CONSTRUCTION WARRANTIES 

Several types of warranties exist that may be applicable in the construction industry. Generally, warranties fall into two categories, namely: (1) express warranties; and (2) implied warranties.

Express warranties are set forth in the construction contract. These may be found in the primary contract document, specifications, supplemental or special conditions, and/or other documents incorporated into the contract documents, such as manufacturer warranties.

For example, AIA Document A201-2007 contemplates both general and special express warranties as part of the contract documents. Article §3.5 provides that the contractor warrants that materials and equipment furnished will be of “good quality and new unless the Contract Documents require or permit otherwise, that the work will conform to the requirements of the Contract Documents and will be free from defects except for those inherent in the quality of the work the Contract Documents require or permit.”

Article §9.10.4.3 expressly provides that the making of final payment shall not constitute a waiver of claims by the owner of special warranties required by the contract documents. Such special warranties may include, for example, extended roof and equipment warranties. Typically, an extended warranty would be a manufacturer’s warranty. The contract documents should clearly indicate whether the extended warranty is solely the responsibility of the manufacturer.

Article §12.2.2.1 of A201-2007 provides that the contractor is required to correct any work found not to be in accordance with the requirements of the contract documents within one year after the date of substantial completion of the work or after the date for commencement of warranties established under Article §9.9.1. The contractor is also required to correct any work for which it is obligated by the terms of an applicable special warranty.

Similarly, the new ConsensusDOCS 200 form, Standard Agreement and General Conditions between Owner and Contractor, addresses this warranty issue. For example, Article §3.8.1 provides that the contractor warrants that “all materials and equipment shall be new unless otherwise specified, of good quality, in conformance with the Contract Documents, and free from defective workmanship and materials…. And further warrants that the Work shall be free from material defects not intrinsic in the design or materials required in the Contract Documents.” This warranty commences on the Date of Substantial Completion.

Article §3.8.2 states that the Contractor “shall obtain from its Subcontractors and Material Suppliers any special or extend warranties required by the Contract Documents which are then attached to the Agreement.

Article §3.9 addresses the correction of work and states that if defective work is found within one year after the date of Substantial Completion, the Owner shall promptly notify the Contractor in writing and the Contractor shall promptly correct the work at its own cost. If the Owner fails to notify the Contractor, the Owner waives the Contractor’s obligation to correct the defective work as well as the Owner’s right to claim a breach of warranty.

In addition to the express warranties discussed above, general principles of law establish that there is a duty on the part of contractors to perform work in a “workmanlike manner.” This duty is imposed by common law upon contractors, even in the absence of any express warranty provisions in a contract. This duty traces its origins back to the old English common law.

A contractor is expected to have the skills which are customary and common to its trade. This duty to perform in a workmanlike manner exists regardless of “value engineering” or other cost-saving techniques that an owner may attempt to employ. The materials utilized must perform their intended function, and the labor and installation must be according to skills and quality which are considered customary in the industry.

Where a transaction relates to the purchase and sale of goods, and does not include construction labor, then Article 2 of the Uniform Commercial Code relating to the sale of goods applies to the transaction. The Uniform Commercial Code has detailed provisions relating to express and implied warranties, and disclaimer thereof. Applicable provisions of the Uniform Commercial Code should be considered relating to transactions for the sale of goods only.

Special attention should be given to when warranties begin to run, e.g. substantial completion, final completion/ acceptance by owner, etc. Also, beware of warranties which begin to run again from the time of performing a repair within the original warranty period.

In the drafting of construction contract documents, the general rule relating to warranties (as in other contract terms) is to clearly express the intent of the parties regarding scope and application of warranties, who is responsible, length of warranty, date on which the warranty begins to run, notice provisions, and remedies. Consideration should also be given to the potential cost of warranties, particularly on bonded projects, as the surety may deem itself bound by an extended contract warranty and charge an additional bond premium which will likely be passed on to the owner.

 

Thomas R. Yocum and Julie A. Neuroth, Benjamin, Yocum & Heather, LLC, 300 Pike Street, Suite 500, Cincinnati, Ohio 45202 (513) 721-5672