If a principal or head contractor is engaging you to provide goods or services under a contractor arrangement, it is likely the contractor agreement will include warranties that you will need to comply with. A warranty is a contractual promise of a current or future condition of the goods or services being supplied. In effect, by entering into the contract, you will be providing certain assurances to the principal. Often this assurance relates to the quality of your goods or services. This article will discuss subcontractor warranties and how they may impact you when entering into a contractor agreement.
What Are Warranties?
Warranties are assurances within a contract. Typically, the service provider grants the warranty.
Furthermore, additional examples of warranties include:
- the goods or services will be free from defects;
- the service provider will comply with all applicable laws; and
- the goods and services will be provided with due care and skill.
A breach of warranty gives rise to a claim for breach of contract. Where the aggrieved party can prove their loss followed the warranty breach, the law requires the subcontractor to put the other party in the position it would be in were the warranty true. For example, this may be the cost of obtaining a product free from any actual defect.
Subcontractor warranties are any warranties you give to the principal related to your performance. As a subcontractor, you may have to pay damages to the principal for breach of warranty. That said, a breach of warranty does not necessarily entitle the innocent party to terminate the agreement.
Overall, a well-drafted warranty will describe:
- what is required of the subcontractor; and
- clarify the circumstances in which a remedy may be available for breach of warranty.
Statutory Warranties
Statutory warranties are those implied by legislation. They may apply even if they are not expressly included in the contract. Accordingly, they cannot be excluded by the contract. For example, the Australian Consumer Law includes a number of consumer guarantees (which are similar to warranties), such as:
- goods will be of acceptable quality;
- goods will match the description, sample or demonstration model;
- goods come with clear title unless otherwise stated;
- services will be provided with due care and skill;
- services will be fit for any disclosed purpose; and
- services will be completed within a reasonable time.
What to Look Out For In Subcontractor Warranties
A subcontract may seek to impose additional warranties beyond those imposed by the law. When entering into a contract, look out for the following
- Ensure that the subcontractor warranties included are market standard, and are narrowly drafted.
- Make sure you understand the subcontractor warranties being included and that you are comfortable and able to provide these warranties.
- Ensure that your liability under the subcontract is limited, including for breaches of warranties. This means ensuring that you are only responsible for your own work, and only for a set period of time. For example, if you are warranting that your goods or services will be free from defects, ideally this would be limited to only apply from when the goods or services are delivered and for a defined period of time (for example, 12 months).
- Confirm that the contract includes mechanisms for notification of breach of warranty. Likewise, ensure you have a reasonable opportunity to assess the goods or services before you have to remedy the breach.
- Finally, make sure your liability for consequential losses is excluded. Consequential losses include loss of profit, revenue or opportunity.
Breach of Warranty
The aim of remedying a breach of warranty is to put the innocent party in the position they would have been in had the warranty not been breached. The consequences of a breach of the warranty will depend on:
- whether the breach is so serious that the other party should be entitled to terminate the contract;
- whether the receiver of the warranty (i.e. the innocent party) has suffered any loss;
- whether the contract details the consequences of a breach; and
- when the claim is made.
A breach of warranty will not generally entitle the innocent party to terminate the contract. However, it may give them access to other remedies such as damages. If your contract details how to resolve a dispute over a breach of warranty, courts are likely to follow those terms.
Legislation may prescribe time frames within which claims for breach of warranty must be brought. This will change depending on which State you are in and which legislation is applicable to your goods or services.
If you are a company director, complying with directors’ duties are core to adhering to corporate governance laws.
This guide will help you understand the directors’ duties that apply to you within the Australian corporate law framework.
Key Takeaways
In summary, when supplying goods or services under a subcontractor arrangement, there may be warranties at law that you may be responsible for, regardless of whether these are expressly included in your contract. In addition to these statutory warranties, the principal may seek to include additional contractual warranties in your contract. A breach of warranty may result in you having to pay damages to compensate for the loss suffered by the principal.
If you have any questions concerning the implications of subcontractor warranties or drafting an express warranty to include as part of your terms and conditions, our experienced contract lawyers can help as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
Generally, an express warranty is a direct promise by a supplier of goods and services as to a specific aspect, often it’s quality.
Under Australian Consumer Law, consumers have a guarantee that any products or services will meet the express warranties that you provide alongside them. This means that if you fail to meet an express warranty, you will not only be in breach of your own terms. However, you will be in breach of a consumer guarantee under the Australian Consumer Law.
We appreciate your feedback – your submission has been successfully received.
