The definition of Defects excludes damage. There is a separate regime in the Project Deed for damage that reflects the fact that damage is typically an insured risk while Defects are not (see section 2.50).
In summary, the Defects Regime consists of:
• Defects in the Works during the Development Phase which must be rectified promptly unless they are:
- accepted or rectified by the State; or
- Remaining Works or Returned Works Outstanding Items in which case they must be rectified within the periods specified in the Remaining Works Schedule or the Returned Works Outstanding Items List and in any case by Final Acceptance;
• Defects that become apparent in the Returned Assets during the Returned Assets DLP which must be rectified in accordance with times determined by the Independent Reviewer which must be no later than by the end of the relevant Returned Asset DLP;
• a retention regime for Defects in the Returned Assets discovered during the Returned Asset DLP which the State does not accept or rectify and that are not rectified by the required dates determined by the Independent Reviewer. The retention amounts are returned to Project Co once the Defects are rectified unless the State accepts or elects to rectify the Defect in which case the retention amounts are retained by the State;
• Defects that become apparent in the Maintained Assets after Commercial Acceptance which are the subject of the performance regime in the Services Specification; and
• a regime for acceptance of Defects by the State. Detailed information must be provided to the State before a Defect is accepted or rectified by the State. The State then determines the amendments that should be made to the Project Deed to reflect the State's acceptance or rectification of the Defect. Any acceptance of Defects must be recorded by Project Co in a register, including all relevant information, and submitted to the State for review in accordance with the Review Procedures. It is critical that a disciplined and well documented approach is adopted in respect of State acceptance or rectification of Defects to ensure that the FFP Warranty and other rights the State may have against Project Co for poor performance are not undermined.
The approach to Defects during the various stages of the Project is set out in more detail in Annexure 4.