Mihai Ionescu-Balea, attorney-at-Law
“Defects” refer to those flaws or nonconformities in a construction that affect its proper functioning and operation. In infrastructure construction, defects that may arise range from common cases of premature wear of the asphalt layer (the infamous “potholes”) to more serious cases of road cave-ins or damage to bridge support pillars.
This article reviews the applicable legal framework, structured around the two key aspects that matter most to the parties involved in an infrastructure project: the obligation to remedy defects and the costs/damages resulting from failure to do so.
1. The obligation to remedy defects
1.1 Legal and contractual basis
The obligation to remedy defects is an essential obligation of the contractor, enshrined in both law and contract. The Civil Code, Law No. 10/1995 on Quality in Construction, and the Regulation on the Acceptance of Construction Works are the main legislative acts establishing the contractor’s obligation to repair defects and ensure that the work is performed to the appropriate quality standards.
The Civil Code regulates liability for defects in construction contracts: the warranty periods against defects in the work are those established by special law (that is, primarily by Law No. 10/1995), and the contractor is exempt from liability if it proves that the defects stem from deficiencies in the expert reports or plans of the architect or engineer selected by the client (Article 1879 of the Civil Code). In turn, the subcontractor may be exempt from liability if it proves that the defects are due to decisions made by the general contractor or to the plans of the architect or engineer.
At the same time, the Civil Code provides that liability for defects may be waived if it is proven that the defects result from decisions imposed by the employer regarding the choice of soil or materials, or the selection of subcontractors, experts, or construction methods.
An important practical point: the exemption from liability does not apply if the contractor observed a potential defect during construction and failed to report it to the employer. In other words, the contractor’s failure to raise an issue that it could and should have identified deprives it of the opportunity to defend itself later by invoking the liability of the employer or other parties involved in the project.
Law No. 10/1995 on Quality in Construction elaborates on the general provisions of the Civil Code and establishes, among the contractor’s primary obligations, the remedying at their own expense of quality defects arising from their own fault, both during the construction period and during the warranty period established by law.
The minimum warranty periods are established by Article 7(3) of Law No. 10/1995 and depend on the category of importance of the construction projects. Since these are infrastructure projects – and thus of great importance – the minimum warranty period will most often be 5 years.
In addition to the obligations set forth by law, the parties specify, through contractual provisions, the conditions under which the contractor undertakes to repair defects and flaws. Standard contracts such as FIDIC or the National Works Contract governed by Government Decision No. 1/2018 are very detailed regarding these matters.
1.2 Correlation with acceptance upon completion of work
Acceptance upon completion of work is the key moment to which the entire discussion regarding defects relates. The Regulation on the Acceptance of Construction Works (Government Decision No. 343/2017) provides that if, upon completion of the works, the acceptance committee finds non-conformities, defects, or deficiencies that could affect the use of the structure for its intended purpose, or defects whose remediation is strictly necessary to ensure the structure’s functionality, the acceptance process is suspended (it is not automatically rejected), precisely to give the contractor the opportunity to remedy the issues. The deadline for remediation is set by the committee in consultation with the contractor and may not, as a rule, exceed 90 days from the date the suspension report is signed, with the possibility of an extension, in exceptional cases, for up to an additional 90 days.
If the contractor fails to remedy the situation within the established timeframe, the employer has the right to issue a formal notice; and if the contractor still fails to act after receiving the notice, the employer may carry out the remedial work itself – at the expense and risk of the contractor at fault. This rule is essential: it transforms a mere delay on the part of the contractor into the employer’s right to intervene directly and subsequently recover the costs from the original contractor through a claim for damages.
It is important to note that the obligation to remedy defects does not cease upon signing the acceptance report upon completion of the work. Law No. 10/1995 and the Regulation on the Acceptance of Construction Works make a clear distinction between:
- apparent defects, which must be identified and recorded at the time of acceptance (once the acceptance report is finalised, the employer may not, in principle, file new claims for such defects);
- hidden defects, discovered within 10 years of the project’s acceptance, for which the contractor, designer, site supervisor, and other participants in the construction process remain fully liable;
- defects in the load-bearing structure (foundations, columns, beams) resulting from non-compliance with design and construction standards, for which liability extends throughout the entire lifespan of the structure, and thus is not subject to the 10-year limit.
For a contractor building public infrastructure (a road, bridge, treatment plant, or utility network), this last category is particularly sensitive: even if the final acceptance was signed without objection years ago, a structural defect discovered now may still be attributable to the original contractor, and the statute of limitations for a claim for damages does not begin to run from the date of acceptance, but rather from the date on which the defect was actually discovered.
2. Costs and damages relating to remedial work
2.1 Costs incurred by the contractor for the remedial work itself
There are two categories of costs incurred by the contractor for rectifying defects attributable to it: the direct costs of the remedial work and the associated costs arising from the extended presence on site.
