Can the Contractor be held liable for defects or inferior work after final payment?

Yes. While generally acceptance by the Owner of the Work shall relieve the Contractor of liability for defects, there are a few exceptions such as when:

        The defect is hidden and the Owner could not have discovered the defect even with the exercise of reasonable diligence.

        The Owner accepted the Work with express reservations seasonably made as to the specific portion of the Work which was found to be defective and which requires replacement or correction.  If the reservation fails to specify the portion which is alleged to be defective, the Owner shall state in as much detail as possible the nature and extent of the defect; otherwise the reservation shall be considered a general reservation and shall be ineffective.


Furthermore, if the Owner finds the Work poor or inferior or does not comply with the Drawings and Specifications, it shall forthwith be condemned and the Contractor notified thereof to give the Contractor an opportunity without loss of time and without incurring unnecessary cost, to correct the defective work. Work not so condemned within one year from notice from the Contractor that corrective works have been completed cannot later be rejected by the Owner. If the Owner, after the lapse of this one-year period, instructs the Contractor to remove or replace it thereafter, the instruction shall be treated as an additional work for which the Contractor shall be compensated.


The Contractor shall be liable to the Owner for any hidden defect discovered and notified to the Contractor which the Contractor receives from the Owner within the warranty period as provided in the Contract, or in default of any provision fixing the warranty period, within one year from the completion and acceptance of the Work, or from the date stated in the Certificate of Acceptance, or in default thereof, from the  posting of the Guarantee Bond.


The one-year defects liability period in CIAP Document No. 102 is considered as "established usage in the Philippines for private and government construction contracts".



William Golangco Construction Corp. v. Philippine Commercial and International Bank, G.R. No. 142830, 24 March 2006.