FIDIC

Accepting Defective Work Under FIDIC — Valuation and Deduction

The employer is not obliged to require remediation of all defects. Where defects are minor or where remediation cost is disproportionate, the employer may accept the defect and deduct a fair value reflecting the diminution in the building’s worth or its fitness for use.

6 min read · Updated 23/05/2026

In this article

1. The Right to Accept Defective Work
2. Cost of Remedy vs Diminution in Value
3. The Ruxley Principle
4. Valuation of Acceptance — Quantum Assessment
5. Deduction and Final Account Treatment
6. Limitations and Exclusions

Key takeaway

The employer may accept defective work instead of requiring remediation. The deduction is limited to the diminution in value or fitness for use, not the cost of remedy. Where remedy cost vastly exceeds the loss in utility (the Ruxley principle), the employer recovers only the diminution, not the full remedy cost.

1. The Right to Accept Defective Work

The employer has an implicit right (and the contract may make it explicit) to accept work that is defective and proceed without remediation. The rationale is practical: not all defects warrant the disruption and cost of remedy. Some defects are minor, cosmetic, or functionally irrelevant — the building works and meets its purpose despite them.

Where the employer exercises this right — accepting the defect rather than requiring remedy — the contractor is relieved of the obligation to fix the work, but the employer is entitled to be compensated through a price reduction. This compensation is not the cost of remedy; it is the loss in value or utility to the employer.

This right arises under both contractual provisions (some FIDIC contracts expressly contemplate acceptance) and general law (the employer need not insist on performance if the outcome is equivalent to performance).

2. Cost of Remedy vs Diminution in Value

The critical distinction is between two different assessments of loss:

Example: A concrete column has a 10mm crack that does not affect structural integrity. The cost to remedy (cut out and repair) is AED 50,000. However, the crack is concealed within the structure and has no effect on the building’s function, durability, or market value. The diminution in value is AED 5,000 at most (if any).

If the employer requires remedy, the contractor must pay AED 50,000. If the employer accepts the defect, the contractor owes only the diminution: AED 5,000. The employer recovers the actual loss, not the remedy cost.

3. The Ruxley Principle

The seminal case is Ruxley Electronics and Construction Ltd v Forsyth [1995] 3 All ER 268. The contractor built a swimming pool with a shallower depth than specified — it was 6 feet 9 inches deep instead of 7 feet 6 inches. The cost to remedy (demolish and rebuild) was approximately GBP 21,560. However, the reduction in market value or utility was minimal — the pool was still usable, safe, and functionally adequate.

The House of Lords held that the employer was entitled to damages, but limited to the diminution in value (GBP 2,500), not the cost of remedy (GBP 21,560). The court refused to allow the employer to recover the full remedy cost where it would be economically irrational and disproportionate to the actual loss.

The Ruxley principle applies in construction disputes across common law jurisdictions. Where the defect is minor and the remedy cost is disproportionate to the actual loss, the employer recovers diminution in value only.

4. Valuation of Acceptance — Quantum Assessment

Assessing the diminution in value requires expert evidence, typically from quantity surveyors or valuers. The assessment considers:

• Would a prudent buyer discount the purchase price due to the defect? If so, by how much?
• Does the defect reduce the building’s functionality, durability, or lifespan?
• Is the defect visible or concealed?
• Will the defect worsen over time or is it stable?
• Does the defect require future expenditure (e.g., maintenance or repair)?
• How does the defect affect the building’s ability to meet its intended purpose?

The valuation is not fixed — different experts may reach different conclusions on the quantum of diminution. Arbitrators and courts apply judgment on this question, considering all evidence presented.

5. Deduction and Final Account Treatment

Where the employer accepts a defect, the diminution in value is typically deducted from the final payment or the final account. The deduction should be clearly identified, with reference to the specific defect and the basis for the diminution assessment.

The contractor has the right to challenge the deduction — either by disputing that the defect exists, or by disputing the diminution assessment. A contractor who believes the employer has overestimated the loss should require expert evidence to support an alternative (lower) valuation.

6. Limitations and Exclusions

The right to accept a defect is not unlimited. It does not apply where:

• The defect is safety-critical — where accepting the defect would expose occupants to danger or would violate statutory safety requirements
• The defect breaches a specific contractual undertaking that cannot be overridden (e.g., compliance with a stated code or standard)
• The acceptance would amount to a breach of the employer’s own obligations (e.g., where the employer is obliged to meet a regulatory requirement and accepting the defect prevents compliance)

Defects that render the building unfit for use or dangerous cannot be accepted — they must be remedied. The contractor cannot force an acceptance where the building is unsafe or non-compliant with law.

Acceptance and Defect Valuation

We advise on the Ruxley principle, diminution in value assessment, and the mechanics of acceptance. Understanding the difference between remedy cost and actual loss is fundamental to achieving fair commercial outcomes.

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