IOPSA Tech Talk: Patent and latent defects Part 1

By Eamonn Ryan, based on an IOPSA Tech Talk presentation hosted by Brad Boertje BSc QS F A Arb

This is Part 1 of a three-part series.

“I am an adjudicator and arbitrator servicing the needs of the construction industry. I’m not an attorney, and my content does not constitute legal advice. It’s my interpretation of the subject matter only.

“I’m often asked the question, what is the difference between a patent and a latent defect in a construction job. This occurs in my business when people come to me, with disputes on snag lists, and items on a building/plumbing project, where there’s a difference of opinion, and more,” says Boertje.

 This discussion is on the difference between:

• patent and latent defects
• the common defect liability period
• how the common law works
• vicarious liability, which is a big word, but it’s a simple principle

“For those who are familiar with the JBCC (Joint Building Contracts Committee), it is the most common building contract in South Africa, especially for larger contracts. The JBCC describes a defect as ‘any aspects of materials and workmanship, forming part of the works, that does not conform to the agreement and/or construction information’. The contractor or subcontractor has the obligation to deliver a product meeting a certain quality standard. Now, the JBCC definition is generally the definition that applies on any contract. The first thing that comes to mind is that you – the contractor – often don’t design the work. Somebody else does the design – wet services or a civil engineer, etc.

“So disputes often arise over what is a defect, and what it is a design flaw. Larger contracts is a document called the Preamble, which some of you may be familiar with, which is like a specification and a methodology for the execution of trades.

“It is similar to the NHBRC (National Home Builders Registration Council) manual, which a lot of readers/attendees will be familiar with. It is basically a code of what quality and specifications we ought to comply with. As a note, contractors have an implied obligation in law to deliver quality products. So it doesn’t have to state on your quote, or in your contract, that you will deliver a quality product. You have an implied obligation in law to deliver that. Now, we don’t want to be subjected to the common law, because there’s no definition of quality. That’s why it’s better to have a specification or a code that you work to – it reduces the subjective interpretation of what you need to deliver, and hopefully reduces disputes later.

“So what is a patent defect? It is one that is ‘visible on a reasonable inspection of the works’. When the architect or the client comes around and inspects the work you’ve done – or anybody else, for that matter, a reasonable person – and it’s clearly visible, that is a defect,” says Boertje.

“In larger contracts, the principal agent has an obligation to give you an indication of the quality he expects throughout the contract. If you (as a plumber) are working under the JBCC, or the master builders subcontractor agreement, remember that the principal agent can’t come at the end of the job and now issue you with a whole list of things that he’s not happy with. Meantime, he’s been watching you perform like that throughout the contract – just bear that in mind. I’s not so easy when you’re contracting directly with customers using a quote, or the common law to define what a defect is. But what I want to impress on you is that it’s ‘visible on a reasonable inspection’.

“In the case of a latent defect: it can be the same defect that was visible, but now under certain circumstances is not visible. This means that on a reasonable inspection it isn’t detected or picked up, but it was there. It’s a defect that existed at the time, but was not visible or easily identifiable, or it was innocently concealed. You can’t conceal the defect on purpose and say it only manifested itself later,” says Boertje.

“If you take an example of a waterproofing installation, which you didn’t do properly leaving a hole that you can’t see, or flaps haven’t been done correctly – some work hasn’t been executed. On a reasonable inspection it may look perfect, but the defect exists. A year later, that defect manifests. The point is, the defect was always there, so in that scenario, that is definitely a latent defect,” he explains.

“The important point to note is that they are actually the same: it’s just the timing of when they are identified or noticed. One you can see on a reasonable inspection, and the other one only manifests later. Now it’s quite common that the opinion of an expert will be required on whether a defect is a defect. For example, has the maintenance been done? If we go back to my waterproofing example, and there is a requirement in the contract that every three years, maintenance has to be done to the waterproofing and it hasn’t been done, then it’s not a defect. It failed due to a lack of maintenance – and it doesn’t qualify as a defect.

“What often happens is that you have an underlying part of a structure that was built previously. You the contractor apply your product or service on top of that, and the defect is actually not in your installation but in the previous installation and it manifests through your installation. That’s not your problem. But of course, all of this leads to differences in opinion. What people often say to me is that in the JBCC or MBSA or one of the other building contracts, is what is known as a five-year latent defects liability period. Most people feel that is an enormously long period of time for me to be on the hook for a defect. On a lot of state contracts for public works they actually double up that time to 10 years.

“Obviously, as time goes by, it is harder and harder to prove that a latent effect manifested from your original installation. The longer after you’ve achieved final completion, the harder it is to prove that you have to attend to a defect. In common law there is in fact no time period at all. In the case of defect – if you’re contracting without a contract that has a defects liability period defined – that client can come back to you at any time in the future, whether it’s 20 years later, and tell you that your original installation was defective, and that defect has only manifested itself now. However, the more time that passes the harder it is to prove. Therefore, it’s a good idea to introduce a latent defects liability period in your quote, thereby contracting yourself out of the common law. There’s no reason why you can’t try your luck and make it three years, for example. In my opinion, that’s something you need to do,” says Boertje.

“You are no doubt often called upon to provide workmanship and material guarantees. These guarantees are basically a confirmation that you will attend to your defect liability obligation. Therefore, you don’t actually have to have a workmanship and material guarantee – you’re obliged to fix defects in any case in common law where you’re expected to provide a product that meets a standard which a reasonable person would consider to be the standard to be delivered.