What do you really need for a collateral warranty on a construction project? This post sets out the graveyard ie those clauses your warranty DOESN’T need.
(tl;dr anything beyond a promise to comply with the underlying contract is probably unnecessary)
Quality, copyright and insurance
Most warranties go above and beyond creating simple secondary liability ie the right to bring a claim for breach of the project contract.
They include direct promises (primary liability) covering:
- Quality: the warranty repeats the promises in the project contract; eg that the provider will ‘use reasonable skill and care’ and ‘not specify/use deleterious materials’.
- Copyright: the warranty includes a copyright licence from the provider to the stakeholder – the stakeholder could get this via its own agreement.
- Insurance: the warranty repeats any promise in the project contract that the provider will maintain professional indemnity insurance. Frankly, providers will maintain such insurance for their own benefit as long as they can afford to, so this clause makes no impact.
The stakeholder may be marginally better off with a direct copyright licence, but the problem with repeating terms from the project contract is that the terms have to be identical, or you risk confusion or creating extra responsibilties and duties (with no increased reward).
What else?
Collateral warranties do not need to duplicate other terms from the project contract dealing with: scope, price, time, risks, remedies, procedures, termination or confidentiality. [Chapter 7]
Arguably, there is no real need for any clause on quality standards – many stakeholders insist on one simply because they never see the project contract and cannot be sure it deals adequately with this prickly topic. But the project contract is a far better place to describe functional or aesthetic requirements, precise specifications, tests that need to be passed or standards for performance. If we have all that information in the project contract, why ask the provider to be averagely competent as well? [Chapter 10 gives the low down on quality in warranties.]
In my view, most of the limits added to collateral warranties are not needed and serve only to confuse. You definitely do not need a net contribution clause! Ideally, the underlying project contract should be effective to limit the provider’s laibility. But if you must go belt & braces, then I suggest including a simple maximum limit on the provider’s liability to the stakeholder. [Chapter 11]
And when it comes to so-called collateral warranty boilerplate – ditch it. [Chapter 12]
What should you do?
If the very thought of deleting most of the content of a standard style collateral warranty fills you with dread, Chapter 13 gives a checklist so you see what really makes sense to include, and what does not.
Let’s go simple!
This post is taken from various chapters in How to Write Simple and Effective Collateral Warranties in Just 500 Words, available from Amazon in paperback and kindle.
