If we look behind the tick-box approach to collateral warranties, do we need to think again about taking a process approach to these largely ineffective agreements?
Purpose of a warranty
The core purpose of a warranty is to create an additional contractual link, providing a smooth avenue for a stakeholder in a construction project to bring claims if anything goes wrong.
It is in addition to that stakeholders’s claims under its own agreements with eg the landlord, the seller, its borrower or its main contractor.
A warranty is collateral. It is linked to and dependent on the an existing project contract. It creates a secondary obligation ie it piggy-backs on that project contract.
Do we really need them?
Some projects don’t use them at all (eg most engineering). Some jurisdictions have alternatives (eg decennial or latent defects insurance). Some use everything they can get!
But once we created them – about 50 years ago – it seems UK construction started a love affair with these documents that, whilst dysfunctional, it is struggling to end.
Even in 1999, when the Contracts (Rights of Third Parties) Act came into force, the seeds were set to use that Act to create “warranty-lite” versions – same reams of clauses but a different mechanism. Signing in triplicate was out, notices were in.
Moving on
If the construction industry is going to become more trusting and collaborative, then it is going to need to overcome its current tendency to point the finger of blame at anyone and everyone when the project goes wrong.
Understanding, simplifying and then – ultimately – finding other solutions to the issues warranties are meant to solve is going to be part of that cultural change.
Although it might not be possible to get rid of our reliance on warranties in the short-term, one solution to remove some of the uncertainty and administrative burden is to digitise these contracts. Digital contracts are built, negotiated, signed and stored digitally. It reduces the risk of losing the project contract or of inconsistency between the warranty and the project contract. And it builds just what we need, without just recycling existing clauses.
What should you do?
But before you digitise your warranties, you need to understand them, simplify them and make them meet a very clear specific purpose.
This post is taken from the Introduction to How to Write Simple and Effective Collateral Warranties in Just 500 Words, available from Amazon in paperback and kindle.
