Contractual Warranty Language: A Legal View From The Trenches

Abstract

A project is delivered, closed out and the money received (or most of it). After a year of silence a letter from the client appears advising of a major failure, demanding that it be rectified immediately and that all costs be indemnified. Legal counsel searches back to a contract negotiated 3 years previously, searching to find what was agreed to and what can be done to limit the exposure. Warranty claims, those claims which arise due to defective or deficient equipment (generally) after delivery, can be an unpleasant surprise for businesses and their legal counsel. There are many ways to mitigate this risk, but for legal counsel the primary method is through the contractual terms negotiated before the project commences. Correctly addressing these issues at this time presents a challenge but is crucial to ensure that a successful project at delivery does not subsequently become a failure. The aim of this paper is to provide a practical summary of warranty issues from the perspective of the oil and gas engineering and construction contractor delivering complex equipment it engineers and fabricates. It is written in a general manner towards common law legal jurisdictions. The paper will address (1) the basic properties of a warranty; (2) rationales for managing warranty risk; (3) both acceptable and problematic warranty obligations; (4) the warranty period and time for warranty performance; and (5) exposure for repair costs and damages with respect to defective equipment. Various pitfalls and best practices will be forwarded with the view towards ensuring that warranty exposure is clear, apportioned appropriately and able to be managed by the business at the time of contracting. In this paper Seller will be used to indicate the vendor of the equipment and Buyer for the purchaser of the equipment.