Problematic Construction Contract Clauses: Warranty and Defects Liability

This is the fourth blog post in a series that discusses clauses in construction contracts with the goal of providing awareness of contract terms that often cause difficulties and give rise to claims.

Previous blog posts have addressed problematic contract clauses involving differing site conditions, no damages for delay, changes, coordination, and suspension of work. This post discusses warranty and defects liability clauses, and other posts will discuss the following clauses:

• Variation in quantity
• Inspection
• Force majeure
• Flow down
• Compensation and payment
• Weather
• Escalation
• Oral modifications

Warranty and Defects Liability Clauses
Certain warranties are implied on a contractor’s performance regardless of the content of the contract. However, owners will often include specific performance requirements for a contractor to expressly warrant using precise contract language.

An example of a private contract warranty provision follows:

ARTICLE 12    WARRANTY
12.1    Contractor represents, warrants and guarantees that: (a) it and its Subcontractors have the capability and experience to perform the Work; (b) it is not party to any contract or agreement of whatever nature which in any way prohibits, prevents or interferes with its performance of its obligations hereunder; (c) it shall comply and shall cause any and all of its Subcontractors to comply strictly with all local, federal, state, province, country and other governmental laws, ordinances, orders, codes, and regulations applicable to Contractor’s operations in the performance of the Work hereunder; (d) the Work performed hereunder shall strictly comply with the provisions of this Agreement, and shall be in full accordance with accepted professional engineering/construction standards and practices in the United States of America; (e) the Work shall be first class in every particular, free from defects in all engineering and design, materials, workmanship, fabrication, and construction performed/furnished by Contractor and/or its Subcontractors; (f) all equipment and materials furnished by or through Contractor for the Work shall be new, merchantable, of the most suitable grade, and fit for their intended purpose.

12.2    All of Contractor’s warranties and guarantees set forth in this Article 12 shall begin as of the Effective Date hereof and shall extend for a period of eighteen (18) months after Final Acceptance (the “Warranty Period”); provided, however, that in the event of a termination for convenience pursuant to Article 16 hereof, or a termination for default pursuant to Article 17 hereof, the warranties shall extend for a period of eighteen (18) months after such date of termination for convenience or default.

12.3    Without limitation of any other rights or remedies of Owner, if any defect, deficiency or item of incomplete Work arises or is identified during the performance of the Work or during the Warranty Period, Contractor shall at its own cost and expense and without reimbursement by Owner:

(a) promptly correct, revise or amend all engineering services performed hereunder which are not in conformity with the standards specified in Article 12.1 above, or which are not in accordance with the requirements of this Agreement, including all Exhibits; and

(b) promptly correct, repair, or replace any part of the Plant or the Work which is damaged or impaired by any breach of, or fails to conform with, the warranty specified in this Article 12, is occasioned by the correction, revision or amendment of engineering services described in clause (a) above, or is otherwise not in accordance with the Agreement, including any construction damage or rework; and

(c) notify and provide Owner with written notice of the schedule for the correction, repair or replacement.

12.4    In the event any warranty failure arises during the Warranty Period and renders the Plant incapable, in whole or in part, of operating in accordance with the requirements of this Agreement, Contractor shall initiate correction, repair or replacement of any part of the Plant or Work within twenty four (24) hours of receipt of notice. In the event of any other warranty failure under this Article 12 (other than those addressed by the immediately preceding sentence), Contractor shall promptly (but in any event within five (5) days after receipt of notice) initiate correction, repair or replacement of any part of the Plant or Work. If Contractor does not initiate correction, repair or replacement within the twenty four (24) hours or five (5) days, as the case may be, Owner may, but is not obligated to, correct, repair or replace the part of the Plant or Work and Contractor shall promptly pay to Owner the costs of such correction, repair or replacement incurred by Owner.

12.5    Any repair, replacement or correction of defective Work shall be guaranteed by Contractor in accordance with the guarantees set forth in Article 12.1 hereof for a period of eighteen (18) months after the date of completion of such correction.

12.6    Repair, replacement or correction of defective Work by Contractor shall meet Owner’s satisfaction. Rejection by Owner of any or all defective Work for failure to conform with this Agreement shall be final and binding.

12.7    Contractor acknowledges that any repair, replacement or correction of defective Work performed by Contractor pursuant to this Article 12 shall be performed at Owner’s convenience and may be performed in an operating facility work environment.

12.8    Contractor shall obtain from each of its Subcontractors warranties that comply with the warranties set forth in this Article 12.

12.9    The express warranties set forth in this agreement express the only warranties of contractor for the work, and no other warranties of any kind, whether statutory, written, oral or implied (including warranties of fitness for a particular purpose or merchantability), shall apply.

FIDIC contracts also contain defects liability provisions,¹ including clauses addressing:

• Completion of outstanding work and remedying defects
• Cost of remedying defects
• Extension of defects notification period
• Failure to remedy defects
• Removal of defective work
• Further tests
• Right of access
• Contractor to search
• Performance certificate
• Unfulfilled obligations
• Clearance of site

FIDIC contracts also contain a quality assurance clause that requires the contractor to implement a quality assurance system to demonstrate compliance with the requirements of the contract.²

Contractors should carefully review the warranty and quality assurance requirements in their contracts to ensure that they have included equipment and materials to satisfy the specifications, necessary and qualified personnel on their team to ensure the work is performed properly, time in their schedules for performing quality assurance activities, and costs to satisfy these requirements in their bid price. Otherwise, final acceptance of the work and monies could be withheld, and the owner could allege liability against the contractor until such problems are remedied.

¹    See FIDIC Conditions of Contract for Construction MDB Harmonised Edition for Building and Engineering Works Designed by the Employer, Clause 11, May 2005.

²    Id., Clause 4.9.

ADDITIONAL RESOURCES

Blog

Discover industry insights on construction disputes and claims, project management, risk analysis, and more.

MORE

Articles

Articles by our engineering and construction claims experts cover topics ranging from acceleration to why claims occur.

MORE

Publications

We are committed to sharing industry knowledge through publication of our books and presentations.

MORE