A defect in the construction is a breach of the contract—which remains in effect after final payment and the end of the correction period. Recognizing this important obligation and the breach-of-contract consequences, most contractors will promptly honor their correction period responsibilities. However, the owner’s alternatives in the event of non-performance under the correction period include formally terminating the contractor’s performance (typically in accordance with the provisions of the performance bond) and serving notice on the contractor’s surety to perform the contractor’s obligations.
When an element of the construction has to be corrected or replaced by the contractor during the correction period, some contracts require renewal of the correction period for that work element for another year. Some contractors object to such a provision, arguing the correction period could thus theoretically continue without end. Owners and design professionals counter such arguments by indicating the owner is entitled to one year of defect-free use of the completed construction.
Under the contract’s general warranty and guarantee provision of the General Conditions, the contractor guarantees the construction will comply with the contract documents and warrants the work will not be defective. The contractor’s general warranty is not limited by any specific period, although the duration for which it can be enforced is governed by the applicable statute of limitations in the jurisdiction where the project is located.
The start and end times of statutes of limitations varies by jurisdiction, but are often four or six years after completion of construction. During much of this time (excluding the correction period), the contractor’s performance bond is not in effect. Therefore, to get a reluctant contractor to honor the obligations under the general warranty after expiration of both the correction period and the performance bond, the owner may have to resort to legal approaches, such as a civil lawsuit. When owners seek relief under the terms of the general warranty after expiration of the correction period and performance bond, the onus will typically be on the owner to ‘prove’ the problem was caused by a latent defect in the contractor’s work, instead of by normal wear-and-tear, misuse, or other degradation that is not the contractor’s fault.
Manufacturers’ standard, printed warranties for a given product usually promise to remedy defects in the items materials and workmanship for a specified period. It is important to review and understand their limitations, because they can be significant. Manufacturers’ standard warranties often stipulate they:
- are in effect until the earlier of 12 months from the date the item is ready to be placed into service or 18 months from the date of shipment from the manufacturer’s factory (the latter can sometimes result in a standard warranty expiring before the item is installed into the construction);
- cover only parts and materials (i.e. labor and temporary equipment to remove the item from the construction and reinstallation after remedy at the factory is the responsibility of the owner or contractor, even if the reason for such removal and reinstallation was the fault of the manufacturer);
- allow the manufacturer to determine how the warranty will be fulfilled (e.g. repair or removal/replacement);
- run to sole benefit of the purchasing entity (usually the contractor), whereas many owners require by contract and expect that such warranties run to the owner’s sole benefit; and
- become void when the manufacturer’s operating and maintenance instructions are not followed.
Since many manufacturers’ standard warranties contain such limitations, it is important for the owner and design professional to read and understand them during the design phase. It must be determined whether such limitations, when viewed alongside the contractor’s obligations under the correction period and general warranty and guarantee, necessitate requiring a manufacturer’s special or extended warranty.
Special or extended warranties are modified from the manufacturer’s standard warranty to suit the needs of a given transaction, usually in response to a contractual requirement. Perhaps the most common form is an extension of the normal duration of the manufacturer’s standard warranty.
Given the cost of removing and reinstalling a defective item is often as expensive as the replacement parts, sometimes the extra cost to include removal and reinstallation in the manufacturer’s special warranty is desirable. However, such decisions should be made on a case-by-case basis, with full information on the cost and availability of an extended warranty.
Any requirement(s) the contractor shall furnish special guarantees of materials or equipment should be clearly indicated in the associated specifications. The General Conditions (or Division 01 specifications) often require special warranties and guarantees on materials and equipment run to the benefit of the owner. Legally effective warranties and guarantees can be difficult to draft and, when doing so, it is wise to obtain the advice of the owner’s legal counsel.