11.1 Defects should not be inevitable in a building or other form of construction project. The aim should be "right first time, every time". Some clients believe that the very concept of "practical completion" should be rejected, because the building is not complete so far as the client is concerned until all defects and snagging have been satisfactorily sorted out94 . Customers who buy household consumer goods expect them to work. If they do not, they take them back to the shop. One cannot take back a building or refurbishment project. But clients are entitled to satisfaction at the end of the defects liability period. The retention system is supposed to be a mechanism whereby clients can build up a fund during the course of a project which will act as an inducement to the contractor to remedy any defect during the liability period. The idea in principle is a sound one, though in practice the system no longer operates in that manner. A better option would be to replace it in the contracts with retention bonds95 , reducing in value as each milestone section of the work is completed. Some clients may prefer a cash retention system, and that option should also be available for them, provided that the money is retained in a secure trust fund. It is not in dispute that the client needs some defence mechanism to ensure that the project is satisfactorily completed.
11.2 Difficult problems arise if the defects remain hidden ("latent") during the defects liability period and only emerge afterwards. Clients, and especially property developers seeking to let buildings on full repairing and insuring leases, need to be sure that there is no "black hole'' of liability if significant defects arise later. Tenants will not be prepared to accept such leases without protection. Case law in recent years has closed the tort of negligence as a possible route for recovery of economic loss to the client, save in exceptional cases. The result has been the plethora of collateral warranties, which can involve those holding the warranties in uninsurable and possibly ruinous risks.
11.3 In addition to completion on time and within budget, and the attainment of reliable quality, clients and the industry need to know:
1. the responsibilities and rights of participants in construction projects should matters go awry; and
2. the prospects of adequate and timely restitution.
The current arrangements are inadequate.
11.4 There is widespread dissatisfaction with the present situation. It has generated a number of reports during the last 15 years of which the most significant are:
1. "Building Users Insurance Against Latent Defects" (known as the "BUILD Report", NEDC, 1988)
2 "Professional liability - report of the study teams", (known as the Likierman Report, HMSO, 1989)
3 Two European documents - the GAIPEC Report ("results of the work of the Group of European Inter Professional and Trade Associations for the building industry", September 1992) and the European Commission's "Staff Discussion Paper with Regard to Liabilities and Guarantees in the Construction Sector", June 1993.
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94 It is surprising that there is no definition in the standard contract documents of what constitutes "practical completion". This matter should be addressed by the JCT. Subcontractors should also have the right to know when the architect has certified "practical completion". At the very least, a notice should be displayed on the building by the architect or some other appropriate notification procedures adopted.
95 An argument used against retention bonds is that they might be much more expensive than retention, and might tempt the client's quantity surveyor to undervalue interim work as a precaution (CIEC final report). The former would presumably depend upon the reputation of the contractor, and the latter could be referred to an adjudicator, or be overcome by the use of milestones/activity schedules.