Invalid Warranty Claims

[David Morrill]

Good morning,

We were wondering what others have experienced when a client attempts to claim against a contract's warranty provision for defects that have nothing to do with the work performed, nor the work disturbed.

In our case, we were hired to replace a large roof on a building.  Subsequent to such work, we were called twice to resolve two separate apparent leaks.   We remobilized personnel to the site and carefully examined the work as well as the leaks.  It was determined in both cases that the leaks were the result of the roof mounted HVAC systems leaking (this was not in our scope) and, in fact, the water did not come from the roof at all.    Our efforts included identifying the area affected, cleaning the area, and identifying but not disturbing the offending pipes.

Although it is our understanding that the repairs needed to the HVAC system was then performed by the Client's contractor, we are wondering how others would handle any subsequent visits for warranty work claims when, in fact, the work was performed properly and there was no defect to be repaired?  I believe that after verification that the warranty provision does not apply, that this would be a basis for an REA.  However, is there a better practice to follow?

Thank you in advance.

[ji20874]

20 minutes ago, David Morrill said:

I believe that after verification that the warranty provision does not apply, that this would be a basis for an REA.

I'm not sure about this -- is there text in your contract that would create this entitlement?

But if your contract includes a disputes clause, that clause may give you an entitlement to file a dispute or claim against the agency.

[David Morrill]

The warranty provision is the standard one for construction, FAR 52.246-21 and does have the disputes cllause.  Further, the roof has been accepted.

[ji20874]

I don't think the clause at FAR 52.246-21 provides an REA entitlement to the contractor for "invalid warranty claims." 

However, the clause does allow for warranty claims after acceptance -- indeed, that's the purpose of a warranty.

[joel hoffman]

Just saw this thread. The Warranty of Construction Clause establishes rights - and corresponding responsibilities - surviving final acceptance.**

When the government “asserts that the contractor has breached a warranty, it assumes the burden of proving all elements of its claim”, quoting Globe Corp, ASBCA 45131, 93-3 BCA at 25,968 and other cases.

The government must prove, among other things, that “furnishing the defective material or workmanship was the responsibility of the contractor” and that “it [government] did not cause or contribute to the failure or defects.” -  citing Joseph Penner, GSBCA 4647, 80-2 BCA at 14,064.

**From the Fourth Edition of Nash and Cibinic’s Administration of Government Contracts, Chapter 9 Inspection , Acceptance and Warranties, see under III Post Acceptance Rights, B. Warranties, Notice and Burden of Proof, b. Government’s Burden of Proof.

There is a half page paragraph, citing cases where the government failed to fulfill its burden of proof.

The warranty rights and burden of proof survive final acceptance, thus the contractor should be able to submit a claim pursuant to an improper warranty call by the government

David, from your post, it appears that your firm clearly established (proved)  that the cause of the leaks wasn’t related to your work or workmanship.

David, did this answer your question?

This was not an uncommon experience during my experience, where the installation would fail to prove that a problem was a valid warranty issue.

 

[joel hoffman]

On 10/27/2023 at 8:42 AM, David Morrill said:

I believe that after verification that the warranty provision does not apply, that this would be a basis for an REA.  However, is there a better practice to follow?

 

Upon notification, first ask them if they have verified that:

17 hours ago, joel hoffman said:

furnishing the defective material or workmanship was the responsibility of the contractor” and that “it [the government] did not cause or contribute to the failure or defects.”

 

[joel hoffman]

On 11/1/2023 at 5:30 AM, bob7947 said:

This topic is now subject to Rule 17.

Unless the OP responds to Joel's post, this topic will be locked on 11/3/23.

Thanks, Bob. Sometimes original posters don’t realize that respondents often spend considerable time researching sources for answers (even when we know the answer) and time in formulating responses. It would be nice to at least know if we answered the OP’s question or not or if they found an answer elsewhere.

The basis of my answer is that the Warranty of Construction clause is definitely applicable to an invalid warranty call and to the contractor’s right to submit a claim or REA. The rights and responsibilities of both parties under the warranty clause survive final acceptance and payment.

The contractor should ask the government whether they have investigated and determined that the contractor’s workmanship or materials are defective and that the government didn’t cause or contribute to any failure or defects.

Here, the government could and should have at least cleaned and inspected the suspected area and leak source before making a warranty call.

