Warranty clauses govern the rights and obligations of the contractor and the acquiring entity in relation to defective goods and services. They serve to promote a minimum standard of performance. Warranties may provide contractual rights to reject goods and be paid compensation, or to have defects corrected if the goods and services are to be retained. Generally, contracts should stipulate the time period after the acceptance of goods or services within which the acquiring entity has a contractual right to require the correction or repair of any defects.

Warranty clauses govern the rights and obligations of the contractor and the acquiring entity in relation to defective goods and services.

Warranty clauses should cover:

• the exact nature of the goods and services under warranty;

• the level of warranty that the contractor is required to provide;

• the precise remedies available to the acquiring entity; and

• the scope and duration of the warranty.

Some level of warranty is normal for many goods. In many cases there is a typical level of warranty for a category of goods. For example, motor vehicles typically have a three-year warranty, and a major building air conditioning plant may have a 10-year warranty.

Consideration should be given to whether to specify the typical level of warranty for the procurement or whether entity business needs suggest a different level of warranty. Requiring a warranty level more than the current typical level may involve additional costs. Specifying lower levels of warranty may expose the acquiring entity to additional risks and should only be agreed to after consideration of the benefits involved.

Warranty clauses can be either express or implied. Express warranties involve a warranty clause that provides certain remedies for defects and require a contractor to either repair or replace the goods. If goods were retained, the contractor is required to pay a sum of money that is equitable in the circumstances. Implied warranties include the requirement that the product is of merchantable quality and is fit-for-purpose.

Specifying lower levels of warranty may expose the acquiring entity to additional risks and should only be agreed to after consideration of the benefits involved.