Defects Liability

Last Updated on May 3, 2026 by Jorge Lynch

What is the Defects Liability Period?

The defects liability period (DLP) is a defined period following practical or substantial completion of a civil works contract during which the contractor remains liable for any defects that emerge in the completed works. It is, in effect, a contractual warranty period for construction and infrastructure contracts. The equivalent mechanism for goods procurement is typically referred to as a warranty period.

The DLP begins from the date of practical or substantial completion, not from the expiry of the contract performance period, and typically runs for 12 months, though the duration may vary depending on the nature of the works, the contract terms, and the applicable procurement framework.

How is the Contractor’s Liability Secured?

The contractor’s obligations during the defects liability period are backed by one of two financial mechanisms:

Retention money: a percentage of each progress payment withheld by the employer over the life of the contract, typically not exceeding 10% of the contract value. Retention money is held by the employer as security against the contractor’s failure to remedy defects.

Performance security: a bank guarantee or other acceptable instrument provided by the contractor, which may be retained in whole or in part into the defects liability period as security for the contractor’s obligations.

Many contracts provide for a partial release of retention or performance security at practical completion — commonly 50% — with the balance retained until the end of the defects liability period and the satisfactory completion of any outstanding remedial work.

Patent and Latent Defects

Two categories of defects are relevant during the DLP:

Patent defects are visible or apparent defects that can be identified at the time of inspection and handover. These are typically recorded in a defects schedule at practical completion and must be remedied by the contractor within an agreed timeframe.

Latent defects are hidden defects that are not apparent at the time of completion but emerge during use or over time. The DLP is specifically designed to provide the employer with a period during which latent defects can be identified and the contractor held responsible for remedying them.

The Defect Notification and Remedy Process

When a defect is identified during the defects liability period, the employer must notify the contractor promptly and in writing, specifying the nature of the defect and the timeframe within which it must be remedied. The contractor is then required to attend to the repair within the specified period at their own cost.

If the contractor fails or refuses to remedy the defect within the required timeframe, the employer has the right to engage another contractor to carry out the repair and to recover the cost from the retention money or performance security held. Any costs incurred above the amount of the security are recoverable from the contractor as a debt.

Release of Retention and Security

Once the defects liability period has expired and all notified defects have been satisfactorily remedied, the employer is obliged to release the remaining retention money and discharge the performance security in accordance with the terms of the contract. Unnecessary delay in releasing retention or security following the satisfactory completion of the DLP is poor practice and may expose the employer to contractual liability.

Conclusion

The defects liability period is an important post-completion mechanism that protects the employer’s investment in public infrastructure by ensuring the contractor remains accountable for the quality of their work after handover. Effective management of the DLP; including, timely defect notification, monitoring of remedial works, and prompt release of security, is an integral part of contract administration.