NAEPnet

www.NAEPnet.org

Facilities InstituteJuly 9 - 12, 2012Houston, Texas

CONSTRUCTION AND RENOVATION

WARRANTY/GUARANTEE

What Do You Get

And

When Does It Start?

C. G. “Sonny” Jester Robert Ferguson and

FTI Consulting Stan Scott

Construction Solutions Hill International, Inc


Warranties and Guarantees

Type of Project Makes a Difference

• May seem like a “no brainer”• But the differences are significant• Critical Considerations

o Type of delivery methodologyo What drives your project?o Who provides the warranty?

• And is it backed by anyone?


Where Does the Warranty Originate?

• Cannot discuss Warranties without addressing several basic issues:

1.Contractual context

2.Start up and Commissioning


Begin at the Beginning

• Must plan for the “end” before you kickoff the project


Actually, Not the End…

Close out, Commissioning and the activation of warranties should be viewed as the beginning of the life of the project/systems…

Not the END of the construction project

It is a transition, and a very real risk shifting time in the life of the project


A Question of Degrees…

Life Safety and HVAC on a dormitory

Or

Process/performance Guarantee on a bio-containment facility


3 Step Process

1. Quality Planning…do it right the first time

2. Quality Assurance…implementing what has been planned

3. Quality Control…monitoring specific objectives to ensure compliance with standards


Step 1 - Planning

• “Look where you are going”


Commissioning of Systems

• Not an “end of the job” considerationo But intimately connected to the warranty

period

• To be most effective, should begin at the Pre-Design stage

• Don’t just focus on mechanical systemso What about your building envelope?

• Roof systems and Curtain walls


Procurement of Equipment

• This includes drafting the contracts• UCC considerations (not international)

o If contract for the procurement of equipment does not address warranties and remedies, among other things, UCC provisions may be read into the contract

o But note…Article 2 governs contracts for goods, not services

• Design, installation, maintenance not covered?


Factors to consider in equipment procurement contracts

• What happens to facility if equipment doesn’t work?o Underperformance?

• How does equipment fit into construction of facility?o Time issues, interfaces

• How is risk of loss (to or from equipment) allocted?

• Who owns IP for equipment?


Equipment procurement factors continued

• Who monitors performance specs?o Design Build?

• Who tests for compliance?o What happens on failure?

• Who provides the warranty?


Step 2 - QA

“You wanted what?…”


QA Processes

• Peer Review at Schematic Design phase• At 100% Design Development phase, conduct

a System Coordination Reviewo Validate vs. spatial requirements, etc

• Constructability Review at 70-100% Construction Documentso Before released for construction


Step 3 - QC

“Nobody will notice…”


QC Processes

• Identify and empower commissioning agent• Coordinate activities in a logical, sequential

order• Gather operations/maintenance manuals• Gather and review control sequences and

interfaces• Prepare pre-functional tests• On site observations


Examples of questionable on site inspections


Start up and Warranties

• As part of QC processo Plan for seasonal or deferred testing and

correctiono Review operation and related issues before

end of the warranty period• 10 months?• More often or earlier?


Warranty Discussion

Consideration of specific issues…

1. When does the warranty start?

2. What does it cover?

3. Who provides the warranty?

4. Criticality of the warranty?

5. Damages recoverable?


It is important to note at the outset…

That these considerations overlap in many respects.


Example of an early warranty…

The Code of Hammurabi (1800 B.C.)229

If a builder build a house for some one, and does not construct it properly, and the house which he built fall in and kill its owner, then that builder shall be put to death.

230If it kill the son of the owner the son of that builder shall be put to death.

231If it kill a slave of the owner, then he shall pay slave for slave to the owner of the

house.

232If it ruin goods, he shall make compensation for all that has been ruined, and

inasmuch as he did not construct properly this house which he built and it fell, he shall re-erect the house from his own means.

233 If a builder builds a house for someone, even though he has not yet completed it; if

then the walls seem toppling, the builder must make the walls solid from his own means


When does it start?

Upon design?

Fitness for a particular purpose?

Upon purchase?

Upon installations?

Upon start up?

Commissioning?


When does it start?

What about the impact of:

•Suspension •Delay •Force majeure•Occupancy and/or completion issues


What does it cover?

Limitations and disclaimers

Who is the “buyer” for notice purposes?

Privity of contract

Goods vs. services?

Installation, maintenance


Who provides?

Manufacturer? Distributor? Contractor?

2007 AIA A201 §3.5

Contractor’s work = free from defects

Except:•Inherent in quality of work required •Defects due to abuse, alterations to work, bad maintenance, improper operation, normal wear and tear


Who provides?

Contractor

Manufacturer/supplier

Subcontractor

Insurance for same

Impact of insolvency by any?

Who should receive notice?

Can you compel notice?


Who provides?

Type of contract or delivery methodology make a difference?

Design build

Design assist

EPC vs EPCM


Criticality of Warranty

Is it a component system?

Necessary for use and/or occupancy?

Is it the reason for the project?

Without the warranty/performance, what is the value of the project?


Limitations on what is recoverable?

Economic Loss Rule

-Repair or replacement costs of defective system, and lost usage, income, etc from delayed completion barred without privity?

-Damage to other property or personal injury damages recoverable?


THANK YOU!

QUESTIONS?

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