Highlights: Who pays for repairs when defective work is discovered? What if that work was completed 8 years ago, and the defects are just now coming to light? Sam Wampler and Hank Reder bust the myth of the “one-year warranty” and shed light on an owner’s rights and remedies. Sam and Hank outline what an owner needs to prove to recover its costs to correct the work, and they discuss how a surety bond can protect an owner when the contractor is out of business.
“My roof was built in 2001 and it leaks already, but the contractor is out of business and the manufacturer refuses to honor its 20-year warranty because the contractor did not install it properly-what can I do?”
“Our building was constructed in 1999 and water continues to come into the building at various places. I called the contractor, but he said his warranty was good only for one-year-what can I do?”
“Our HVAC system has never worked right. It’s been 5 years since the building was completed and the contractor is out of business-what can I do?” Public owners often call us with these types of scenarios. In many instances the news is good. Quite often the so-called one-year warranty they thought was their enemy is nothing more than a myth. The myth: “New buildings only have a one-year warranty for workmanship and materials. If the problem does not manifest itself within one year, I am out of luck.”
If the owner was fortunate enough to have the Bricker & Eckler construction documents when they built their project, their rights to recover for defective work extends for years after completion of the contract. However, even if they did not use our construction documents, there is a very good chance they may have rights beyond one year and may be able to recover for work that was installed defectively for as far back as 15 years.
The one-year correction period (as, for example, set forth in the AIA Document A201-1997 General Conditions, Article 12) is one tool available to an owner who discovers defective work after its project is complete. However, what about problems that arise after one year? In addition to the one-year correction period, the owner may have other remedies such as for breach of contract or breach of express or implied warranties against a contractor and its surety, or express warranty claims against a manufacturer.
Courts have interpreted the one-year correction period as being in addition to a warranty which gives the owner the right to have the contractor correct defects. The duty to correct defective work or work rejected by the architect is separate and in addition to other warranties or obligations in the parties’ contract.
An Ohio court, in Ohio Historical Society vs. General Maintenance and Engineering, Co., 65 Ohio App. 3d 139, (10th Dist. Franklin County 1989), noted that: “In holding that plaintiff’s claims were not barred by the one-year period, the court reasoned that the oneyear provision established a right in the contractor to rectify any defects within one year of completion and corresponding duty of the owner to allow the contractor to correct the defects before instituting alternative remedies.”
Although contracts may contain warranty or other provisions regarding the contractor’s performance, typically contracts do not limit recovery to such provisions. For example, Article 13, Subparagraph 13.4.1 of the AIA Document A201-2007, General Conditions of the Contract for Construction, provides that the duties and obligations imposed by the Contract Documents and rights and remedies available thereunder shall be in addition to and not a limitation of duties, obligations, rights, and remedies otherwise imposed or available by law.
In some instances there may be other special warranties required by the contract or given by a manufacturer, say for example, a roof manufacturer. However, some roof warranties exclude coverage if the work was installed improperly. So if the contractor agreed to install the work in accordance with the contract documents, failed to do so, and the manufacturer’s warranty does not apply—are you out of luck? In Ohio, you are probably not out of luck.
The loss of a warranty claim against a manufacturer or the right to demand correction of defective work does not deprive the owner of other remedies. If the contractor agreed to perform its work in accordance
That the contractor promised to install its work in accordance with the contract documents at the time the project was built and failed to do so;
That the owner was damaged as a result of the contractor’s failure to install its work as agreed; and
The cost to repair or replace the defective work.
If these elements can be proven, the owner can recover its costs to repair or replace the defective work from the contractor. But, what if the contractor is out of business?
All public construction contracts in Ohio above a certain monetary threshold (e.g. $25,000) require that the public contracting authority obtain a “Contract Bond” when the contract is signed. The contract bond for a public works project in Ohio does not have an expiration time.
The surety that issues the bond remains liable for the performance of the contractor under the terms of the contract, even after the work on the project is completed and paid for. Years after completion if it is discovered that the contractor did not perform its obligations properly in the first instance, and when confronted with that fact refuses to compensate the owner for the cost to correct the work or refuses to correct the work, the surety bond may be looked to for relief.
These are but a few examples of ways in which a public owner can recover damages for work performed by a contractor when that work was not performed properly. The one-year warranty myth is often times just that – a myth.
So, if you have been plagued by a broken building for years and have assumed you have no recourse, you might want to think again. You may very well be holding a valuable contract right secured by a surety bond that can protect you from the loss you have sustained and help you to pay for a cure.