Defect lists after handover: what you're legally obliged to fix

Understanding defect liability periods in your contract

Defect liability clauses outline the time frame the contractor is responsible for fixing work in scope, the faults or incomplete work the contractor and hirer are responsible for, and how the hirer will tell the contractor about work that needs fixing.

Most construction contracts in Australia include a defined window after practical completion during which the client can raise defect concerns. If the list arrives outside this period, your position strengthens considerably. Even within the period, however, the contract typically requires the client to keep paying you, it does not give them the right to withhold the entire invoice.

Check your contract carefully. Some agreements specify how long the client has to inspect and raise issues, and what constitutes a valid defect claim.

Source: business.gov.au

Not all claims on a defect list are genuine defects

When a defect list lands in your inbox, you need to assess what's actually on it. Genuine defects are work that wasn't completed to the agreed standard. But lists often include variations (things the client now wants but never asked for), wear and tear, or damage caused by someone else after you left the site.

Take time to categorise each item. Document which ones you accept, which ones you dispute and why, and which ones fall outside your scope. Request evidence or clarification on items that seem vague or unreasonable. This written record is crucial if the dispute escalates.

Your obligations to respond and get paid

Hirers should give contractors a notice to remedy work, giving the contractor a chance to fix the work before the hirer seeks any remedies for a breach of contract. A formal process protects both parties.

Respond in writing to the defect list. Set out which items you accept and will fix, which you dispute, and your timeframe for remedying work you've accepted. Crucially, continue to press for payment of the invoice. A defect list does not cancel your right to be paid for work completed. Some items may be legitimate and worth fixing quickly to remove an excuse for non-payment, but this should not happen at the cost of abandoning your claim entirely.

Source: business.gov.au

Security of payment law and recovery options

Each state and territory has security of payment laws for construction work that set timeframes for payments, explain how to make a progress claim and give steps to help resolve payment disputes. These laws were designed to protect contractors in situations exactly like this.

In most states and territories, contractors can issue the hirer with a payment claim, which gives the hirer a strict timeframe to pay upfront or under a payment schedule. If the hirer doesn't respond to the claim, the contractor can take the dispute to adjudication to recover the unpaid money.

The timeframes under these laws are strict and must be followed carefully. If you're dealing with a client who is using a defect list as a stalling tactic, moving quickly through the security of payment process can be an effective way to recover your money while the dispute over defects is still being resolved.

Source: business.gov.au

Retention amounts and defect disputes

Most agreements allow the proprietor recourse to the retention monies in the event that the builder is liable to the proprietor for a default under the contract. The builder may default by failing to complete work to a required standard or by failing to rectify defects. Retention amounts may therefore be used to offset the liability of the builder.

However, this only applies to genuine defects within the contractual warranty period. If the client is making inflated claims or claiming outside the defect liability period, those retention funds should still be released to you. Don't let a defect list justify indefinite withholding of money you've legitimately earned.

Source: Australian Taxation Office

When to escalate beyond negotiation

If the defect list is vague, inflated, or clearly being used as a delay tactic, you may need to escalate. A formal demand letter setting a reasonable deadline for payment can be an effective next step. State what you're prepared to do about accepted defects, confirm the invoice is due, and give the client a clear timeframe to pay or face further action.

In some cases, legal action may be justified depending on the size of the debt, how the client is behaving, and what your contract says. But before you reach that point, exhaust the security of payment avenue first. It's faster, cheaper, and designed specifically for construction payment disputes.

Protect yourself going forward

Ensure every contract includes a clear defect liability clause. Define what counts as a defect, set a specific timeframe, and confirm that the client must pay you during this period. Make sure your contract allows you to dispute claims and requires the client to provide evidence for defects.

Document everything: photos of completed work, handover records, client sign-offs, and any communication about defects. If a defect list arrives later, this evidence becomes your strongest defence.