Performance Guarantees and Warranty Obligations

Performance guarantees and warranty-related obligations are likely to be an issue of substantial negotiation between parties to these types of agreements.  The nature and scope of a contractor’s obligations will, however, depend on what services, materials, and equipment the contractor is contracted to provide.  A contractor’s obligations generally include such things as a general parts warranty (the definition of a defect can be important when determining what is included or excluded as a defective or nonconforming part or component), utilities consumption rate and output guarantees, and related matters.

The issues that contracting parties consider with respect to warranties include (1) the period or term of a particular warranty and whether the term can be extended, (3) the definition of a defect, (3) limitations on a warranty due to third-party services (such as operation and maintenance services), and (4) the remedial measures a contractor may take to cure any defect.  Additionally, a project developer may want third-party contractor or subcontractor warranties applicable to parts or components used in the plant to be “passed through” to the project developer.

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