject to the contractor addressing any notified defects.

This second release is where disputes frequently arise.

Common disputes at the end of the DLP

• Disagreements over the presence or extent of defects: the paying party may argue that not all defects have been addressed, thereby withholding final retention. Contractors may dispute the nature or extent of or responsibility for the alleged defects
• Failure to issue the final certificate or certificate of making good: some contracts require formal certification to trigger final payment. Delays or refusals to issue these certificates can lead to cash flow issues and legal disputes
• Ambiguity in contractual terms: vague drafting around what constitutes a defect or unclear timelines for notifying and remedying defects can open the door to conflicting interpretations
• Set-off claims by the paying party: in some cases, the paying party seek to set off costs for alleged outstanding issues against the retention sum, often without proper substantiation
• Defects being notified after the end of the DLP but before release of the retention: this does not legally prevent the retention from being released, but is often a ground by which the paying party may seek to withhold the retention.

Best practices to avoid disputes

The following are some examples of ways to avoid disputes.

• Clear drafting of DLP and retention clauses, including timelines, procedures, and responsibilities
• Detailed records of defect notifications, rectification works, and communications
• Timely inspections and proactive snagging before the DLP expires
• Engage early with legal advisers if there is a risk of dispute.

Failure to adopt these practices can lead to significant time and cost being incurred in dealing with disputes over the DLP and the defects identified.

Conclusion

The end of the DLP should signify closure and finality—but can often lead to renewed conflict if not properly managed. Understanding your rights and obligations under the contract, maintaining robust project records, and seeking legal advice where necessary can help minimise the risk of final retention disputes.

If you are facing a dispute or require assistance with construction contract drafting or enforcement, our specialist construction law team is here to help.