Understanding Warranties Takes Time
By Robert J. Smith, PE, Esq.
Contracts frequently include warranties and guarantees. They create special rights and responsibilities between the contracting parties, usually for part of the project and for a specific time period. Like most things in life, warranties illustrate the principle, "you get what you pay for."
Comprehensive warranties inevitably add to the bid price while providing an extra measure of protection. On the other hand, standard warranties do not cost much but yield very little in return.
The owners and specifiers, including design professionals, usually make the choice. Becoming familiar with several considerations helps make an intelligent choice regarding warranties:
What are warranties and guarantees?
Strictly speaking, a warranty is a type of guarantee, but in every day practice the terms are used interchangeably. The concept is that one party to an agreement has promised certain performance in a given time period.
Some warranties are implied.
In nearly all states, the sale of a product carries with it an implied warranty of merchantability. This means the product is of average quality for the type of goods involved. Another kind of implied warranty is that it is fit for a particular purpose. The law implies such a warranty when the buyer specifically asks the seller to recommend a product, such as a pump or roofing membrane.
Express warranties — often written but sometimes spoken — are more common to construction contracts.
One such warranty is the manufacturer's standard warranty. This is often termed a limited warranty. Another type of express warranty is the one-year warranty included in many construction contracts, obligating the contractor to correct defective work discovered during the first year after substantial completion.
It should be noted that this one-year warranty is not exclusive. That is, the contractor is still responsible for breach of contract and negligence up to the expiration of the statute of limitations.
Considerations for the design professional in specifying warranties include:
- Identifying the term of the warranty
- Naming the product or part of the construction project to be covered
- Defining what constitutes a defect, bringing the warranty into effect
- Stating the prerequisites to enforcing the warranty, such as notice to the contractor or vendor
- Listing the remedies if the contractor does not perform
Specifying manufacturer's standard warranties really doesn't provide the owner with much protection. Such warranties may even preclude the owner from being named as a beneficiary. Furthermore, these warranties usually have short time limits and specify replacement material only, excluding labor and freight to the manufacturer and back to the job site. In other words, if design professionals or owners seek solid warranty protection, they need to specify it carefully.
Conversely, the prospective contractor must consider the costs of honoring a comprehensive warranty in connection with bidding a job. Does the warranty cover both materials and workmanship? Even more important than that, does the warranty include or exclude consequential damages? It may cost $50 to fix an improperly placed roof flashing, but this may have already resulted in $10,000 worth of property damage inside the building.
Contractors, owners, and design professionals can maximize the value of warranties if they take the time and make the effort to understand them and specify carefully.
is a principal in the national construction law firm of Wickwire Gavin, P.C.
Madison, Wisconsin
Edited by Lisa Schuetz
This article is based upon work supported by the University of Wisconsin–Madison Department of Engineering Professional Development. It is for general information and distribution. It is not intended to provide specific solutions or advice for specific circumstances, which should be sought from appropriate professionals.