The Defects Liability Period (DLP) is meant to give builders time to address post-completion defects. However, it’s increasingly being used by principals as leverage, turning it into a cash-flow weapon—delaying return of retention money or unconditional bank guarantees.
How the risk arises
We regularly see situations where:
- Defects appear just before DLP expiry – often minor, arguable, or unrelated to the original works, but enough to justify delaying security release.
- Final certificates are withheld – the superintendent or principal simply doesn’t issue them, leaving the return of security in limbo.
- “Extensions” of the DLP – claimed on the basis that ongoing rectification works restart the clock, even if the works are trivial.
- Security is tied to unrelated disputes – for example, a payment or variation dispute is used as a reason to keep security locked up.
The commercial impact
These tactics can have significant consequences:
- Working capital tied up – retention money and bank guarantees can represent a large chunk of liquidity you can’t access.
- Cash-flow pressure – the longer security is held, the more it impacts your ability to fund operations or tender for new work.
- Risk of unfair calls – unconditional guarantees can still be drawn on during this period, even if the claim is disputed.
To manage the risk:
- Set clear DLP expiry dates in the contract
- Define the process for issuing final certificates
- Negotiate fixed dates for return of retention/security, not dates contingent on subjective “satisfaction”
- Document all defect rectification works promptly and comprehensively
Builders should also consider including a clause that prohibits calls on security unless a genuine dispute exists and formal processes have been followed.
The DLP should be about defect rectification to protect quality, not be a tool to stall payment or apply commercial pressure. The most effective protection is locking in clear, objective and enforceable DLP terms before the contract is signed.