ONE OF THE most common misconceptions in construction is that a contractor’s responsibility for faulty work ends at the end of the 12-month “warranty” period. This is not just misunderstood by contractors, but by designers and owners as well. Read your contract carefully – your obligation may be very different than you thought it was.
Let’s start by clearing up what a warranty is: “A promise that a proposition of fact is true. An assurance by one party to an agreement to an existence of fact on which another party may rely,” according to the law dictionary. There are “implied” warranties and “express” warranties. Where construction contracts are in writing, most of the obligations will be of the “express” variety, such as a representation that the project will be built according to the plans and specs; the materials will all be new; and the workmanship will all be first-rate.
Thus, if three years later, it is discovered that the reason insulated piping is leaking is that Schedule 10 galvanized pipe was used instead of the specified stainless, the owner could sue the contractor for breach of warranty. Of course, the owner would have to show that this deviation caused the problem (that stainless would not have leaked within three years) but if he does this, he can sue based on a theory of breach of warranty. If the representations are in a written contract, as they frequently are, a claim of breach of contract can also be thrown in.
These lawsuits can be brought any time within the statute of limitations – which could be as long as five or more years after the date when the owner “knew or should have known” of the problem.
In some states, there is an outside limit on how long after construction is completed such a lawsuit can be filed. This is referred to as a “statute of repose.” What this means is a contractor is generally not free to walk away from its defective work for quite some time.
The people in the industry who seem to understand just what a warranty exposes them to are the major material and equipment manufacturers, who try to stay out of the long-term warranty business by stating, in bold print, that they are giving only “limited” warranties and “disclaiming all other warranties, express or implied.” (Look at a rooftop unit or AHU warranty to see what I mean.)
Where this gets confusing is in situations where the contract uses the term “warranty” for the common contract requirement for a 12-month period during which the contractor is obligated to come back and fix things that are discovered to not work right. Without such a “correction” clause, the owner would have to fix the problem and then sue the contractor to prove that the work had not been done correctly – that is, prove breach of contract or warranty -– and get the money spent back from the contractor. Since many of the typical call-back items are small and therefore hard to get another contractor to come in and fix, this 12-month correction obligation is of great value to an owner.
While the AIA and AGC standard general conditions are careful to not use the word “warranty” in their clauses on this point (they refer to this as a 12-month “correction” period, and it is in a different part of the contract from the warranty paragraph), sometimes the people preparing the contract documents confuse the two obligations, and end up shortchanging the owner in the process. I have seen more clauses than I can count in which the contractor is asked only to warrant its work for 12 months. Read literally, this would mean that if the building fell down 13 months after completion (or substantial completion, depending on the wording of the contract), the builder would have no obligation for the loss. From my experience, these poorly drafted clauses tend to conflict with other parts of the contract, and it all ends up in the hands of a judge or arbitrator to figure out what the parties meant to agree on in the first place.
If you have signed a contract that contains a warranty requirement, you should make sure that the vendors from whom you purchase important components have the same warranty obligation you do. If they will not agree to do this, you should try to get the GC or owner to limit your liability in the event that the vendor’s component fails.
You also need to make sure that your insurance is adequate to cover claims that arise many years later from such breach of warranty claims. This is what we and your insurers call “risk management.” The better you educate yourself about what risks you are running, the better you will be able to manage them.
Susan McGreevy is a partner at Husch & Eppenberger, Kansas City, Mo., 816/421-4800, e-mail to [email protected].