Warranties fall into two general categories: express and implied. Both are typically construed as consistent with each other and cumulative in effect—in other words, one type of warranty does not supersede others.
Express warranties are specific promises made by the seller of goods or services and include oral representations, written representations, descriptions, representations made via samples and models, and proof of prior quality. Examples include:
- the construction contractor’s correction period;
- the contractor’s general warranty and guarantee;
- manufacturers’ standard warranties; and
- manufacturers’ special or extended warranties.
When there is a defect in the construction (or in the materials or equipment incorporated therein) after it is certified as substantially complete, the owner has many potential remedies. Among the most important and useful is the contract’s correction period provided in the General Conditions of the construction contract.
When the defect is found during the contract’s correction period for any element of the construction, the owner is entitled to have the contractor return to the site and remedy the problem. This remedy supplements the owner’s other rights that, if successfully enforced, may result in the contractor being required to pay the owner monetary damages.
The correction period provision is not a limitation of the contractor’s liability, or an exclusive remedy—rather, it provides an additional remedy available to the owner. Given the extensive protection afforded to the owner by the correction period provision, the need for special warranties that last only one year is questionable.
When defects are discovered before a construction element is certified as substantially complete by the design professional, completion of the remedy is a condition precedent both to being eligible for substantial completion and receiving progress payments for the defective work. It is common to refer to the correction period as ‘the one-year warranty’ or as the ‘guarantee period,’ but such incorrect terms may foster confusion and potentially reduce the owner’s ability to enforce performance of the remedy and its right to other relief under the contract.
Most of the contractor’s obligations under the contract, including its commitments under the general warranty and guarantee, do not expire on final payment or even after the one-year correction period. Rather, they apply as long as the applicable statute of limitations allows the owner to enforce them. Only the ‘specific performance’ component (e.g. the correction period) of the owner’s rights has a contractual time limit. The duration of the statute of limitations (and the contractor’s general warranty under the General Conditions) is discussed later in this article.
When contractors receive the owner’s notice of a defect requiring remedy under the correction period, the onus is on the contractor to perform. Accordingly, consistently using clear terminology—such as ‘correction period’ for the one-year specific performance obligation instead of muddying terms such as ‘one-year warranty’—allows entities interpreting the construction documents to differentiate between the correction period and the general warranty and guarantee. Failure to do so could result in an interpretation the general warranty is limited by contract to only one year.
The typical term of a correction period is one year after substantial completion. Standard contract documents in common use in the industry usually require the performance and payment bonds, when required for the contract, remain in effect during the correction period. The premiums charged by sureties for performance and payment bonds are usually based on a one-year correction period. Thus, the owner has the assurance the surety is available to honor the contractor’s obligations during the correction period if the contractor fails to do so. This also typically reduces the need for the owner to withhold retainage during the correction period.
If a correction period longer than one year after substantial completion is required, and the owner desires the bonds remain in effect throughout the correction period, such bonds may be available from the surety. However, their cost will increase compared to the standard one-year correction period. The alternative is to require a surety-backed maintenance bond for that part of the correction period beyond the first year. (A more detailed discussion of contract bonds is beyond this article’s scope.)