If a home owner makes a warranty call or even a service call, they should expect to pay at least service call fee or more, if the cause isn’t a material or workmanship failure. That’s common business practice - “that’s life”.

Edit add: interpreting contracts is similar to interpreting the Bible. One can’t always interpret contract clauses or Bible passages literally- there are often extrinsic contexts.

[David Morrill]

I apologize - I was unaware of rule 17.  I went back and looked at the case law that you posted, Joel, and it confirmed what my position was.

In short, it was confirmed that the reported leaking had nothing to do with the roof membrane installed, but it took many hours to identify the actual source.   The client agreed with the evidence we provided.  As we had to mobilize a crew to the site, there are costs that we may consider submitting as an REA.   Your case law supported that position.  As for if we submit an REA or not, it will come down to the final cost of the site visit and customer relations.  If the cost is minor, we may just eat it.   

Thank you all again.

[C Culham]

24 minutes ago, David Morrill said:

we may consider submitting as an REA

Just a suggestion for consideration.   You may in fact want to consider a claim (FAR subpart 33.2) rather than a REA.  Discussion with legal counsel will help you pick the appropriate terminology and process if you decide to pursue reimbursement for the costs of your efforts.   

[joel hoffman]

1 hour ago, C Culham said:

Just a suggestion for consideration.   You may in fact want to consider a claim (FAR subpart 33.2) rather than a REA.  Discussion with legal counsel will help you pick the appropriate terminology and process if you decide to pursue reimbursement for the costs of your efforts.   

When a contractor is sensitive to customer relations, as David alluded to, they will often prefer to submit an REA rather than a claim, which is handled as a dispute. Especially for a relatively small amount of money.

A claim, involves much more effort and formal processes than an REA. On one of our Chemical Weapons Disposal Plant systems contracts, our systems contractor submitted a $163 million REA on long standing issues rather a claim. And no, they didn’t insist on payment of interest as a  defacto claim. 

In fact, this wasn’t uncommon with many of our medium and large contractors. 

[ji20874]

Joel,

If the OP wants to submit a REA, and you are encouraging that approach, what contract clause will allow for an equitable adjustment in this circumstance?  I am not aware of any clause that will entitle the contractor to an equitable adjustment with these facts.  I'm thinking that a claim is the right step since OP is seeking "the payment of money in a sum certain, the adjustment or interpretation of contract terms, or other relief arising under or relating to this contract."

YES, if there is a clause that gives OP an entitlement to an equitable adjustment, REA all the way -- but what is the REA clause that OP can cite?

[David Morrill]

37 minutes ago, ji20874 said:

Joel,

If the OP wants to submit a REA, and you are encouraging that approach, what contract clause will allow for an equitable adjustment in this circumstance?  

Because the root cause was a defect in the work of other contractors, was not discovered until after the project was complete, and verified by Government personnel, I would use FAR 52.236-2 - differing site conditions.   But the point about a claim vs an REA is a valid one and will ultimately be driven by the facts, including the timeline, contract status, and how material the claim/rea would be.

[ji20874]

David, If you were to submit a REA to me under FAR 52.236-2, Differing Site Conditions, for the facts described in the OP, I would be duty-bound to reject it -- in my opinion, that clause does not give a contractor an entitlement to a REA under those facts.  As I mentioned in my first comment, I still recommend you look at the Disputes clause in your contract -- no one else in this thread has mentioned any other clause that would give you an entitlement to a REA.

[C Culham]

6 hours ago, joel hoffman said:

When a contractor is sensitive to customer relations, as David alluded to, they will often prefer to submit an REA rather than a claim, which is handled as a dispute. Especially for a relatively small amount of money.

A claim, involves much more effort and formal processes than an REA. On one of our Chemical Weapons Disposal Plant systems contracts, our systems contractor submitted a $163 million REA on long standing issues rather a claim. And no, they didn’t insist on payment of interest as a  defacto claim. 

In fact, this wasn’t uncommon with many of our medium and large contractors. 

A claim pursuant to FAR 52.233-1 or with regard to the Dispute paragraph of FAR 52.212-4 provides remedy to either party of the contract.   The action allowed by the clause should not be construed by anyone to be other than a clause that provides for a remedy just like those clauses that provide for an equitable adjustment in contract.   To imply or otherwise say so is hogwash.  Prefer as they may, not handling a matter as a written demand or written assertion when a close look a the contract provides no other clause for a remedy a contractor puts themselves at a disadvantage and I would not encourage a contractor to do so.

