Geoff Parish as at 21st August 2017

6812 2017 E9 8-22-17 + ANSWERS As-builts, Producer statements, guarantees etc.

Contract Administration CONS 6812 - Class exercise No.9 ANSWERS

This Topic is NZS3910 and Producer statements, guarantees etc. Tuesday 22nd August 2017
The following refer to NZS 3910:2013

Q1. How does the Contractor know when it has to provide warranties? 11.5 Warranties 11.5.1
The Contractor shall provide the Principal with written warranties where required by the Special
Conditions. The Contractor studies the Special Conditions and then studies the Contract
documents, especially the Specification which is one popular place for putting this kind of
information. Be careful if the references in Schedule 1 do not match listed items of work in the
Specifications. It is safest to assume that a combination of both sources will need to be allowed
for in the bid, but check with whoever is organising the tender process if there are discrepancies.

Schedule 1 Special Conditions of Contract Specific Conditions of Contract

11.5 Warranties
11.5.1 (select one to apply, (a) or (b))

(a) No warranties are required;

(b) The Contractor shall provide warranties as set out in the Contract for the following items of
work: (state the items)

Q2. What effect has the provision of warranties on the issue of a certificate of Practical Completion?
11.5 Warranties11.5.2 Such warranties shall be supplied to the Engineer in writing before the
Engineer issues the Practical Completion Certificateabsent any warranties the Engineer may
refuse to issue the Certificate which but for the absence of warranties s/he would have issued.

Q3. If the Contractor is the warrantor offering a warranty to the Principal what does the Contractor
affirm as to the nature of the work carried out under the Contract? Schedule 13 Form of
Contractor (or Subcontractor) warranty 1 The Warrantor warrants to the Principal that the
Warranted Works are as required in the Contract. If not otherwise specified the works shall be in
accordance with good trade practice.

Q4. How does a Schedule 13 warranty impact on manufacturers warranties issued under the
Contract or warranties implied into the Contract by legislation? G11.5 Warranties
Warranties are normally provided bySubcontractor or supplier [or] Contractor. They warrant
performance ofpart of the works, andan undertaking to remedy Special Conditions
identify warranties required period [of] and form of [which] may be [as] Schedule 13 or
[other] asa deedsigned byPrincipalContractor andwarrantor (Contractor
orSubcontractor/supplier), and deals withscope ofwarrantywarrantors obligations,
andconsequences offailure to remedy defects under the warranty. Other forms of warranty,
such as standard manufacturers or suppliers warranties, may be acceptable to the Engineer.

Schedule 13 warranties bind both the Contractor and the warrantor, and IT IS HEREBY
AGREED2 This warranty shall be in addition to andnot derogate* from any manufacturers warranty
or any warranty implied by law

* To derogate is to detract from, therefore a Schedule 13 warranty cannot reduce either the value of
manufacturers promises or rights that are established under legislation. Legislation over-rides
Schedule 13 warranties but sets minimum standards, so whereas it can improve rights offered
by Schedule 13 it will not stop manufacturers improving on it. Manufacturers warranties that
reduce their statutory obligations are ineffective. Legislation establishes a default standard.
Schedule 13 warranties are particularly useful because they record the parties who have
obligations under them.

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Q5. What action must the Contractor take if the Principal advises of a defect in the Contract Works
during the warranty period? Schedule 13 Form of Contractor (or Subcontractor) warranty 3.1
The Warrantor agrees that, if within the Warranty Period the Warrantor is advised by the
Principal in writing of any defect in the Warranted Works for which the Warrantor is liable under
the terms of this warranty, the Warrantor will promptly take steps to remedy the defect.

Q6. What happens if the cost to rectify a defect or replace materials is out of proportion to the cost
of so doing compared to the detrimental effect of allowing the defect to remain in place?
Schedule 13 Form of Contractor (or Subcontractor) warranty 3.3 WhereCost of replacement
out of all proportion toconsequencesornotcapable of rectification without substantial
expenseout of all proportion toCost ofWarranted Works: (a) Ifreasonably able to be
rectified by repair rather thanreplacementWarrantors obligation to repair ormake
good(b)Warrantor may propose compensation in lieu of remedyingor (c)Warrantor may
propose combination ofrepair and compensation. 3.4Principal shall considerWarrantors
proposals andparties shall endeavour to reach agreement.

Q7. What action can the Principal take if the warrantor fails to satisfactorily deal with defects?
Schedule 13 Form of Contractor (or Subcontractor) warranty 4.1 IfWarrantor fails tocarry
outremedial work orpropose acceptable repair or compensationPrincipal Mayarrange
remedial workby others.

Q8. Are there limits on the liability of the warrantor to rectify according to the cause of the defect or
damage and if there are, describe 3 of them? Schedule 13 Form of Contractor (or
Subcontractor) warranty 5 ExclusionsWarrantornot liable fordefect or damage caused by:
(a) Wilful act or negligence ofany Person other thanWarrantor; (b) Fire, explosion,
earthquake, war, subsidence, slips, faulty materials, or workmanship other than caused
bydefect...(c)force of natureWarrantor could not have reasonably foreseen; (d)delay
byPrincipalgiving noticeof a defectbecoming apparent; (e) Design
faultsunlessWarrantor undertook...design; (f) Use of Worksforpurpose
notintended; (g) Failureto maintainin accordance with good practice; or (h) Fair
wear and tear*.

* (h) the warrantor is not liable for wear and tear which it is reasonable to expect, but if the
deterioration is greater than should be expected then the warrantor would be liable, but if the
deterioration is greater than expected because of the use the work has been put to is
improper, it would fall under the (f) exclusion.

