Knowledge CentreTechnical Resources SearchConference PapersLONG-TERM WARRANTY CONTRACTS RISK OR REWARD?



Many agencies across North America are looking for new and innovative ways to deliver transportation projects. These include design/build, public/private/partnerships and long-term warranty contracts. Increasingly, these projects include a transfer of risk for the quality of the final product from the owner to the contactor. This is a logical progression in the as the contractor is typically in the best position to manage this risk. Long-term warranties are usually structured so that the contractor is responsible for the quality of the construction for an extended period in the order of 5 to 10 years. This is a substantial change for contractors who have in the past been typically used to warranties of only 1 to 2 years. There are many issues for a contractor to consider when evaluating the risks and rewards of bidding on these types of contracts. These issues include: • Do I accurately understand how my performance will be evaluated against the contract requirements and key performance indicators? • How does my past performance compare with the longer term warranty requirements? • What do I need to do to ensure compliance with the warranty requirements? • What are the bonding implications of pursuing these types of contracts? • What are the financial risks for non-compliance with the warranty requirements? • How do handle the potential warranty costs in my bid when compared to the competition? • How can I mitigate the potential risks of a warranty contract? Questions for an owner include: • How do I transfer the responsibility for quality and performance to a contactor without increasing the cost of the project beyond what I would normally expect to pay for a design/bid/build type contact? • How do I measure performance to ensure that the contract requirements are being met? • What level of agency involvement is necessary to ensure compliance with the project specifications? These types of questions must be answered to ensure that the bidding contractor ensures that they fully understand the risks and potential rewards of long-term warranty type contracts. This paper examines the risks and rewards of long-term warranty contracts from both the contractor and owner perspectives and provides recommendations for both sides to ensure that the process results in a cost-effective, high quality facility final product.

Conference Paper Details

Session title:
Anne Holt
David K. Hein