Do you repair, overhaul or manufacture goods? Do you provide professional services? Does your company offer mixed goods and services? Regardless of the nature of your business keeping your obligations and remedies for non-conformance consistent with industry practice takes some diligence and sharp thinking.
Engineers and other professionals typically provide services in accordance with a generally accepted professional standard of care. That standard of care does not guarantee perfection. If it did medical professionals would be on the hot seat every time a patient, despite well grounded advice and care, took a turn for the worse. The same logic applies to other professionals such as design engineers or financial consultants. Presented below is an example of a professional standard of care:
“Performance of Services: Engineer shall perform its Services in accordance with the generally accepted practices of similar professionals performing similar services in the same geographic region at the time the Services are performed for Company. In the event the Services are not in conformance with the generally accepted standard of care, and the Company promptly notifies the Engineer within twelve (12) months of the completion of the Services of such non-conformance, Engineer agrees to re-perform the original Services to correct the non-conformance.”
Contrast the typical warranty associated with maintenance or manufacture of goods obligating the provider to supply goods free from defects in materials and/or workmanship. Here the expectation is to follow or meet the specifications, supply new materials and fabricate with accuracy and precision. If a part does not meet the stipulated requirements it is subject to rejection, replacement and/or repair. An example of a typical manufacturer’s warranty is as follows:
“Sale of Goods: Seller warrants to Buyer, and Buyer’s successors, assigns, customers, and users of Goods sold by Buyer, for a period of twenty-four (24) months after acceptance of the Buyer’s product by Buyer’s customer, that all Goods provided hereunder shall be:
- merchantable and fit for the purpose intended;
- free from defects in material and workmanship;
- in compliance with applicable specifications, drawings, and performance requirements;
- free from liens or encumbrances on title.”
The normal best practice in contract drafting is to keep the concepts of standard of care and warranty somewhat separate. However, it is common to see standard of care or warranty provisions that mix together the industry standard obligations of professionals with those more appropriate for manufacturers.
For example, a contract provision that requires a professional to perform services that are “free from defects”, or purchase order manufacturer’s warranty that does not contain typical exclusions for misuse, poor maintenance or storage, or faulty operation.
Worse yet may be the right to seek recovery for not only re-performance, repair or replacement but field costs associated with removal and re-installation of parts due to inadequate design or faulty manufacture. In the final analysis an appropriate contract provision should be consistent with the nature of the business and the subject matter of the agreement.
Keep the following in mind to improve your contracting practices regarding standard of care and warranty obligations:
- Understand the linkage between warranty obligations, the professional standard of care, and your insurance coverage;
- Use a clear trigger for the start, and time limit end, of the warranty/standard of care period and the associated remedy for non-conformance; and
- Be careful to address responsibility for field costs such as removal and re-installation of parts due to inadequate design or faulty manufacture.
Note: The sample provisions above are for illustration purposes only and are not intended for use without appropriate review in your jurisdiction.