The direct costs of remediation refer to materials, labour and any additional technical assessments required by the acceptance committee.
The associated costs arising from the mere extension of the contractor’s presence on site until the remediation work is completed may include the following:
- insurance and site security costs for the additional remediation period;
- utilities (electricity, water) and site organisation rents, if these need to be maintained beyond the originally planned duration;
- any costs associated with mobilising or remobilising teams and plant, if the contractor has demobilised the site before the acceptance has been fully completed.
These costs generally exceed the contractor’s initial budget estimate for the project and effectively represent a direct loss of profit margin. For this reason, it is recommended that the contractor take a proactive approach and, from the tender stage onwards, budget for a category of remedial costs that includes all such potential expenses.
Sub-Clause 61.1 of the National Works Contract introduced by Government Decision No. 1/2018 sets out an important procedure from the point of view of contractual discipline. Under this provision, where the contractor considers that it is not responsible for the fault or defect it has been required to remedy, the contractor is obliged to carry out the repair, with any costs to be recovered from the employer at a later date through the claims mechanism provided for in the Contract.
The practical significance of this procedure: it enshrines the “pay now, argue later” principle, which prioritises the repair of any defects to ensure the structure functions properly, with the question of who is liable for the defects and who bears the costs to be determined at a later stage.
2.2 Penalties and damages claimed by the employer
From the employer’s perspective, unresolved defects generally give rise to three categories of costs, which the employer will charge to or recover from the contractor, as we shall show below.
2.2.1 Late completion penalties
Public works contracts (particularly those based on the terms of Government Decision No. 1/2018) almost without exception contain penalty clauses for each day’s delay in completing the works or in rectifying defects reported during the warranty period. These penalties generally accrue from the very moment the deadline set by the acceptance committee expires or upon notification to rectify the defects, regardless of whether the employer has actually suffered any loss – their primary function is to encourage the contractor to act swiftly.
2.2.2 Compensation for the actual loss suffered by the employer where the employer is obliged to remedy the defects at its own expense
As noted above, if the original contractor fails to comply with the notice to remedy, the employer may carry out the remedial work at its own expense (often by engaging another contractor, at a price that may be higher than that which would have resulted from the original contract, precisely because of the urgency and complexity of remedial work on an existing structure).
All these additional costs – the price difference, the costs of designing the remedial solution, and any costs of technical expertise required to establish the cause and extent of the defect – constitute a claim for damages which the employer may pursue against the original contractor. In most cases, the employer chooses to recover these costs by enforcing the performance bond.
An important practical consideration is that the damages claimed for repairing defects at the employer’s own expense may be cumulative with delay penalties, as the two categories of damages are intended to cover two distinct types of loss.
2.2.3 Damages for impairment of the normal use of the construction
The third category of damages is often the most significant and the most difficult to quantify: the loss caused by the mere fact that the investment cannot be used for its intended purpose whilst the defect persists. Typical examples:
- a road or bridge where traffic must be restricted or halted completely until the defect is rectified, with an impact on traffic, transport operators and, indirectly, on the local budget (through diversion costs, temporary signage and any compensation payable to affected third parties);
- utility infrastructure (water, sewerage, energy) that cannot be brought into operation, with a direct impact on the population served and, potentially, on the authority’s public service obligations.
An important legal point should be noted here: the Regulation on the acceptance of construction works expressly stipulates that it is prohibited to use a structure whose acceptance has been refused (or suspended, pending the completion of remedial works), a prohibition which remains in force until the remedial works are completed and acceptance is granted.
In practice, it is common to encounter situations where public infrastructure – roads, bridges, utility networks – is opened to traffic or put into operation before the acceptance procedure has been completed, due to administrative or political pressure to present a project as “completed”. This practice, however widespread it may be, contravenes legal provisions and exposes both the employer/authority and the contractor to additional risks: in the absence of a valid acceptance, it is more difficult to establish precisely which defects were already known at the time of commissioning, which may subsequently complicate any discussion regarding liability for defects arising after that point.
3. Practical conclusions
For a contractor, the practical conclusion is that any defect reported during the acceptance or within the warranty period must be treated as a top priority: the cost of delayed remediation is never limited to the technical cost of the repair, but may be multiplied by penalties, the price difference for remediation carried out by a third party, and damages for loss of use, which may far exceed the initial value of the defect.
For a contracting authority or an investor, the conclusion is complementary: rigorous documentation of the acceptance process (clear minutes, clearly defined rectification deadlines, timely notices) is an essential prerequisite for subsequently recovering from the contractor at fault all costs incurred in carrying out the remedial work at its own expense, as well as to avoid the legal and practical risks associated with putting a non-accepted building into use.
Each of these situations requires a detailed analysis of the contract and the specific circumstances of the project. Our team can assist you both during the negotiation and drafting of the relevant contractual clauses, and in managing disputes relating to the remediation of defects in infrastructure projects.