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CONSTRUCTION AND RENOVATION
WARRANTY/GUARANTEE
What Do You Get
And
When Does It Start?
C. G. “Sonny” Jester
FTI Consulting
Construction Solutions
Robert Ferguson and
Stan Scott
Hill International, Inc
Facilities Institute
July 9 - 12, 2012
Houston, Texas
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 methodology
o What drives your project?
o Who provides the warranty?
• And is it backed by anyone?
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Where Does the Warranty Originate?
• Cannot discuss Warranties without addressing
several basic issues:
1. Contractual context
2. Start up and Commissioning
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Begin at the Beginning
• Must plan for the “end” before you kickoff the
project
Facilities Institute
July 9 - 12, 2012
Houston, Texas
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
Facilities Institute
July 9 - 12, 2012
Houston, Texas
A Question of Degrees…
Life Safety and HVAC on a dormitory
Or
Process/performance Guarantee on a biocontainment facility
Facilities Institute
July 9 - 12, 2012
Houston, Texas
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
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Step 1 - Planning
• “Look where you are going”
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Commissioning of Systems
• Not an “end of the job” consideration
o But intimately connected to the warranty
period
• To be most effective, should begin at the
Pre-Design stage
• Don’t just focus on mechanical systems
o What about your building envelope?
• Roof systems and Curtain walls
Facilities Institute
July 9 - 12, 2012
Houston, Texas
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?
Facilities Institute
July 9 - 12, 2012
Houston, Texas
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?
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Equipment procurement factors continued
• Who monitors performance specs?
o Design Build?
• Who tests for compliance?
o What happens on failure?
• Who provides the warranty?
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Step 2 - QA
“You wanted what?…”
Facilities Institute
July 9 - 12, 2012
Houston, Texas
QA Processes
• Peer Review at Schematic Design phase
• At 100% Design Development phase, conduct
a System Coordination Review
o Validate vs. spatial requirements, etc
• Constructability Review at 70-100%
Construction Documents
o Before released for construction
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Step 3 - QC
“Nobody will notice…”
Facilities Institute
July 9 - 12, 2012
Houston, Texas
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
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Examples of questionable on site inspections
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Examples of questionable on site inspections
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Examples of questionable on site inspections
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Examples of questionable on site inspections
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Examples of questionable on site inspections
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Start up and Warranties
• As part of QC process
o Plan for seasonal or deferred testing and
correction
o Review operation and related issues before
end of the warranty period
• 10 months?
• More often or earlier?
Facilities Institute
July 9 - 12, 2012
Houston, Texas
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?
Facilities Institute
July 9 - 12, 2012
Houston, Texas
It is important to note at the outset…
That these considerations overlap in many
respects.
Facilities Institute
July 9 - 12, 2012
Houston, Texas
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.
230
If it kill the son of the owner the son of that builder shall be put to death.
231
If it kill a slave of the owner, then he shall pay slave for slave to the owner of the house.
232
If 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
Facilities Institute
July 9 - 12, 2012
Houston, Texas
When does it start?
Upon design?
Fitness for a particular purpose?
Upon purchase?
Upon installations?
Upon start up?
Commissioning?
Facilities Institute
July 9 - 12, 2012
Houston, Texas
When does it start?
What about the impact of:
•
•
•
•
Suspension
Delay
Force majeure
Occupancy and/or completion issues
Facilities Institute
July 9 - 12, 2012
Houston, Texas
What does it cover?
Limitations and disclaimers
Who is the “buyer” for notice purposes?
Privity of contract
Goods vs. services?
Installation, maintenance
Facilities Institute
July 9 - 12, 2012
Houston, Texas
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
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Who provides?
Contractor
Manufacturer/supplier
Subcontractor
Insurance for same
Impact of insolvency by any?
Who should receive notice?
Can you compel notice?
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Who provides?
Type of contract or delivery methodology make a
difference?
Design build
Design assist
EPC vs EPCM
Facilities Institute
July 9 - 12, 2012
Houston, Texas
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?
Facilities Institute
July 9 - 12, 2012
Houston, Texas
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?
Facilities Institute
July 9 - 12, 2012
Houston, Texas
THANK YOU!
QUESTIONS?
Facilities Institute
July 9 - 12, 2012
Houston, Texas