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Beware the “One Year” Warranty: Contractor Callback Periods v. Warranties of Quality Work

The difference between contractors’ “callback periods” and “warranties of quality” work is among the least understood – yet most important – nuances in construction contracts. 

One should have a contractual expiration date, often 1 year after completion of work. The other should not expire on any given date.  From the perspective of the project owner, at least. 

Oh yeah…contractors, please stop reading this post. It is for real estate developers and project owners who want to avoid unwittingly giving away their basic rights and remedies.

Also, this post addresses warranties on contractors’ construction work. It does not address product or material warranties, which are often fairly limited to a year or two.

Project Owners Need Protection from Latent Defects

Contractor’s warranties are important. Project owners cannot protect themselves against hidden defects. This is true even for diligent owners and developers, who monitor construction work closely.

Buildings can leak, collapse, explode, experience MEP issues, or have other problems many years after final completion. It is wrong to assume all defects will arise during the first year. 

Many project owners make a big mistake – a huge, costly mistake – in agreeing to a limiting “One Year Warranty.” It is a concept so familiar, so ubiquitous, few people even bat an eye at it. 

Should owners expect contractors to return to the project site and correct defects for a given period? Yes, of course! Often, that “callback period” is one year. That’s appropriate. A year, maybe two. 

“Callback Periods” Should Not Displace “Warranties of Quality”

Real estate developers and project owners get into trouble by allowing contractors to – cunningly – limit their obligation to stand behind construction work to one year. 

Often, this limitation comes in the form of a contractor’s one year warranty. Smart contractors like to frame the warranty as their sole obligation in the event of bad work. 

It is not a bad strategy. Heck, it’s what I do when I infrequently represent contractors. So to be clear, I am not casting aspersion on contractors. You cannot fault a winning tactic.

Really, the ones to blame are the real estate developers and project owners who fail to understand that the “one year warranty” is as much a contractor-sided limitation of liability as anything else.

The key is the fine print that comes with the one year warranty. Often, it says the owner is out of luck on defects which arise a year + 1 day after the warranty begins. 

Specifically, that fine print strips away the project owner’s ability to bring a claim, i.e., a lawsuit or demand for arbitration, against the contractor after the one year warranty ends. 

So if a defect first emerges in year 2 – or year 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13 or 14 – the owner may have no recourse against the contractor. It gets off scot-free, even on plainly defective work. 

That is a raw deal for project owners and real estate developers. 

Yes, Claims Can Be Brought For Many Years…Unless Waived by Contract!

I bet some are thinking: wait, did Jeremy just imply claims can be brought for a dozen-plus years?

Yes, indeed I did. Illinois law empowers design and construction claims to be brought for as many as 14 years. With the right set of facts and circumstances, anyway. 

Sure, shorter time periods sometimes apply. Many design and construction claims are subject to a 4 year statute of limitation in Illinois. In other cases, the limitation period is 5 years or 10 years. 

The point is those longer periods apply unless they are waived contractually. Often, that is what a one year warranty entails. Waiver of those longer timeframes to bring claims.

Consider this: If a project owner enters into a purely handshake agreement with a contractor – signing no paperwork whatsoever, and agreeing to no contractor-sided time limitations on claims – the owner will have however long Illinois law allows it to make claims defective work. Up to 14 years!

Many owners and developers fail to realize that, by accepting a one year warranty, they bargain away, contractually, the possibility of making claims for defective work during year 2 through year 14.

Trading Claims in Years 2-14 for a One Year Warranty? Just Say No!