David can do as he wishes but use of REA and promote same in the context of this thread, in my view, is not  viable nor appropriate advice.

[joel hoffman]

Oh, a request for an equitable adjustment is likely viable here. We used to pay for REA’s like this situation, when our customers would call back a contractor for an improper warranty call. There was no point in arguing. The contractor would be right and entitled to compensation.

David can submit a claim or an REA. Either one is a written assertion and will likely eventually result in entitlement and payment.

The dollar value is low. I understand why he doesn’t want to make a big deal out of it.

[joel hoffman]

20 hours ago, ji20874 said:

Joel,

If the OP wants to submit a REA, and you are encouraging that approach, what contract clause will allow for an equitable adjustment in this circumstance?  I am not aware of any clause that will entitle the contractor to an equitable adjustment with these facts.  I'm thinking that a claim is the right step since OP is seeking "the payment of money in a sum certain, the adjustment or interpretation of contract terms, or other relief arising under or relating to this contract."

YES, if there is a clause that gives OP an entitlement to an equitable adjustment, REA all the way -- but what is the REA clause that OP can cite?

Under the Inspection of Construction Clause at FAR 52.246-12, paragraph i, “Acceptance shall be final and conclusive except for latent defects, fraud, gross mistakes amounting to fraud , or the governments rights under any warranty or guarantee.”

The government breached its rights under the warranty clause at 52.246-21.  It directed the contractor to return to the job site, causing it to incur additional costs to come, carefully inspect and determine the cause and location of the leak and that it wasn’t due to the contractor’s material and workmanship. It was entirely independent of the roof work- leaks in another building system. Thus government failed to meet its legal burden of proof after final acceptance that there was a failure of the contractor’s contractually required material or workmanship, causing the leak.

I believe that this breech would allow a contractor to exercise its rights under the contract, in lieu of a breech of contract claim.

In this case, it appears that the government hadn’t inspected the roof because David’s crew had to clean the area to determine where the leak emanated from (rereading the description in the initial post).

In essence, I believe that the government directed additional work under the warranty clause that wasn’t required. Thus it could be considered a change to the contract requirements under the Changes Clause, entitling the contractor to an equitable adjustment.

Note that I tried but was unsuccessful in researching the paragraph long referenced case law where the government couldn’t prove that the material or workmanship was faulty under the Warranty clauses in the Fourth Edition of Nash and Cibinic’s Administration of Government Contracts. I no longer have access to the old BCA books or to Westlaw, etc. Those cases should describe what the contractor’s rights for redress were.

As a reminder, I’m not a lawyer or a paralegal. David can consult one.

In a referenced case that I reviewed, the contractor did submit a claim for an equitable adjustment under paragraph i of the inspection of construction clause (asserting that acceptance was complete and final when government didn’t prove that the contractor’s material and workmanship was cause of the problems). However, the government reasonably proved that the failures and additional expenses were the result of failures in material and workmanship.

In David’s case, there were likely minor costs but aggravating and resulted in diversion of time and resources from other work. Under a breach of contract action, these could be recoverable but would require litigation.

David’s question primarily concerns what to do in future situations where this occurs. 

My advice was to react to the governments warranty call direction in the future by asking them to show or prove  that the problem, I.e., failure- damage, etc. was the result of the contractor’s material or workmanship and that the government didn’t cause the problem. This would include asking them whether they made any physical inspection to try to determine the source or possible cause of the problem or condition.

. 

[joel hoffman]

I would add that the government asserted that acceptance was not final under 52.243-12, pursuant to its rights under the warranty of construction clause at 52.243-21. Thius all remedies available under the contract should be available.

Davids defense under the contract terms could be a breech of the Warranty clause resulting in a government directed change to the work..

[C Culham]

5 minutes ago, joel hoffman said:

The government breached its rights under the warranty clause at 52.246-21.

 

1 minute ago, joel hoffman said:

Davids defense under the contract terms could be a breech of the Warranty clause or a government directed change to the work..

Based on your premise the contractor therefore has  a "claim" not a REA.   FAR 52.233-4, which I might add is hopefully in the contract as prescribed by the FAR.

