This is Part 2 of our series considering warranties in construction contracts. In our last update, we considered the nature of product and workmanship warranties as contractually binding promises and what this means for construction contractors and principals.
In this next part, we consider the other essential feature of warranties as risk-shifting mechanisms.
This is important where defects in warranted workmanship or materials are found to have been caused by, for example, a manufacturer, or another contractor who was subcontracted to the warranting contractor: that is, where the party that gives the warranty is not the party at fault for a defect covered by that warranty.
In such cases, the effect of the warranty will be to shift the risk of being out of pocket as a result of the warranted defects from the owner or head contractor that has commissioned the defective works, to the contractor that has warranted the quality of those works, during any argument about who is ultimately to blame for those defects. The warranting contractor will generally then be left to recover the losses that it suffers because of enforcement of the warranty, from the party ultimately responsible for the warranted defects.
Where an owner or head contractor calls upon a warranty in order to shift losses and risks in this way, this may be seen as a sound commercial strategy. Sometimes, though, seeking to enforce a warranty may be more trouble than it is worth. For example, there may be a dispute as to whether particular defects (the existence, extent and/or nature of which may themselves be disputed) fall within or outside the scope of the warranty sought to be enforced. Another example would be a dispute about whether the steps taken by the owner or head contractor to enforce the warranty were validly taken within the warranty period.
In such cases, owners and head contractors may be well advised to consider other options that the law may give them. Remember that a warranty is a contractual promise which means that it is enforceable under the contract between the contractor or supplier and the owner/head contractor/purchaser. But there are other laws that also protect purchasers of defective workmanship and materials, some of which only apply in construction and some of which apply more generally, including in construction.
This is general information only, and does not constitute specific legal advice. If you would like further information in relation to this matter or other legal matters please contact Daniel Morris or Murray Thornhill Freecall 1800 609 945 or email us now.