Warranty/Guaranty Provisions In Construction Contracts

The most confusion I have seen in the discussion of construction topics concerns the concepts of "warranty" and "guaranty." This article will address the confusion, explain the important distinctions between these two concepts, and describe how to effectively administer and enforce warranty and guaranty provisions in construction contracts.

Warranty

In a typical construction contract warranty provision, the contractor "warrants" or "represents," or covenants, that its work will be performed in accordance with certain standards stated in the contract (e.g., in "a good and workmanlike manner") and otherwise be free of defects and in conformity with the design documents. While the term "warranty" or "warrants" is often used in connection with this concept, it really pertains to any provision in the contract, whether a representation or a covenant, which prescribes a standard of performance governing the contractor's work.

The remedy for breach of the "warranty" is the recovery of monetary damages incurred by the other party (e.g., the project owner or general contractor) by reason of the breach. So, for example, if defective materials need to be repaired or replaced by the owner, the owner is entitled to recover from the contractor the cost of the repairs or replacement made by the owner.

The duration of the warranty will sometimes be designated in the contract (or design specifications), but if not, the statute of limitations period for contract breaches will constitute the time frame for enforcement (in New York, for example, the period is six (6) years from the accrual of the cause of action).

Guaranty

A typical guaranty (or guarantee) provision becomes operative after completion of the contractor's work, and requires replace defective or non-conforming materials or equipment, or remedy improper workmanship, at its own cost and expense.

The contract, or design specification, containing this obligation generally provides for an expiration date or period beyond which the guaranty is no longer enforceable. The design specifications may contain certain guaranty time periods that are longer than the time period provided for in the contract, so it is important to state in the contract that the longer period prevails.

The term "guaranty" may not be used to characterize this obligation, and often the word "warranty" is used, which can generate confusion because of the different remedies available under a true "guaranty" and a true "warranty."

Confu...