CONSTRUCTION DEFECTS AND MONETARY RETENTIONS IN CONSTRUCTION PROJECT: A REVIEW OF CASE LAW

Retentions are generally considered to be intended to act as a powerful tool to incentivize contractors/subcontractors to remedy defective work in cases of non-performance. This study attempts to establish the extent to which retentions can be used for this purpose by investigating case law connected with insurance and defective work. One of the significant questions is whether retentions are sufficient to deal with construction defects or value of retentions in the rectification of defects is illusory. The cost to repair a defect may vary depending on a number of components including type, cause, magnitude and the construction stage at which the defect occurs. It is expected that a review of existing cases on defective workmanship will provide an insight on the issues and whether retentions are effective in their intended function. In order to establish their functionality, the study described in this paper investigated 6 construction insurance cases to identify the critical issues and the causes of dispute. It was found that the nature and the cause of defects were different in each case. It was also established that certain defect types not covered by insurance may be covered by retentions - potentially one of the key uses of a retention strategy. It is expected that the findings will assist in forming a view on the quantum of money that may be required paving the way for a first time understanding on a rational basis for setting up retention regime.