The one year warranty which follows may look innocent, but it is not. This is “deal breaker” language, at least when I represent real estate developers and property owners in contract negotiations:

One Year Limited Warranty. Contractor warrants its work will be performed in a workmanlike manner, free from defects, and in accordance with industry standards for a period of one year (1) after substantial completion. Work which does not comply is considered defective. This warranty shall be void in the event of abuse, neglect, improper maintenance, or work by others. Contractor makes no other warranties, express or implied, and disclaims all warranties of quality, habitability, merchantability, or fitness for a particular purpose. Owner’s sole and exclusive remedy for defective work shall be for Contractor, at its own cost, to correct the work during this one (1) year warranty period. OWNER HEREBY RELEASES CONTRACTOR FROM ANY LIABILITY FOR DAMAGES, COSTS, EXPENSES OR LOSSES, ARISING OUT OF THIS AGREEMENT OR THE PROJECT. THIS LIMITATION OF LIABILITY APPLIES REGARDLESS OF THE FORM OF ACTION, DAMAGE, CLAIM, LIABILITY, COST, EXPENSE, OR LOSS, WHETHER IN CONTRACT, BY STATUTE, IN TORT, OR ON ANY OTHER LEGAL OR EQUITABLE GROUNDS.     

This is the contractual equivalent of a contractor telling a project owner, “Hey, your shoe is untied!” 

The owner looks down, and the contractor swaps out the 14 year, or 10 year, or 5 year, or 4 year, or other timeframe for the owner to bring claims in exchange for that one year warranty.

What Should Project Owners Fairly Expect from Contractors?

Smart owners are entitled to two remedies for defective construction work, minimum. 

  • A “callback period” of a year or so, where the contractor promises to return to the jobsite to repair defective work. This approach combines a “right” with an automatic “remedy.” 
  • A “guarantee of quality” that contains no contractual expiration date. In essence, it allows the owner to sue the contractor for as long as Illinois law allows, in the event of defects.

That might sound unfair or confusing, but is not. This approach is standard in the construction industry. 

Consider, for example, AIA Document A201-2017, the General Conditions of the Contract for Construction, which may be the most-used construction contract document in the United States.

Warranties of Quality Construction Work = A Promise of Unlimited Duration

The standard warranty from the A201-2017 General Conditions, is below. It sets a standard of quality. However, it is unlimited in duration:  

  • 3.5 Warranty
  • 3.5.1 The Contractor warrants to the Owner and Architect that materials and equipment furnished under the Contract will be of good quality and new unless the Contract Documents require or permit otherwise. The Contractor further warrants that the Work will conform to the requirements of the Contract Documents and will be free from defects, except for those inherent in the quality of the Work the Contract Documents require or permit. Work, materials, or equipment not conforming to these requirements may be considered defective. The Contractor’s warranty excludes remedy for damage or defect caused by abuse, alterations to the Work not executed by the Contractor, improper or insufficient maintenance, improper operation, or normal wear and tear and normal usage. If required by the Architect, the Contractor shall furnish satisfactory evidence as to the kind and quality of materials and equipment.

In essence, this warranty says the project owner can sue the contractor for defects for as long as the applicable statute of limitations and repose allows.  In Illinois, that can be up to 14 years.

Here is the key point: the Section 3.5 warranty is prescriptive. It sets a standard of quality. Section 3.5 says nothing about the contractor returning to the project site to make repairs. This warranty sets a minimum standard of quality for construction work. It is enforceable in breach of contract claim against the contractor for however long the law allows those claims to be asserted.

Project owners unwittingly surrender that when they agree to a “one year warranty,” with fine print which limits the owner’s right to make a claim against the contractor to a single year. 

Smart project owners need a good reason to allow a construction contract to impose a time limit on a prescriptive warranty of quality. Its purpose is purely to set minimum quality standards for the work.

Callback Periods = A Limited Duration Promise to Return and Repair

The same contract document quoted above, the A201-2017 General Conditions, also contains a contractor “callback” period of appropriately limited duration: one year. 

The callback language quoted below does not set a quality standard. It requires the contractor to take action to correct any defective work for a limited period after completion of the work.

