Call Back Warranties Versus General Warranty Obligations

Richard B. Murphy
Originally published June 2003

A general contractor's job is far from over when it receives final payment on a construction project. Rather, final payment begins a new phase of the project, one that may last years. This is true even where the owner/contractor contract calls for a one-year period for the contractor to return to the site and repair "warranty" items. For instance, there may be other provisions in the contract that require a contractor to return and replace equipment that may have longer warranty periods.

In addition, the Arizona Registrar of Contractors' rules and regulations will subject a contractor to a two-year period to respond to an owner's complaints concerning workmanship, even though the contractor may no longer be subject to the one-year "call back" warranty. Finally, Arizona's statute of repose may keep a contractor on the hook for defects in workmanship for eight or up to nine years after the project is substantially complete.

The Call Back Warranty. Many standard form contracts require a contractor to return to the project and repair or replace defective work for a period of one year. The AIA A201-1997 General Conditions provides, in part, as follows:

12.2.2.1 In addition to the Contractor's obligations under Paragraph 3.5, if, within one year after the date of Substantial Completion of the Work…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 written 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 Contactor an opportunity to make the correction, the Owner waives the right to require correction by the Contractor or 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 ma correct it in accordance with Paragraph 2.4.

The owner and contractor each have obligations under the call back warranty. An owner must promptly notify the contractor of a defect in the contractor's work. If the owner's delay makes the problem more difficult or expensive to repair, the contractor may not be required to return and make repairs.

An owner's failure to timely notify the contractor of a defect may relieve the contractor of any obligation to make repairs. Of course, an owner must give the contractor the opportunity to make repairs before calling in another contractor and attempt to charge the original contractor for the cost of the repair.

An owner's notice must not only be prompt, it must also sufficiently identify the problem. A contractor must make the repairs within a reasonable amount of time after the request. The timing of the contractor's response is somewhat subjective, and may depend on the particular circumstances of the alleged defect and the nature of the repairs. If the contractor does not timely respond to the notice, the contractor may have breached the call back warranty.

From an owner's point of view, the notice should contain more than just an identification of the items needing repair. It should also inform the contractor that if it does not make the repairs, the owner will do so itself and charge the contractor for the costs. It should also request confirmation from the contractor that the work will be performed and inform when the contractor will do so. The contractor, on the other hand, should promptly respond to the request and inform the owner of its intentions with respect to the requested repair work. A contractor ignores a request at its own peril. Worthy of note is that the one-year call back period under the AIA A201-1997 General Conditions is not extended as the result of corrective work performed by the contractor. (Article 12.2.2.3).

General Warranty Obligations. Confusion often arises when a contractor believes that the call back warranty is the extent of its responsibility to the owner. As noted above, the call back warranty is separate and apart from other, more general warranty obligations. Thus, a contractor is not simply responsible for items that require repair if it receives notice within the call back period.

An owner may still be able to bring an action against a contractor and recover damages where the contractor refused to make repairs to items discovered after the call back period. The A201-1997 General Conditions makes it clear that the call back warranty is a period of time that the contractor is required to return and make repairs, and is in addition to the general warranty obligation. Compare Article 3.5 and 12.2.2.1.

Registrar of Contractors' Corrective Work Period. Arizona contractors must not only contend with call back warranties in their contracts, they are also subject to the jurisdiction of the Registrar. For instance, if an owner is unable to get a contractor to make repairs after a call back period ends, that owner can file a complaint with the Registrar if it has been two years or less since the contractor performed the work this is the subject of the complaint.

The Registrar may issue a corrective work order to the contractor, requiring the contractor to make repairs listed in the order. Of course, the contractor may request a hearing if it disagrees that corrective work is needed. However, the contractor cannot use the expiration of a contractual call back warranty to avoid the Registrar's order. See A.R.S. Sec. 32-1155.

Implied Warranties and the Statute of Repose. In addition to express contractual warranties, Arizona courts also recognize implied warranties in construction contracts. Those include the implied warranty of good workmanship. An owner's claim for breach of an implied warranty does not begin to run until the owner discovered or should have discovered the defect. As a result, in the case of a latent or undiscoverable defect, the contractor will be on the hook long after the project is completed.

In an attempt to cutoff this potentially never-ending liability, the Arizona legislature adopted a statute of repose in 1989. The statute of repose is effectively a statute of limitations by another name. These statutes limit the time in which actions may be brought.

Some statutes of repose directly address claims against contractors, and generally provide a fairly significant time within which an action may be brought against a contractor in order to recover damages as the result of latent defects or injury to property caused by defective construction. Arizona's statute of repose effectively extends a contractor's warranty obligations for eight and potentially nine years from substantial completion of construction as defined in the statute. If an owner discovers defects in construction years after completion, that owner may bring an action in order to recover its damages.

The action may be brought even after the six-year statute of limitations period applicable to written contracts if it seeks recovery for "injury to property" or is brought after the discovery of a latent defect. If injury occurs or the defect is discovered during the eighth year following substantial completion, an action may be brought within one year thereafter. See A.R.S. § 12-552.

Conclusion. Contractors are subject to different types of warranties and different time frames that they may have to honor such warranties. An understanding of the differences and the applicable periods of time is critical when responding to demands from owners making "warranty" claims. — Richard B. Murphy