8. Warranties

Warranty statements are an important part of the turnover package provided by the contractor to the Owner at the completion of the project and are typically a part of the commissioning documentation. However, there are commissioning related issues associated with warranties that go far beyond the simple terms and conditions contained in the various warranty statements. The beginning of the warranty period often coincides with the point of beneficial use - the point in time where the Owner is receiving benefit from the building and systems. At this point, the responsibility for their operation and maintenance transfers from the contractor to the Owner. The warranty period is often the point when the contractor receives the final payment on the project. Since the commissioning provider may be placed in the middle of all of these events, the following issues are worthy of consideration.

·       The commissioning provider should understand the basis for the component and system warranties to ensure that the testing sequences that will be used will not violate any of the warranty requirements. Often, it is desirable to have the proposed test processes reviewed by the contractors and suppliers to obtain their buy-in and avoid warranty problems down the line.

·       The warranty requirements are typically located in the project contract documents. These requirements are typically found in a variety of places including the Architect’s Division 1 requirements, the mechanical spec general conditions, the specification sections dealing with the component(s) in question, and the actual contract, like the AIA General Terms and Conditions of Contract. Occasionally, the language in these different locations is contradictory. Resolving conflicts prior to the beginning of the warranty period is beneficial to all parties. Any contradictory statements can dilute the effectiveness of the warranty protection. The commissioning provider can serve their own interests as well as the Owner’s by reviewing the warranty requirements as a part of their project familiarization process and proactively pursuing the resolution of any conflicts prior to the beginning of any warranty period.

·       The warranty provided by the contractor is often based on warranties provided by the various subcontractors and equipment suppliers. In most cases, the warranty provided by the manufacturer of a particular piece of equipment will begin with the start-up of the equipment. However, the intent of most contractor warranties provided for the Owner is that the warranty period begins when the Owner begins receiving beneficial use of the equipment, systems, and building. Usually the start dates of the warranties for the various components and the start date of the warranty to the Owner are not the same. For example, a fan may need to be started up and tested well in advance of the air handler functional testing and the Owner will generally not receive beneficial use of the system until functional testing is nearly complete. There are several issues related to these differences in warranty start date.

1   Since the contractor is generally obligated to provide a warranty on all of the components, systems and equipment for which they are responsible starting with the date of beneficial use, they will be forced to assume some risk for the failure of various components whose warranty started prior to that date. Usually, this means that they will carry an allowance in the project budget tailored to cover their perception of that financial risk. Contractors who find themselves faced with a warranty claim near the end of their contractual warranty period may need to pay for the repairs as opposed to turning to the supplier of the equipment that failed. As a commissioning provider assisting a client in dealing with a warranty claim, it is good to keep these situations in mind.

2   Temporary operation of equipment and systems can blur the point in time when the contractor’s warranty is deemed to start. (The technical details of temporary operation are covered in Section 9.) For example, consider a project where the contractor is running behind schedule and asks the Owner if they can run the incomplete air handling systems to provide temporary cooling and dehumidification so that the drywall work can proceed more quickly. Is the Owner receiving beneficial use of the systems since their operation is allowing the contractor to complete the project on schedule? Is the contractor receiving beneficial use because they were contractually obligated to complete on schedule anyway and the Owner is just being a “nice guy” by letting them use the building systems rather than bring in temporary equipment of their own? Does the warranty of the incomplete portions of the systems begin with the temporary operation date, or does it start at the point in time when the subsystems are complete? It’s hard to say what the right answers are to these issues, but they can become a “hot buttons” at the time of contract closeout or when a problem shows up late in the warranty year. Since the commissioning provider is often involved with the project through the warranty year and may be performing end of warranty period testing, it is in their best interest to proactively establish a starting point for the warranty period that is agreeable to all parties.

3   Phased construction projects where some areas become occupied prior to the completion of other areas are also instances that blur the point in time when the contractor’s warranty is deemed to start. In many cases, phased warranties are provided for these projects. For the protection of all parties involved, the lines of distinction associated with the phased warranties need to be clearly defined. The commissioning provider may want to be proactive in establishing the warranty plan.

4   Given the nature of DDC control systems and the fact that the control contractor is usually “caught between a rock and a hard place” at the end of the construction cycle, it is not uncommon for significant control work to be completed after the substantial completion of the building and air handling equipment. Generally, the owner is receiving beneficial use of the system and the warranty period is initiated. The control system warranty may be short-changed if there was a significant difference between the times that the air handling system was placed in service and when the details of the control system were completed. The commissioning provider is in a good position to advocate for the owner that the full warranty benefit is realized.

·       Beneficial use of the building, the commencement of the warranty period, and final payment to the contractor are often related to successful completion of the functional testing process. This is a double-edged sword that gives commissioning providers a great deal of power but also sets them up to be a “bad guys” if there are problems. Significant percentages of the contract value (typically 5-10%) are often retained until beneficial use is achieved. Usually, this retention represents all of the contractors profit on the project plus some of the overhead expense. This retention is often used as a financial lever to help persuade an otherwise unmotivated contractor to complete their work and correct any outstanding problems identified by the functional testing process. But it can also place extreme financial pressure on the contractor that can make a bad situation worse. Commissioning providers involved with the Owner and design team in negotiating solutions to problems identified during functional testing may want to keep this in mind. Most problems have a variety of satisfactory solutions, some of which may be more palatable than others to a contractor under financial pressure.

The commissioning provider needs to be aware of these warranty issues since some portion of the commissioning work will occur during the warranty period. Any tests or other commissioning processes should be structured in a manner that does not jeopardize the warranty protection provided by the contractor, and the warranty start date should be clearly understood by all involved parties.