Many contractors mistakenly think that once the government accepts work and pays for it, that the work is, well, "accepted." Some also believe that the one-year warranty provided in the Federal Acquisition Regulation (FAR) means that the contractor is in the clear after, well, one year. Those contractors would be wrong.

In JJK Group Inc. v VW International Inc., a federal court in Maryland recently ruled that the government could revoke its prior acceptance years later and require the contractor to replace an entire system because the system contained "latent defects." The court cited the FAR clauses which provide that the one-year warranty only applies to work that has been "accepted" and that acceptance may be revoked if the government later finds " latent defects." Further, the contractor is required under the "Disputes" clause to do whatever the government demands, and then fight about it later. If the contractor wants to fight it later and can prove that the work was not "latently defective," it can be compensated for the extra costs but it cannot refuse to perform.

In this case, the loss fell on a subcontractor because the general knew enough to have strong "pass through" language in the subcontract, and to have the sub bonded.