Statements about product capabilities and capacities have the potential to form legally binding contracts and warranties. Where those statements are untrue, or made indiscriminately, the legal and financial penalties can be significant when it is discovered that a product can’t meet the required or represented performance. The legal risk is not necessarily in the act of making a representation about performance, but rather, what it represents.
Consider the category of protective glazing. The features and capabilities that fall into the general description of protective glazing show the amazing capacity of glass and glazing systems. And while marketers love terms like protective glazing, risk managers and lawyers find them more troublesome because of the liability that can follow marketing representations.
Fraud versus misrepresentation
The worst examples, but fortunately most infrequent, are found in downright fraud—lies to get a sale. In these situations, intentional decisions are made to misrepresent a product’s performance or installations. Similarly deceptive are installations that intentionally substitute a knowingly less-effective product—the proverbial bait-and-switch. These rather obvious situations create liability that is not only expansive but cannot be insured against.
More regularly encountered are situations where representations about a product’s characteristics are made without adequate information or with simple inattention. Without reasonable and appropriate due diligence, suggestions of product capacity that cannot be met are often found to be negligent misrepresentations that can result in damages to not only replace with compliant systems, but also broad consequential damages that are necessary to prove the noncompliance in the first place.
Financial and compliance risks
Separate from these legal risks, financial risks multiply where there is a cavalier approach to market representations. Warranties of performance are not limited to paper copies with pretty edges. Any express representation of capabilities, capacities, or functionality of a product has the potential to become an affirmative warranty that will bind the seller. And where those representations are not met or performance proves less than full, sellers can bear the financial burden of bringing systems into compliance or sourcing alternatives.
Regulatory compliance is also a considerable risk point. The Federal Trade Commission has express oversight over how certain materials can be permissibly marketed. These requirements are broad and far-reaching. Defending against a claimed violation is often difficult and the penalties for violating these standards can prove severe.
Of course, knowing about a risk does not need to inhibit marketing or sales. The key point is managing risk so that it is minimized in ways that allow retention of the revenue from a sale.
Standards and expertise
Industry consensus standards that define and provide for how to measure performance are perhaps the most valuable sales tools around. A working understanding of the applicable standards and their proper use allows discussions with project designers and engineers to occur from a shared basis of understanding. This maximizes the opportunities to ensure needed performance requirements are met, without overselling or unknowingly delivering underperforming products. It also provides the opportunity to validate product performance from common frameworks, not individual whims.
Industry expertise also provides opportunities to rely on supplier experts to ensure product performance is not misrepresented. Manufacturers spend thousands of hours in research and development so that the design and testing of products can conform to industry standards. Independent validation of compliance to these standards helps support represented performance. The key is to manage relationships with these manufacturers and suppliers. Lean into their expertise on the specifics of their system. Moreover, keep current with their offerings and representations of performance because they can – and often do – change over time. Fostering these relationships helps limit situations where assumptions based on historical performance lead to misapplication on current projects.
Importance of limitations
It is also important to remember that no one is an expert on everything. Disclosure of appropriately tailored limitations that identify the representations of others can provide a key shield to later claims of poor or misrepresented performance. This step does not require lawyerly fine print, but rather a direct identification of the products being provided, their represented performance characteristics and specification of the standards by which that performance is measured. This helps establish performance expectations and operative assumptions about represented performance, and allows all parties to assess any potential substitutions.
