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Chances are that if you鈥檝e ever read an industry-standard construction contract, you鈥檝e noticed that for a period of time after substantial completion of the project (usually 12 months), the contractor is required to come back and fix any defective work or problems with the construction. Sounds a lot like a warranty, right? While the contract probably contains a warranty, it鈥檚 likely not what you think. In fact, the idea that a contractor鈥檚 contractual responsibility for defective or substandard work ends one year after substantial completion is one of the most misunderstood concepts in construction contracting.

Most construction contracts include a clause stating that the contractor鈥檚 work will meet certain standards 鈥� usually that the work will conform to all applicable requirements and be free from defects (or something similar). For example, Section 3.5.1 of the AIA Document A201-2017, General Conditions of the Contract for Construction Projects states:

鈥淭he Contractor warrants to the Owner and Architect that materials and equipment furnished under the Contract will be of good quality and new unless the Contract Documents require or permit otherwise. The Contractor further warrants that the Work will conform to the requirements of the Contract Documents and will be free from defects . . . The Contractor鈥檚 warranty excludes remedy for damage or defect caused by abuse, alterations to the Work not executed by the Contractor, improper or insufficient maintenance, improper operation, or normal wear and tear and normal usage.鈥�
This sort of contractual promise constitutes the contractor鈥檚 warranty. In fact, Section 3.5 is titled 鈥淲arranty.鈥�

I know what you鈥檙e thinking: 鈥淥kay, but somewhere else in the contract the contractor is still required to repair defects for 12 months 鈥� so isn鈥檛 that a 12-month warranty?鈥� Again, while you would be right that the contract requires repair for a period of 12 months, the contract requirements probably aren鈥檛 exactly what you think. Indeed, Section 12.2.2.1 of the A201-2017 sets forth a one-year correction period, but the language requires a careful read:

鈥淚n addition to the Contractor鈥檚 obligations under Section 3.5 [warranty], if, within one year after the date of Substantial Completion of the Work or designated portion thereof . . . any of the Work is found to be not in accordance with the requirements of the Contract Documents, the Contractor shall correct it promptly after receipt of notice from the Owner to do so. 鈥� During the one-year period for correction of Work, if the Owner fails to notify the Contractor and give the Contractor an opportunity to make the correction, the Owner waives the rights to require correction by the Contractor and to make a claim for breach of warranty.鈥� (Emphasis added.)

Further, Section 12.2.5 of the A201-2017 states:

鈥淣othing contained in this Section 12.2 [correction period] shall be construed to establish a period of limitation with respect to other obligations the Contractor has under the Contract Documents. Establishment of the one-year period for correction of Work . . . relates only to the specific obligation of the Contractor to correct the Work, and has no relationship to the time within which the obligation to comply with the Contract Documents may be sought to be enforced, nor to the time within which proceedings may be commenced to establish the Contractor鈥檚 liability with respect to the Contractor鈥檚 obligations other than specifically to correct the Work.鈥� (Emphasis added.)

Note that you will find no time limitation attached to the contractor鈥檚 warranty in Section 3.5.1.

The end result is that while Section 12.2 creates an obligation for the contractor to repair defective work for one year after substantial completion, that obligation does not end or cut off the contractor鈥檚 warranty in Section 3.5 鈥� the contractor may not be required to repair defects after the 12-month period ends, but the contractual warranty still stands and can be used to collect money from the contractor for the defects. And, an owner can sue the contractor for breach of warranty long after the 12-month correction period ends (as long as the owner files the claim within the applicable statute of limitations or repose).

The takeaway for owners and contractors is this: While it is possible for a construction contract to establish a true one-year warranty for the contractor鈥檚 work, most contracts (including industry-standard forms like AIA) do not. A contractor鈥檚 obligation to repair defective work may last only one year, but the warranty itself (and the contractor鈥檚 contractual 鈥� and ultimately, financial 鈥� responsibility to meet it) lasts as long as the owner has a right to file a lawsuit to enforce it.

Christi Taylor, an attorney with Miller Nash Graham & Dunn, focuses on government, municipal, and administrative law, including public contracting. She also has a background in construction law and assists clients through the process of building complex projects, including drafting and negotiating contracts for construction. Taylor can be reached at 503-205-2417 or at [email protected].