  • 12.2.2 After Substantial Completion
  • 12.2.2.1 In addition to the Contractor’s obligations under Section 3.5, if, within one year after the date of Substantial Completion of the Work or designated portion thereof or after the date for commencement of warranties established under Section 9.9.1, or by terms of any applicable special warranty required by the Contract Documents, any of the Work is found to be not in accordance with the requirements of the Contract Documents, the Contractor shall correct it promptly after receipt of notice from the Owner to do so, unless the Owner has previously given the Contractor a written acceptance of such condition. The Owner shall give such notice promptly after discovery of the condition. During the one-year period for correction of Work, if the Owner fails to notify the Contractor and give the Contractor an opportunity to make the correction, the Owner waives the rights to require correction by the Contractor and to make a claim for breach of warranty. If the Contractor fails to correct nonconforming Work within a reasonable time during that period after receipt of notice from the Owner or Architect, the Owner may correct it in accordance with Section 2.5.

This is the contractor’s promise to return to the project site to repair or replace any work found to be defective during this one year period. It is a classic “callback period.”

Uncontroversial, right? I think so.

Focus on Remedies: Automatic v. Non-Automatic

Many owners and developers demand both kinds of recourse: (1) prescriptive warranties of quality construction work of unlimited duration and (2) callback periods of limited duration.  

Another way to think about these distinct concepts is in terms of “rights” and “remedies.” Both are built atop similar “rights” but provide different kinds of “remedies.”

  • Callback periods combine the RIGHT (the owner’s right to have a project without defective construction work) with an AUTOMATIC REMEDY (the contractor’s obligation to return and fix any defects for one year). 
  • The prescriptive warranty of quality construction work is the RIGHT (the owner’s right to have a project free of defects) with a NON-AUTOMATIC REMEDY (the possibility of a lawsuit against the contractor if needed).

Many fail to understand the distinction, but focusing on the kind remedy, i.e., automatic / self-enforcing v. non-automatic / lawsuit required, can help bring clarity.  

All these kinds of rights and remedies can – and do – exist in the same contracts. 

Common Misconception: Warranties and Callback Periods are the Same

It is common for owners to mistakenly believe that the one year callback period somehow includes under its umbrella the prescriptive warranty so that it too is limited in duration to one year. 

To avoid any confusion between the callback period and the prescriptive warranty, the A201-2017 General Conditions qualified the callback period with this language:

  • 12.2.5 Nothing contained in this Section 12.2 shall be construed to establish a period of limitation with respect to other obligations the Contractor has under the Contract Documents. Establishment of the one-year period for correction of Work as described in Section 12.2.2 relates only to the specific obligation of the Contractor to correct the Work, and has no relationship to the time within which the obligation to comply with the Contract Documents may be sought to be enforced, nor to the time within which proceedings may be commenced to establish the Contractor’s liability with respect to the Contractor’s obligations other than specifically to correct the Work.

This clarifies that the one year callback period has no applicability to – and does not prevent – the owner from bringing potential claims against the contractor based on violation of other provisions of the contract, like those which set minimum standards of quality construction.  

Conclusion: Good General Contractors Stand Behind Their Work

Project owners and real estate developers are not wrong in accepting warranties of limited duration, one year perhaps, on products and materials.  

And yes, a good construction contract will require the contractor to return to the project and correct defects for a limited period of time, often a year or two.

However, when I represent project owners and real estate developers in construction contract negotiations, I would need an extremely compelling reason to allow my client’s right to sue the contractor for defective work to be limited to any contractually-shortened timeframe.

Sometimes it takes years to discover latent defects.

Sometimes it takes years to discover latent defects.


This publication is prepared for the general information of friends of Baker Law Group LLC in Illinois. It is not legal advice for you, or legal advice regarding any specific matter. Jeremy S. Baker is licensed to practice law only in Illinois. Under rules applicable to the professional conduct of attorneys in various jurisdictions, it may be considered attorney advertising material. Prior results do not guarantee a similar outcome.

 

 

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Baker Law, Design & Construction Counsel

Jeremy S. Baker is an experienced Chicago-based attorney who provides transactional, dispute resolution, and general counsel services to the design and construction industry. He uses creative project structuring and intelligent contracts, plus dispute avoidance and early cost-efficient claim resolution techniques, to help his clients complete challenging projects.

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