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Warranties

ACON 090

DAU GLOSSARY DEFINITION

A promise or affirmation given by a contractor to the government regarding the nature, usefulness, or condition of the supplies or performance of services furnished under a contract.

Alternate Definition

A warranty is an express or implied promise from the seller that certain facts about the items or services being sold are true. It provides a buyer with legal assurance that the seller is providing an item or service that will perform as represented before the purchase transaction was complete. The concept of "warranty" also refers to certain promises, made by the Government, of future events or conditions (such as availability of a construction work site) needed for the supplier to perform the contract.

General Information

Unexpected events which occur during contract performance or during the use of an item after the contract period has expired can create difficulties for both the buyer and the seller. Various methods exist to allocate such risks through the use of contract language and terms. One of these methods is with the use of warranties.

 

There are two broad categories of warranties: express warranties and implied warranties. According to the Uniform Commercial Code: "Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise." The other type of warranty is the implied warranty. This type of warranty revolves around the concepts of fitness for use and merchantability. Implied warranties become part of commercial contracts even though they are not written, unless specifically excluded.

 

Prior to the Federal Acquisition Streamlining Act of 1994 (FASA), only express warranties were inherent to Government contracting. Since FASA, FAR Part 12 (Acquisition of Commercial Items) has integrated implied warranties into contracts when the clause at FAR 52.212-4 is included. The Government’s post-award rights contained in 52.212-4 are the implied warranty of merchantability1 , the implied warranty of fitness for particular purpose2 and the remedies contained in the acceptance paragraph. Government contracting officers should consult with legal counsel prior to asserting any claim for a breach of an implied warranty.

 

FASA requires contracting officers to take full advantage of commercial warranties. To the maximum extent practicable, solicitations for commercial items must require offerors to offer the Government at least the same warranty terms, including offers of extended warranties, offered to the general public in customary commercial practice. Solicitations may specify minimum warranty terms, e.g., minimum length of warranty coverage, appropriate for the Government’s intended use of the item(s).

 

The inclusion of an express warranty often results in higher prices to the Government. Therefore, the contracting officer should analyze any warranty to determine if:

 

  • The warranty is adequate to protect the needs of the Government, to include the list of items covered by the warranty and length of the warranty
  • The terms allow the Government to exercise effective post-award administration of the warranty, including identification of warranted items, procedures for return of warranted items to the contractor for repair or replacement, and collection of product performance information
  • The warranty is cost-effective

 

In some markets it may be customary commercial practice for contractors to exclude or limit the implied warranties (contained in 52.212-4) in the provisions of a separate express warranty. In such cases, FAR 12.404 requires the contracting officer to ensure that the express warranty provides for the repair or replacement of defective items discovered within a reasonable period of time after acceptance. Express warranties must be included in the contract by addendum (see FAR 12.302). However, the actual intent by the seller to provide a warranty or even include the term "warranty" in the offer/contract is not required for the effect of a warranty to actually exist.

 

While it’s typical to think of warranties as referring to the responsibilities of the contractor, the concept can also apply to the responsibilities of the Government. For example, a past legal case involved a Government contract that contained a clause stating:

 

  • "Bidders are advised that clearance for aliens may require up to 90 days before issuance of any resultant authority for individual entry."

 

The Armed Services Board of Contract Appeals interpreted this as constituting a warranty by the Government, and ruled that the Government was liable for any damages to the contractor resulting from actual clearance times exceeding the 90 days.3 A warranty may also be implied for when the Government must make a work site available for a construction contractor to begin work.4

 

1The implied warranty of merchantability provides that an item is reasonably fit for the ordinary purposes for which such items are used.
2 The implied warranty of fitness for a particular purpose provides that an item is fit for use for the particular purpose for which the Government will use the items.
3 Cibinic, J., Nash, R., and Nagle, J. (2006), Administration of Government Contracts, Riverwoods, IL: CCH Incorporated, p. 246.
4 Ibid, pp. 247-250.