End of Latent Defects Period
Government figures suggest that within the next 5 years, around 25% of all PFIs will reach the end of the Latent Defects Liability Period for all or a part of the estate.
Is your PFI estate approaching 12 years since completion of the construction phase?
If so, what has been done to prepare for the end of the latent Defects Liability Period?
Typically there will be a period of 12 years from completion of the construction (or sections thereof) within which latent defects need to be identified, responsibility determined and appropriate resolution actions agreed between the SPV, the Design & Build Contractor and possibly the Hard FM provider. Following this cut-off date, the Design and Build Contractor’s liability for the design and construction of the built estate ends (with certain exceptions).
After this period the SPV will carry liability for design and construction defects.
Experience shows that in amongst the day-to-day activity of operating a PFI, matters like the end of the latent defects period can lack the necessary focus and attention, resulting in problems, risk and cost.
Even where this matter is on the radar, it is very easy to underestimate the work, time and resource involved in properly managing this crucial part of the PFI lifecycle. Any weakness can result in risks and cost implications for the remainder of the term of the PFI contract (and beyond), potential disputes and problems at Handback.
There is a significant amount of work that needs to be completed by a number of parties prior to this cut-off date. Planning needs to start early, well in advance of the end of the defects period. In fact, managing and addressing defects should be an ongoing activity throughout the 12-year period so as not to leave everything to the last minute and risk missing the boat or engaging in costly and disruptive legal proceedings.
Some of the activities required include:
- Understanding the contractual entitlements and obligations;
- Defining the scope of a detailed building survey;
- Identification and appointment of a suitable Building Surveyor;
- Management and coordination of the surveying process and outputs;
- Establishing what is/is not a defect under the contract and notifying the Design and Build Contractor;
- Establishing the root cause of defects – design, construction, poor maintenance, misuse, etc;
- Agreeing responsibility / liability for rectifying defects, this can involve negotiation and agreement with multiple stakeholders;
- Managing potential and actual disputes;
- Management and co-ordination of defect resolution works.
All of the above need to be undertaken and resolved prior to the 12-year cut-off to avoid the need for standstill agreements and other costly legal proceedings.
How prepared are you? Do you have the capacity and competencies within the Project Co to devote to managing and delivering these matters without negatively impacting day to day operations?
Further details of the services we provide are available below. You can also contact us for further information and an initial discussion.
To establish, document and communicate:-
- Contractual obligations, rights, risks & liabilities.
- Contractual processes and timescales for identification and resolution of defects.
- The current position and risks through objective reviews.
- Key definitions and defined standards – e.g. Defect, maintenance standards, condition at contract end, etc.
Commercial and Contract Management
- Risk identification and management.
- Programme, interim or targeted management.
- Stakeholder engagement & negotiation.
- Scoping and engagement of Building Surveyors or other Specialist Consultants.
- Advice, guidance and support.
- Dispute avoidance, management and resolution.
Planning and Monitoring
- End to end process development and project planning.
- Programme, monitoring, management & reporting.