A common misperception among commercial contractors, particularly those who use standard form contracts, is that their warranty obligations only last for a year. While contracting parties are free to agree to limit warranties to a one-year duration by explicit language in their contracts, that is not the approach taken by most standard form contracts – except in one limited instance.
The AIA’s popular A201 (2017) General Conditions imposes several warranty obligations on the contractor. The basic one is found in Section 3.5.1, warranting that “materials and equipment furnished under the Contract will be of good quality and new unless the Contract Documents require or permit otherwise,” and that “the Work will conform to the requirements of the Contract Documents and will be free from defects, except for those inherent in the quality of the Work the Contract Documents require or permit.” Almost identical language is found in Section 3.8.1 of ConsensusDocs 200 – Standard Agreement and General Conditions Between Owner and Constructor. These clauses include no time limits, so the general statute of limitations applies (in New Hampshire, three years from when the defect was or should have been discovered).
Then there is A201 Section 12.2.2.1, the so-called “call back” remedy (I hesitate to call it a “warranty” because it is a promise that the contractor will act, not that the construction will conform to some standard): “In addition to the Contractor’s obligations under Section 3.5, if, within one year after the date of Substantial Completion of the Work or designated portion thereof . . . any of the Work is found to be not in accordance with the requirements of the Contract Documents, the Contractor shall correct it promptly after receipt of notice from the Owner to do so. . . During the one-year period for correction of Work, if the Owner fails to notify the Contractor and give the Contractor an opportunity to make the correction, the Owner waives the rights to require correction by the Contractor and to make a claim for breach of warranty.” Section 3.9.1 of ConsensusDocs 200 contains a like provision.
Most of the case law and commentary discussing the relationship between these two sections focuses on the duration of the general warranty, concluding that it is independent of and not circumscribed by the one-year period found in the call back provision. But scant attention has been paid to the scope of the waiver attending an Owner’s failure to notify and provide the Contractor with an opportunity to address known deficiencies. Under the A201, such failure waives not only the Owner’s call back rights after the one-year period expires, but also the Owner’s right “to make a claim for breach of warranty.” The last sentence of Section 3.9.1 of ConsensusDocs 200 is similar, providing that the Owner's failure to give notice and opportunity to cure defects discovered within the first year "waives the Constructor’s obligation to correct that Defective Work as well as the Owner’s right to claim a breach of the warranty with respect to that Defective Work.”
The effect of these form contracts is to limit a contractor’s warranty obligations to one year after substantial completion only when the Owner has discovered defective work during that year and failed to afford the contractor an opportunity to fix it – resulting in its deemed acceptance by the Owner. Since only intentional relinquishment of known rights can result in a waiver, and because the underlying goal of encouraging contracting parties to resolve performance issues among themselves is only achievable if they know about those issues, the trigger for this waiver is actual discovery of the defective work during the first year, not whether the owner reasonably should have discovered it.
Not all form contracts include this waiver (the EJCDC’s C-700 – Standard General Conditions of the Construction Contract, for example, has a one-year call back remedy but omits any associated waiver language), and those that do can of course be modified. But in my view, this particular waiver – a back door into a one-year warranty – strikes a fair balance.
The AIA’s popular A201 (2017) General Conditions imposes several warranty obligations on the contractor. The basic one is found in Section 3.5.1, warranting that “materials and equipment furnished under the Contract will be of good quality and new unless the Contract Documents require or permit otherwise,” and that “the Work will conform to the requirements of the Contract Documents and will be free from defects, except for those inherent in the quality of the Work the Contract Documents require or permit.” Almost identical language is found in Section 3.8.1 of ConsensusDocs 200 – Standard Agreement and General Conditions Between Owner and Constructor. These clauses include no time limits, so the general statute of limitations applies (in New Hampshire, three years from when the defect was or should have been discovered).
Then there is A201 Section 12.2.2.1, the so-called “call back” remedy (I hesitate to call it a “warranty” because it is a promise that the contractor will act, not that the construction will conform to some standard): “In addition to the Contractor’s obligations under Section 3.5, if, within one year after the date of Substantial Completion of the Work or designated portion thereof . . . any of the Work is found to be not in accordance with the requirements of the Contract Documents, the Contractor shall correct it promptly after receipt of notice from the Owner to do so. . . During the one-year period for correction of Work, if the Owner fails to notify the Contractor and give the Contractor an opportunity to make the correction, the Owner waives the rights to require correction by the Contractor and to make a claim for breach of warranty.” Section 3.9.1 of ConsensusDocs 200 contains a like provision.
Most of the case law and commentary discussing the relationship between these two sections focuses on the duration of the general warranty, concluding that it is independent of and not circumscribed by the one-year period found in the call back provision. But scant attention has been paid to the scope of the waiver attending an Owner’s failure to notify and provide the Contractor with an opportunity to address known deficiencies. Under the A201, such failure waives not only the Owner’s call back rights after the one-year period expires, but also the Owner’s right “to make a claim for breach of warranty.” The last sentence of Section 3.9.1 of ConsensusDocs 200 is similar, providing that the Owner's failure to give notice and opportunity to cure defects discovered within the first year "waives the Constructor’s obligation to correct that Defective Work as well as the Owner’s right to claim a breach of the warranty with respect to that Defective Work.”
The effect of these form contracts is to limit a contractor’s warranty obligations to one year after substantial completion only when the Owner has discovered defective work during that year and failed to afford the contractor an opportunity to fix it – resulting in its deemed acceptance by the Owner. Since only intentional relinquishment of known rights can result in a waiver, and because the underlying goal of encouraging contracting parties to resolve performance issues among themselves is only achievable if they know about those issues, the trigger for this waiver is actual discovery of the defective work during the first year, not whether the owner reasonably should have discovered it.
Not all form contracts include this waiver (the EJCDC’s C-700 – Standard General Conditions of the Construction Contract, for example, has a one-year call back remedy but omits any associated waiver language), and those that do can of course be modified. But in my view, this particular waiver – a back door into a one-year warranty – strikes a fair balance.
RSS Feed
