Facilities Institute July , 2012 Houston, Texas CONSTRUCTION AND RENOVATION WARRANTY/GUARANTEE What Do You Get And When Does It Start? C. G. “Sonny” JesterRobert Ferguson and FTI ConsultingStan Scott Construction SolutionsHill International, Inc

Facilities Institute July , 2012 Houston, Texas Warranties and Guarantees Type of Project Makes a Difference May seem like a “no brainer” But the differences are significant Critical Considerations o Type of delivery methodology o What drives your project? o Who provides the warranty? And is it backed by anyone?

Facilities Institute July , 2012 Houston, Texas Where Does the Warranty Originate? Cannot discuss Warranties without addressing several basic issues: 1.Contractual context 2.Start up and Commissioning

Facilities Institute July , 2012 Houston, Texas Begin at the Beginning Must plan for the “end” before you kickoff the project

Facilities Institute July , 2012 Houston, Texas Actually, Not the End… Close out, Commissioning and the activation of warranties should be viewed as the beginning of the life of the project/systems… Not the END of the construction project It is a transition, and a very real risk shifting time in the life of the project

Facilities Institute July , 2012 Houston, Texas A Question of Degrees… Life Safety and HVAC on a dormitory Or Process/performance Guarantee on a bio- containment facility

Facilities Institute July , 2012 Houston, Texas 3 Step Process 1.Quality Planning…do it right the first time 2.Quality Assurance…implementing what has been planned 3.Quality Control…monitoring specific objectives to ensure compliance with standards

Facilities Institute July , 2012 Houston, Texas Step 1 - Planning “Look where you are going”

Facilities Institute July , 2012 Houston, Texas Commissioning of Systems Not an “end of the job” consideration o But intimately connected to the warranty period To be most effective, should begin at the Pre-Design stage Don’t just focus on mechanical systems o What about your building envelope? Roof systems and Curtain walls

Facilities Institute July , 2012 Houston, Texas Procurement of Equipment This includes drafting the contracts UCC considerations (not international) o If contract for the procurement of equipment does not address warranties and remedies, among other things, UCC provisions may be read into the contract o But note…Article 2 governs contracts for goods, not services Design, installation, maintenance not covered?

Facilities Institute July , 2012 Houston, Texas Factors to consider in equipment procurement contracts What happens to facility if equipment doesn’t work? o Underperformance? How does equipment fit into construction of facility? o Time issues, interfaces How is risk of loss (to or from equipment) allocted? Who owns IP for equipment?

Facilities Institute July , 2012 Houston, Texas Equipment procurement factors continued Who monitors performance specs? o Design Build? Who tests for compliance? o What happens on failure? Who provides the warranty?

Facilities Institute July , 2012 Houston, Texas Step 2 - QA “You wanted what?…”

Facilities Institute July , 2012 Houston, Texas QA Processes Peer Review at Schematic Design phase At 100% Design Development phase, conduct a System Coordination Review o Validate vs. spatial requirements, etc Constructability Review at % Construction Documents o Before released for construction

Facilities Institute July , 2012 Houston, Texas Step 3 - QC “Nobody will notice…”

Facilities Institute July , 2012 Houston, Texas QC Processes Identify and empower commissioning agent Coordinate activities in a logical, sequential order Gather operations/maintenance manuals Gather and review control sequences and interfaces Prepare pre-functional tests On site observations

Facilities Institute July , 2012 Houston, Texas Examples of questionable on site inspections

Facilities Institute July , 2012 Houston, Texas Examples of questionable on site inspections

Facilities Institute July , 2012 Houston, Texas Examples of questionable on site inspections

Facilities Institute July , 2012 Houston, Texas Examples of questionable on site inspections

Facilities Institute July , 2012 Houston, Texas Examples of questionable on site inspections

Facilities Institute July , 2012 Houston, Texas Start up and Warranties As part of QC process o Plan for seasonal or deferred testing and correction o Review operation and related issues before end of the warranty period 10 months? More often or earlier?

Facilities Institute July , 2012 Houston, Texas Warranty Discussion Consideration of specific issues… 1.When does the warranty start? 2.What does it cover? 3.Who provides the warranty? 4.Criticality of the warranty? 5.Damages recoverable?

Facilities Institute July , 2012 Houston, Texas It is important to note at the outset… That these considerations overlap in many respects.

Facilities Institute July , 2012 Houston, Texas Example of an early warranty… The Code of Hammurabi (1800 B.C.) 229 If a builder build a house for some one, and does not construct it properly, and the house which he built fall in and kill its owner, then that builder shall be put to death. 230 If it kill the son of the owner the son of that builder shall be put to death. 231 If it kill a slave of the owner, then he shall pay slave for slave to the owner of the house. 232 If it ruin goods, he shall make compensation for all that has been ruined, and inasmuch as he did not construct properly this house which he built and it fell, he shall re-erect the house from his own means. 233 If a builder builds a house for someone, even though he has not yet completed it; if then the walls seem toppling, the builder must make the walls solid from his own means

Facilities Institute July , 2012 Houston, Texas When does it start? Upon design? Fitness for a particular purpose? Upon purchase? Upon installations? Upon start up? Commissioning?

Facilities Institute July , 2012 Houston, Texas When does it start? What about the impact of: Suspension Delay Force majeure Occupancy and/or completion issues

Facilities Institute July , 2012 Houston, Texas What does it cover? Limitations and disclaimers Who is the “buyer” for notice purposes? Privity of contract Goods vs. services? Installation, maintenance

Facilities Institute July , 2012 Houston, Texas Who provides? Manufacturer? Distributor? Contractor? 2007 AIA A201 §3.5 Contractor’s work = free from defects Except: Inherent in quality of work required Defects due to abuse, alterations to work, bad maintenance, improper operation, normal wear and tear

Facilities Institute July , 2012 Houston, Texas Who provides? Contractor Manufacturer/supplier Subcontractor Insurance for same Impact of insolvency by any? Who should receive notice? Can you compel notice?

Facilities Institute July , 2012 Houston, Texas Who provides? Type of contract or delivery methodology make a difference? Design build Design assist EPC vs EPCM

Facilities Institute July , 2012 Houston, Texas Criticality of Warranty Is it a component system? Necessary for use and/or occupancy? Is it the reason for the project? Without the warranty/performance, what is the value of the project?

Facilities Institute July , 2012 Houston, Texas Limitations on what is recoverable? Economic Loss Rule -Repair or replacement costs of defective system, and lost usage, income, etc from delayed completion barred without privity? -Damage to other property or personal injury damages recoverable?

Facilities Institute July , 2012 Houston, Texas THANK YOU! QUESTIONS?