The First Summer Inspection: A Worked Example of Defects and Retention

Many defects only appear after a building has been through heat, humidity and its first real use. This example costs them against the retention still being held.

A building reveals itself in its first summer. Sealants that looked fine in March split, movement joints open, waterproofing that was never tested leaks under irrigation, and air conditioning that was oversized produces humidity complaints. This example works through an inspection at the end of a defects liability period, costs the items found, and compares that cost with the retention still available, which is the arithmetic that decides how much leverage an owner actually has.

The situation

An illustrative villa was handed over twelve months ago under a contract of 4,000,000 riyals with 5 per cent retention. Half the retention was released at practical completion. The owner commissions an independent inspection before the defects liability period expires and the surveyor returns a list. The question is whether the retention still held covers the rectification, and what to do about the gap.

Assumptions (illustrative)

• Contract sum: 4,000,000 riyals, illustrative.
• Retention: 5 per cent of the contract sum.
• Half of the retention released at practical completion, the remainder held through the defects liability period.
• Illustrative rectification quotations: external sealant replacement 40,000; terrace waterproofing and retiling 55,000; cracking at columns and lintels across the villa 30,000; air conditioning rebalancing and two condensate reroutes 15,000; drive settlement at a services trench 25,000.
• An independent inspection fee of 12,000 riyals, illustrative.

Step 1: Calculate the retention and what remains

5 per cent of 4,000,000 is 200,000 riyals. Half of that, 100,000, was released at practical completion, leaving 100,000 riyals held through the defects liability period.

The amount still held is the practical limit of what can be withheld without a dispute. Knowing that figure before the inspection tells you how much of the exposure is covered and how much is not.

Step 2: Total the rectification quotations

40,000 plus 55,000 plus 30,000 plus 15,000 plus 25,000 gives 165,000 riyals of rectification work, before the inspection fee.

The rectification cost exceeds the retention held, which is the normal position rather than an unusual one. Retention is a lever, not an insurance policy, and it is sized by the contract rather than by the risk.

Step 3: Measure the gap and what covers it

165,000 of rectification against 100,000 of retention leaves a gap of 65,000 riyals. Adding the inspection fee of 12,000, the total exposure is 177,000 against 100,000 held, so 77,000 riyals sits outside the retention.

The gap is what has to be recovered through the contractor obligation to rectify rather than through money already in hand, which is a far weaker position and depends on the contractor still being solvent and interested.

Step 4: Sort the items by who is likely to carry them

Of the 165,000, the waterproofing at 55,000 and the cracking at 30,000 are workmanship and detailing issues, totalling 85,000, which sit squarely in the defects category. The sealant at 40,000 may be partly a maintenance item depending on the product life and the contract. The rebalancing at 15,000 is arguably incomplete commissioning. The drive settlement at 25,000 is a trench reinstatement defect.

Categorising before negotiating matters, because a single list of 165,000 invites a single argument, while 85,000 of clear workmanship defects invites rectification.

Step 5: Work out the cost of acting late

If the inspection had been commissioned a month after the period expired, the retention would normally have been released, leaving 0 held against 177,000 of exposure. The 12,000 inspection fee therefore protected access to 100,000 of retention, a ratio of more than eight to one.

The timing of the inspection is worth more than its thoroughness. An inspection commissioned with enough time to issue the list, allow rectification and re-inspect before the period ends is the single most valuable action available to an owner in the first year.

Step 6: Check which items will return if rectified cosmetically

Of the five items, three are symptoms of a cause: the cracking will return unless the missing mesh or movement provision is installed, the terrace will leak again unless the waterproofing is replaced rather than sealed over, and the drive will settle again unless the trench is recompacted rather than resurfaced. That is 110,000 of the 165,000.

Accepting a cheap repair on these items converts a defect inside the liability period into a maintenance cost outside it. The question to ask of every quotation is whether it addresses the cause or the appearance.

What changes the answer

• Retention percentage and release mechanism: these are contract terms and vary, so the available leverage varies with them.
• Timing of the inspection: commissioning it late can reduce the retention available to nothing.
• Categorisation: items classed as maintenance rather than defect move out of the contractor obligation.
• Any performance bond or guarantee still in force, which can extend the security beyond retention.
• The contractor financial position, since an obligation to rectify is only worth what the contractor can deliver.

What the numbers tell you

• Know the retention still held before the inspection, because it defines your practical leverage.
• Rectification cost routinely exceeds retention, so retention is a lever rather than a fund.
• Commission the inspection with time to issue, rectify and re-inspect inside the liability period.
• Separate workmanship defects from maintenance items before any negotiation starts.
• Reject repairs that address the appearance rather than the cause, because those defects return after the period expires.

Limits of this example

Every figure above is an illustrative assumption used to show the method, not a quote, valuation or market rate. Costs, rates, fees and regulations change and must be confirmed with the relevant authority, lender or supplier before you commit.

Domira builds and supervises projects across Saudi Arabia, and this is the level of detail its site teams work at. Send the drawings or the site, and Domira will tell you what the specification has to say before anyone prices it.