Consumers are familiar with warranty through the experience of purchasing an appliance or electronic product. Upon opening the box, consumers encounter documentation for safety, start up and use. The documentation includes mail and on-line registration as well as the terms and conditions for warranty on the purchased item. It is also the point for purchasing an extended warranty, which will supplement the manufacturer’s coverage and extended the warranty period and coverage for problems requiring repair from normal use. Similarly, the Sellers and Buyers involved in a contract follow a similar process albeit for multiple items.
Warranty is typically defined in the General Provisions (PGs), and depending on the source of project funds, the period can range from 12 months from the Seller to longer periods as specified by the Buyer and as offered by manufacturers. The start of the warranty period can also vary as described in the GPs. The warranty period covers labor and materials required to repair breakdowns in the work and defects from improper or poor workmanship.
Most standard contract Forms, indicate the warranty period starts at the completion of work satisfying the milestone for Substantial Completion, which is a point in the Seller’s progress when the work is ready for its intended use. Other hybrid contracts, may specify the period starts at acceptance by the Buyer or at operational use by the Buyer of portions or of all work in total.
- EXAMPLE: If the manufacturer’s warranty is 90 days from delivery or installation, the Seller is obligated to provide warranty labor and materials for the period described in the Contract, IE 12 months from Substantial Completion. Depending on the complexity of the component or system, the Seller may need to consider extended warranty agreements with manufacturers for the balance of the period.
- EXAMPLE: If the manufacturer’s warranty is 5 years from delivery or installation, the Seller is obligated to provide the warranty labor and materials for the period described in the Contract, IE 12 months from Substantial Completion. After the 12 month period the Buyer assumes responsibility for managing the remaining period directly with the individual manufacturers.
Whether starting at Substantial Completion or Acceptance, the start and end of the Seller’s warranty can be straightforward. However, if the Buyer takes possession of portions of the work for its own benefit ahead of the contract milestone, it creates the need for the Seller and Buyer to create a tracking mechanism and performance metrics for warranty, including the notification from Seller to Buyer on periods that will expire and prompting the Buyer to take over management of warranties beyond the contract period.
Depending on the relation of the work to Buyer’s business, warranty requirements may include Seller’s time to response, Seller’s time to repair, and the option for Buyer to implement repairs and back-charge the Seller. These requirements are normally encountered on systems that are critical to the Buyer’s operation where restoration is essential for customers, surrounding communities, and other businesses that rely on the Buyer’s operation to sustain the local economy.
- MYTH: During the warranty period, the Seller is responsible for maintenance, such as cleaning, changing filters and fluids, replacing batteries, and scheduling service for recalls and tune-ups.
- FACT: A Seller’s warranty does not relieve the Buyer from operating, inspecting and maintaining the work. If the work is not maintained, misused or modified by the Buyer, the Seller’s and manufacturer warranties will be voided and the cost of repairs will be borne by the Buyer.
This illustrates the need for the Seller to provide the Buyer with a Maintenance/Warranty Management Plan, which contains the process and documentation for managing warranty claims and for assuring performance through the warranty period.
Unless specifically identified in the Seller’s contract bid, warranty has no value until is used by the Buyer to make repairs within the covered period. Depending on the contract milestones, the end of the covered period could occur after the Contract Completion. At that time, the Seller is no longer maintaining a project office to work with the Buyer on scheduling and completing residual work associated with warranty and/or product recalls. And the contacts for the Contract are no longer assigned responsibility for managing the warranty.
While materials, products and systems used today are highly reliable and the calculated failure rates are extremely low, the potential of failure exists, and it remains the project teams responsibility to ensure the warranty is managed past the contract completion milestone. The warranty terms and period offered by most manufacturer’s is a business decision that indicates the confidence level that failure of materials or problems from workmanship will not occur during the period of warranty. Otherwise, failures that require repair will erode profits on booked revenue.
During the transition to operational use of the Seller’s work, the Buyer will be updating its operating plans and internal controls to create material management and work flows for longer term maintenance and repair needs. For similar items already used in the Buyer’s operation, this effort may be minor. If the Seller’s work contains materials, products or systems not currently used by the Buyer, the effort may involve creating or updating staffing plans, purchasing plans and inspection schedules.
To aid both Seller and Buyer, manufactures’ contacts, product information, and warranty information is contained in the Operation and Maintenance Manuals, which also includes a list of recommended spare parts, and the specific installation locations shown in the As-Built Drawings. And in unusual cases, the Buyer may specific physical parts to be delivered by the Seller as part of the contract scope. This further assures the Buyer’s readiness for initial maintenance and repairs when the work is accepted and the Buyer assumes responsibility for the work and management of warranty.
TIP: As part of most Project/Contract Management Plans, the Buyer will assign technical experts to participate in the review of shop drawings, material submittals, and startup and testing procedures for the work by the Seller. The Buyer’s experts are essential for assuring the Seller’s work meets the requirements throughout the entire lifecycle from design to contract completion to the end of warranty. This applies to various delivery methods including design-bid-build, design-build, or design-build-operate-maintain.
TIP: Many Buyers have operating departments or contract services for maintenance and repair of fixed assets and rolling assets. The fixed assets may include elevators, escalators, HVAC, fire alarm and suppression, computers, communications and security, and shop equipment. The rolling assets may include roadway vehicles and trucks, shop vehicles, emergency generators, and other types on-road and off-road vehicles. The Buyer needs to identify a point of contact and to allocate staff to manage the warranty period and the materials needed for long term inspection, maintenance and repair of the assets.
TIP: Particularly on mega-project contracts, Buyer requirements for Seller price proposals should include a specific item for the cost allocation of warranty meeting the requirements in the GPs. This will establish a value for use at a later stage in the contract for determining performance securities and/or for negotiating costs for extending manufacturers’ warranties based on actual progress of the Seller work. Any differential will establish an equitable balance of warranty costs between Buyer and Seller.
TIP: Some US government funding sources may limit the Buyer’s warranty period requirement from the Seller to a maximum of 12 months from the specified construction milestone.
