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Clause 27
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Question 1

Can you please give some guidance on consequential damage resulting from latent defects such as water damage as a result of water ingress. I suppose the first question is, is the water ingress as a result of poor design by an agent of the employer or as a result of poor workmanship on the part of the contractor. Either way what advice would you give the building owner?

Ref: P27.001

Answer

The contractor is liable for the repair/replacement of defects that become patent during the construction and latent defect liability period (LDLP) where this liability does not include consequential damage that may eventuate from such defect. The PBA makes no provision for damages to be applied to the contractor post final completion and nor should it. The contractor's works insurance [8.0] covers the works and latent defects failure post final completion to the end of the LDLP [27.0].

However the employer's insurance of the building and its contents is where the cover for consequential damage must be addressed. If this was not so why does the bond holder insist on building insurance by the owner of the premises as long as there is an outstanding bond?
Insurances are there to cover risk. By and large the party responsible for the defect (risk) is not of consequence. I would certainly not take out a policy where the insurer refutes his responsibility in relation to the consequences of an error where it was probably caused by a third party - be it the builder, architect or another.

Further to expect the contractor or agent to carry consequential liability is impractical and unreasonable - think about it - such party would have to carry building and contents, as distinct from works insurance, for an indefinable value for 5 years after final completion on every completed project. Further every consultant related to the project would thereof likewise have to carry such insurance.

Regardless, the employer should have adequate insurance cover as it is often difficult to prove whether the defect is due to poor materials, construction or design or just fair wear and tear with the onus of proof resting with the employer.

Question 2


Some 2 years after Final Completion tiles lifted from the floor base (loud cracking sound). Almost all the adhesive remained almost entirely on the screed base. Principal Agent and Employer contend that it is a Latent Defect for which the Contractor is liable. Contractor contends that the tiles were probably “green” or of poor quality - PA or Employer choice - their liability. Tile Supplier contends that tiles were OK and adhesive may be the problem. Who is accountable for the defect?

Ref: P27.002

Answer

As it so happens I was called as an expert witness for the contractor in exactly the same issue some years ago. The arbitrator found in favour of the contractor. The cost to the employer was significant as the case, which was heard some two years after the event, lasted 3 days and cost a small fortune in fees.

What the employer appears to have overlooked was that he had a perfectly legitimate building insurance claim that would have cost him little more than the “first loss” provision of the policy which the contractor would probably have met or shared with him. Makes you think doesn’t it?