When a defect notice arrives just before the deadline: what it means for payment
Why defect notices cluster near deadline day
Most construction contracts include a defect liability period after practical completion. In NSW, that period is commonly 13 weeks for new residential homes, though commercial contracts often specify different timeframes.
Once that window closes, a client's ability to formally raise defects under the contract usually narrows. When a comprehensive defect list arrives on the second-last day of the period covering items that were signed off weeks earlier or never mentioned during handover, the timing is worth noticing.
It's a recognised pattern in the industry: hold the final payment, raise a defect list late, and use it as leverage in what becomes a negotiation about money rather than genuine rectification work.
What your contract says about defect notices
Start by reading your contract's defect liability clause. Many contracts require defects to be notified in a particular way, within a particular timeframe, and with reasonable detail. If the notice you received doesn't comply with those requirements, it may not be valid under the contract.
Separately, check whether the items listed were actually signed off at practical completion or in earlier progress inspections. If they were accepted as compliant at the time, the client may have limited grounds to re-raise them now.
Not every late defect claim is invalid, and some items may be genuine. Your job is to separate what you're genuinely responsible for from what's being used to delay or reduce payment.
How Security of Payment law intersects with defect claims
Under the NSW Building and Construction Industry Security of Payment Act 1999, if a respondent wants to withhold payment, they must provide a payment schedule within 10 business days of receiving a payment claim, stating the scheduled amount and all reasons for withholding.
The Act allows a respondent to deduct the estimated cost of rectifying defective work when calculating the progress payment amount, but only if that reason is included in the payment schedule on time.
A respondent cannot later raise reasons for withholding payment in an adjudication response unless those reasons were already included in the payment schedule. If a defect notice arrives after you've issued a valid payment claim and no compliant payment schedule was served, the client's ability to rely on those defects to withhold money may be limited.
This is why timing, documentation and process matter. The defect notice itself does not automatically suspend your payment entitlement if the other party hasn't followed the correct steps under the Act.
Respond in writing and respond quickly
Don't ignore a defect notice, even if you believe it's tactical. Respond in writing within any timeframe your contract specifies. Acknowledge the notice, address each item, and make clear which items you accept responsibility for and which you dispute.
For items you accept, propose a rectification plan and timeframe. For disputed items, explain why, whether it's because the work was previously signed off, the issue falls outside your scope, the defect wasn't caused by your work, or the notice doesn't comply with the contract.
Keep every exchange in writing. Texts and phone calls don't create the record you'll need if this escalates. Formal correspondence does.
When to get advice on your payment claim rights
If you've issued a payment claim for your final progress payment and the defect notice appears to be a reason to avoid responding properly, get advice early. The Security of Payment Act has strict timeframes, and your rights depend on whether you or the other party followed the correct process.
The same applies if the defect list is inflated, vague, or includes items that were already accepted. You may have grounds to challenge the notice or pursue the withheld payment through adjudication, but only if you act within the windows the Act prescribes.
The risk of waiting is that you lose procedural options. A defect notice that lands late in the liability period often signals the start of a dispute about money, not a genuine request to fix minor issues. Treat it accordingly and get clear advice on where you stand before those deadlines pass.