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How do you decide what deductions are appropriate for defective construction work?

14 Aug 2014

Building contracts often contain a clause that allows an employer to engage other contractors to carry out remedial works, permitting them to claim an ‘appropriate reduction’ from the original payment owed to the contractor. But how do you decide what an ‘appropriate reduction’ is? This is currently a hot talking point in the construction industry and one that was recently publically covered in the case of Mul -v- Hutton Construction Limited.

Mrs Mul employed Hutton Construction to undertake refurbishment works on her family home. The Contract Administrator issued a certificate of practical completion which had a long list of incomplete or defective works attached to it, some of which Mrs Mul employed other contractors to rectify. The contract meant that she was entitled to make an ‘appropriate deduction’ from the contract sum to take account of the remedial work carried out by the other contractors. But a Court had to consider what mechanism should be used when deciding what constituted an ‘appropriate deduction’ in this situation.

Hutton Construction argued that the only way to value the deduction would be on the basis of the rates and prices they had included in the original contract. They argued that if they had been allowed to carry out the works, this would have been the true cost that Mrs Mul would have incurred. However, Mrs Mul was of the view that the valuation should not be restricted in this way, and it should take into account all of the relevant circumstances, irrespective of the Contractor’s rates.

The Court preferred Mrs Mul’s position and decided that the deduction should be one that was reasonable in all the circumstances, and in deciding what was reasonable, the following points could be considered:

  • The contract rates and prices;
  • The cost to the contractor of remedying the defects (including any third party costs);
  • The reasonable cost to the employer in engaging another contractor to remedy the defects;
  • The particular factual circumstances and/or expert evidence relating to each defect and/or the proposed remedial works

At first sight the Court’s decision may appear to be lacking in clarity, and not be particularly helpful in enabling the parties to reach a definite valuation of the deduction. However, the concept of ‘reasonableness’ is one of the foundation stones of English civil law so it is not surprising that the Court adopted such an approach.

At least it is finally clear that the deduction will not be solely based upon the contractor’s rates and prices, although it is equally clear that this is one element that the Court will take into account. The fact that the Court is prepared to consider all relevant circumstances when valuing the deduction will provide the employer and the contractor with opportunities to convince the Court that their own valuation is based upon reasonable criteria. Whether the Court will accept their arguments will depend upon their potency in light of all of the prevailing circumstances.

For more information please contact Graham Sutton on 0191 232 8345 or email: graham.sutton@hay-kilner.co.uk