Q9. How does the Contractor know when it has to provide guarantees? 11.6 Guarantees
11.6.1 The Contractor shall provide the Principal with written guarantees where required by
the Special Conditions and SCHEDULES TO GENERAL CONDITIONS OF CONTRACT Schedule 1
Special Conditions of Contract Specific Conditions of Contract 11.6 Guarantees

11.6.1, 11.6.2 (select one to apply, (a) or (b))

(a) No guarantees are required;
(b) The Contractor shall provide guarantees in the following form: (state form)

The Special Conditions only nominate whether or not guarantees are required, other Contract
documents will specify what trades or materials require them, usually the Specification. By
11.6.2guarantees shall be supplied to the Engineerbefore [s/he] issuesPractical Completion
Certificate so care should be taken to ensure that Subcontractors and suppliers supply them on
good time so as to avoid the problem of the Engineer refusing to issue a because s/he has not
received one. Withholding payment to a Subcontractor usually encourages them to promptly

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produce what they promised in their contracts. For the purposes of satisfying the payment
schedule requirements on the Construction Contracts Act it would be reasonable to nominate a
dollar value on failure to produce a guarantee

Q10. What is a typical difference between a warranty under Schedule 13 provided by the
Contractor (or a Subcontractor) compared to a guarantee? GUIDELINES - G11.6 Guarantees:
Guarantees are generally provided by third parties (such as parent companies) guaranteeing
the Contractors performance. No standard form of guarantee is included in the General
Conditions, so that where required in the Special Conditions a specific form of guarantee should
be included in the tender and Contract. A warranty is provided on a standard form [Schedule
13] prepared as a deed [so it can be enforced without the need for consideration being
present] signed by the Principal, the Contractor, and the warrantor [the Subcontractor when
the Contractor and warrantor are the same person].
https://www.consumer.org.nz/articles/building-guarantees#article-master-build-guarantees
is a Consumer web site comparing guarantees offered by builders, principally house builders,
in NZ. The law books are replete with cases discussing guarantees/bonds/warranties/letters of
comfort which are no more than labels for a standard form or a letter, which place uncertain
obligations on third parties, the uncertainty of which only becomes apparent when the third
party is asked to pay to fix something. A short answer is that the terms are interchangeable and
the only difference between them in regard to NZS 3910 is that the warranty follows a standard
format [Schedule 13] and a guarantee does not.

Q11. What are the differences between guarantees and warranties generally? Try:
http://www.access-legal.co.uk/free-legal-guides/whats-the-difference-between-a-guarantee-and-a-
warranty-1314.htm for assistance.

Guarantee

A guarantee is usually free and is a promise about an item by the manufacturer or company
It's a promise to sort out any problems with a product or service within a specific, fixed period of
time
Whether you paid for a guarantee or not, it is legally binding
The guarantee must explain how you would make a claim in a way that is easy to understand
It adds to your rights under consumer law
It will take effect whether or not you have a warranty

Warranty

A warranty acts like an insurance policy for which you must pay a premium - Sometimes a warranty
is called an 'extended guarantee'
May last longer than a guarantee and cover a wider range of problems
A warranty is a legal contract
The terms of the contract should be clear and fair
Does not reduce your rights under consumer law
A warranty can be in place with a guarantee

More about guarantees

Some items you purchase may come with a manufacturer's guarantee. Often there will be a
registration card that needs to be completed and returned. Before you leave the shop, ensure the
seller has filled in any details of the purchase s/he needs to otherwise the guarantee may not be

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Geoff Parish as at 21st August 2017
6812 2017 E9 8-22-17 + ANSWERS As-builts, Producer statements, guarantees etc.

valid. Once you have sent off the card keep all the documentation in a safe place in case you need to
make a claim later. [Insofar as supply of goods is concerned the Consumer Guarantees Act 1993
implies guarantees into the sale and purchase of goods and services but does not apply to buyers in
trade, in which case the Sale of Goods Act 1908 applies only goods, not services].

Many different businesses and service providers will offer guarantees. Whilst this may give you
confidence in them, be careful not to choose a business just because of a guarantee. It may turn out
to be worthless if the organisation goes out of business. Some guarantees are insurance backed and
these may prove more secure.

guarantees are there to increase your protection and they cannot be used to limit or exclude
responsibility of a business for selling faulty products.

Q12. What form do guaranties take under the Contract? See Q10 above, there is no standard form.

Q13. What is a Producer Statement? Try Auckland City Council at:

http://www.aucklandcouncil.govt.nz/EN/ratesbuildingproperty/consents/Consent%20documents/ac
2301producerstatementpolicy.pdf for help.

By s2 Interpretation of the Building Act 1991 - Producer statement means any statement supplied
by or on behalf of an applicant for a building consent or by or on behalf of a person who has been
granted a building consent that certain work will be or has been carried out in accordance with
certain technical specifications: The term did, and does not appear in the 2004 Act.

The following is an extract from Auckland City AC2301 Producer Statement Policy: refer:
http://www.aucklandcouncil.govt.nz/EN/ratesbuildingproperty/consents/Consent%20documents/ac
2301producerstatementpolicy.pdf

2.4 The Building Act 2004 does not refer to the use of producer statements; however, Council
continues to use them as a mechanism for establishing compliance with the New Zealand Building
Code and they are widely accepted by the industry.

2.5 It is envisaged that memoranda (certificates of work and records of work) issued by Licensed
Building Practitioners (LBPs), will eventually replace producer statements. Licensing of LBPs
commenced in 2009 and became mandatory in March 2012.

Q14. Whether, a warranty, a guarantee, or a Producer Statement applies, what is the common
essential factor that determines their value to the Principal? The financial stability and longevity
of the warrantor who can fix problems that materialise after the Contract Works are
supposedly complete.

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Geoff Parish as at 21st August 2017
6812 2017 E9 8-22-17 + ANSWERS As-builts, Producer statements, guarantees etc.