 

[joel hoffman]

16 minutes ago, C Culham said:

 

Based on your premise the contractor therefore has  a "claim" not a REA.   FAR 52.233-4, which I might add is hopefully in the contract as prescribed by the FAR.

 

Im saying that the contractor could assert a constructive change order under the Changes Clause. The contractor can request an equitable adjustment without resorting to filing a Claim under the Disputes Clause.

I’m assuming that the government would agree in such an instance. If it doesn’t, then the contractor can file a claim under the Disputes clause or pursue a breech of contract action.

Edited November 3, 2023 by joel hoffman
…or pursue a breech of contract action.

[joel hoffman]

deleted. Pushed the quote button by accident. 

Edited November 3, 2023 by joel hoffman

[ji20874]

I thought about the clause at FAR 52.243-4, Changes, but I don't think it fits the facts here because--

• para. (b) requires a notice from the contractor to the contracting officer stating that the contractor regards the warranty call as a change order (and OP made no mention of having given notice);
• para. (d) limits any equitable adjustment to costs incurred within 20 days before the notice (and OP did not mention any timelines); and 
• para. (f) prohibits any equitable adjustment after final payment (and I am assuming that final payment has already occurred).

So I'm still thinking there is no contract clause that will provide an entitlement to an equitable adjustment for OP, and I still recommend for David to look at the Disputes clause in his contract.

I disagree with characterizations that REAs are for nice people and claims are for mean people -- that mindset is too simple-minded for professional dialogue.    

[C Culham]

1 hour ago, joel hoffman said:

Im saying that the contractor could assert a constructive change order under the Changes Clause.

No sir.   The Government asserted a "claim" pursuant to the warranty clause.  For sake of discussion I will believe David that the government was wrong to assert such a claim.   Therefore the government can not prove its claim and owes David money.  As promoted by the FAR at 33.2 "the Government’s policy is to try to resolve all contractual issues in controversy by mutual agreement at the contracting officer’s level. Reasonable efforts should be made to resolve controversies prior to the submission of a claim."  If the government denies said money to David, David then has the ability to assert a claim against the government for the money.

Not spot on but I encourage a read of the following.  Make it easy on yourself....fast forward to page 56 and after a read there fast forward to page 86.

https://www.cbca.gov/files/decisions/2019/ZISCHKAU_12-19-19_2953, 2954, 2955, 3596, 4175, 4377, 5006__SUFFOLK_CONSTRUCTION_COMPANY,_INC. (Decision).pdf

[David Morrill]

1 hour ago, C Culham said:

No sir.   The Government asserted a "claim" pursuant to the warranty clause.  For sake of discussion I will believe David that the government was wrong to assert such a claim.   Therefore the government can not prove its claim and owes David money.  As promoted by the FAR at 33.2 "the Government’s policy is to try to resolve all contractual issues in controversy by mutual agreement at the contracting officer’s level. Reasonable efforts should be made to resolve controversies prior to the submission of a claim."  If the government denies said money to David, David then has the ability to assert a claim against the government for the money.

Not spot on but I encourage a read of the following.  Make it easy on yourself....fast forward to page 56 and after a read there fast forward to page 86.

https://www.cbca.gov/files/decisions/2019/ZISCHKAU_12-19-19_2953, 2954, 2955, 3596, 4175, 4377, 5006__SUFFOLK_CONSTRUCTION_COMPANY,_INC. (Decision).pdf

The fact pattern is close to the case quoted above - I have directed our personnel to gather the information needed for ownership determination if we intend to seek a remedy or not, and then proceed accordingly.  The materiality and final review of the facts (and evidence) will determine our approach.   We will use the CDA approach.

A great thank you all!!!

[Retreadfed]

1 hour ago, C Culham said:

The Government asserted a "claim" pursuant to the warranty clause.  For sake of discussion I will believe David that the government was wrong to assert such a claim.   Therefore the government can not prove its claim and owes David money.   If the government denies said money to David, David then has the ability to assert a claim against the government for the money.

For the government to deny David the money he is owed, it seems that David would have to request payment of the money since I doubt the government will just say our bad in regard to the call and pay some sum of money without a request for payment and some evidence of the amount due.  What would be the nature of this request, e.g., REA, claim, or something else?

[C Culham]

20 minutes ago, Retreadfed said:

What would be the nature of this request, e.g., REA, claim, or something else?

What do think it should be?