Warranties as Contracts
Understanding the long-term legal obligations of product and project warranties
Warranties are more than marketing tools. They are legal, risk allocation contracts that tie companies to their products or work into the future. Project owners and general contractors can use warranties to limit their responsibility long after project completion. These risk-shifting efforts can, and do, result in problems when there is a need for work, but there are inconsistent or conflicting warranties.
Issues most often appear when a contract requires a warranty term longer than a system supplier is willing to meet. Disputes also come when warranties exclude large cost items, like labor or materials, even where issues are identified with a vendor’s component. No matter the source, these disagreements happen because of the two parts that make up most warranties: representations and promises.
Warranties usually begin with a representation that goods or services are of a certain quality or will achieve a particular result. These representations can be made by writing or conduct, and others are compelled by law in most States. Next, a warranty shifts to a promise of how a company will respond if the representations are inaccurate. What a company agrees to do, not do, and the circumstances under which it will respond, are the meaningful parts of any warranty. It is not too much of a simplification to say that the representations and promises in warranties are like contracts.
How can companies address situations where the warranty contract does not match the underlying job contract?
The first step is to carefully read both the contract and all warranties to identify gaps. Understanding the job requirements, warranty limitations, and time periods will help to determine where they do no align. For example, a lengthy system warranty that excludes labor costs should be considered differently than one which is more limited but includes all replacement value. Identifying contractual requirements and warranty exclusions allows a better understanding of the risks being accepted on a job.
Understanding those gaps can also provide an opportunity to negotiate. Warranties are contracts, and some can be changed. While many companies are hesitant to adjust contractual requirements and vendor warranties, when gaps are identified there is often more motivation to negotiate. If negotiation of the warranty is not possible, the underlying cost of the job contract is open. And if there is no movement on either, then the risk issue has been identified and a decision can be made whether to accept that risk on a given job.
When you can negotiate terms, make sure the representations and promises are defined so that boundaries of responsibility are clearly established. Pay careful attention to the triggers of a warranty demand and what is required in response. An allegation of water intrusion at one opening should not necessarily default to an obligation of replacing all glazing at a building. The scope of the obligation must match the scope of the allegation. Defining a response within the scope of the allegation can help limit a disagreement to real issues, and limit the warranty costs to real, required repairs.
Ensure that all parties know who is warranting what. Trades can warrant work. Vendors and manufacturers can warrant materials. Pass through warranties of others, without adding onto those terms, so those involved with a project understand the scopes of responsibility at the outset of a project. But identify where vendor warranties do not align with owner expectations and fill those gaps at the start of a job through contracting with the owner or vendor directly. Ultimately, the owner is the one that needs to use warranties, because they are buying the finished project.
Finally, be mindful of several things when approached for service under a warranty. First, know a warranty’s terms and triggers; do not overcommit to work that is not required. Second, be cautious when offering work that falls outside or overlooks the warranty’s terms. Customer service is important, but going beyond the warranty can result in an argument that its bargained-for limitations should not apply. Finally, if you do go beyond the warranty, document why and try to get something in return. Do not hesitate to announce what you are doing is beyond the warranty and seek a release for any further work as a result of that exchange. Do not hesitate to use the warranty as a basis for a separate work agreement that is shaped by, but not bound to, the warranty.
Warranties are broad and each is unique. Their overlapping obligations can create real issues. But they are still a species of contract that, like any contract, may be negotiated. Look for the negotiation points and try to leverage those into protections that can be used if a claim arises. But do not forget that a warranty is only as good as its representations and the ability to stand behind those promises.