Contractual warranty obligations can be an unexpected source of risk and expense for construction companies. The duration of typical warranties, the scope of many such warranties and the extent they are effectively transferred to subcontractors and suppliers are often misunderstood and a source of controversy when a building system or component fails.  This article deals with the duration of a contractor’s warranty obligations under standard contract documents. A future article will address scope and “pass through” issues. 

Many contractors believe their warranty obligations are limited to the (typically) one-year “correction of work” period common in most contracts. But in fact, standard warranty obligations extend for six years in most cases in New York, and a recent appellate court decision may extend the one-year “correction” obligation even further in some cases. 

First and generally, a warranty is a contractual undertaking that one’s work and materials will be of a specified quality, whether the word “warranty” is used or not. Outside of home building and improvement (where statutory warranties apply), a construction contractor’s warranty obligations are strictly a matter of contract. This means, at least in theory, that contractors have a say in what warranty obligations they commit to. But you need to know where those warranty obligations are located.

Most construction contracts, including all the standard industry forms, have both a general “warranty” clause and a distinct “correction of work” clause. The first is a general commitment that the work will be free from defects. Such “warranty” clauses are typically unlimited in time, and may therefore be enforced by an owner for up to six years after substantial completion (the statute of limitations in New York for bringing a breach of contract claim). The typical “correction of work” clause, on the other hand, seldom includes the word “warranty” but it nevertheless obligates the contractor to repair or replace “defective” work of which notice is given within a particular period (usually one year) after completion. These clauses, which may not be located near one another in the contract, are similar but they carry distinct obligations.

For example, the standard AIA general conditions, form A201-2017, includes the following two sections:

3.5 Warranty

3.5.1 The Contractor warrants to the Owner and Architect that materials and equipment furnished under the contract will be of good quality and new unless the Contract Documents require or permit otherwise. The Contractor further warrants that the Work will conform to the requirements of the Contract Documents and will be free from defects, except for those inherent in the quality of the Work the Contract Documents require or permit. Work, materials or equipment not conforming to these requirements may be considered defective.

12.2 Correction of Work

12.2.2 After Substantial Completion

12.2.2.1 In addition to the Contractor’s obligations under Section 3.5, if, within one year after the date of Substantial Completion of the Work or a designated portion thereof or after the date or commencement established under Section 9.9.1, or by terms of any special warranty required by the Contract Documents, 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 notice from the Owner to do so, unless the Owner has previously given a Contractor a written acceptance of the conditions.

This same duality of warranty provisions is found in the standard contract forms published by ConsensusDocs (Nos. 200 and 410), the Engineers Joint Contract Document Committee (C-700) and the Design Build Institute (No. 535). It also appears routinely in many other owner-generated contracts.

The general “warranty” clauses of these contract forms are significant, because they can be enforced by the project owner throughout the statute of limitations period for a breach of contract action, which is six years in New York. This means that a contractor who declines to correct defective work in years 2-6 after substantial completion, or to reach some other settlement with an owner, can successfully be sued by the owner for either the cost of having the defect corrected by others or the loss in building value caused by the defect. The only effective way to limit this exposure under a general warranty clause is to negotiate a shorter limitations period for bringing a breach of contract action. 

Special Problems with Special Warranties.

Many contract specifications require the contractor to provide the owner with special or extended warranties from the product manufacturer for particular products or systems. And typical subcontracts pass those obligations on to one or more subcontractors. Typical examples include 25-year warranties for roofing materials, or 10-year warranties for calking or sealing materials. The requirement is common enough that manufacturers routinely make such warranties both readily available and directly enforceable by the project owner without regard to privity of contract.

It has been widely assumed in the construction industry that the contractor’s responsibility for such special warranties ends upon delivery of the specified manufacturers’ warranties to the owner or its representative. However, a recent decision from New York’s Appellate Division has held that a contractor’s one year “correction of work” obligation was extended to ten years by the requirement to provide a manufacturer’s warranty of that duration.

In HTRF Ventures, LLC v. Permasteelisa North America Corporation, the Court permitted a building owner to sue a curtain wall subcontractor for building leaks ten years after the contract was finished, because of a specification requirement – which Permasteelisa complied with — to provide a ten-year warranty from the manufacturer of the sealant that was used on the building. For reasons undisclosed in the decision, the building owner chose to sue only the subcontractor, and not the manufacturer, more than nine years after the project had been turned over to the owner. 

In allowing such a belated suit against the subcontractor, the Court acknowledged that any liability based on the subcontractor’s general warranty obligation had expired after six years (four years earlier). But it found a “hook” in the separate “correction of work” clause, which committed Permasteelisa to correct defects in material or workmanship “discovered within one (1) year from the date of the acceptance of the Project .  .  . or for such longer period as may be provided in the .  .  . Contract Documents.” In fact, the specifications had required Permasteelisa to furnish its own extended five-year warranty for its work and materials. That special warranty, of course, had expired. But the Court (with one judge dissenting) allowed suit against Permasteelisa to continue anyway, ruling that the ten-year period specified for the sealant manufacturer’s warranty was a “longer period provided for in the contract documents” that extended the sub’s own one year “correction of work” obligation to ten years. 

It is tempting to dismiss the result in this case as an anomaly based on peculiar warranty language in a particularly onerous design-build contract. However, the contract language the Court focused on may also be found in several industry standard contract documents. For example, DBIA Document 535 commits the design-builder to correct defective work for one year “or within such longer period to the extent required by any specific warranty included in the Contract Documents.” The EJCDC standard general conditions (C-700) has similar language, as does the ConsensusDocs design-build contract (No. 410). And while the ConsensusDoc owner agreement (No. 200) limits the “correction of work” period for prime contractors to one year, its subcontract form (No. 750) makes the requirement one year “or for a longer period of time as may be required by specific warranties in the Subcontract Documents.” While the AIA A201-2017 doesn’t include this precise language, it does include language that could be confused to reach a similar result.

Conceivably the Permasteelisa case will be rejected by other appellate courts, but in the meantime, contractors will have to carefully negotiate the warranty terms of their contracts if they wish to avoid a similar extension of their own warranty obligations to match the duration of the longest-lived manufacturer’s warranties called out in the specs.

As noted at the beginning of this article, the duration of a contractor’s own warranty obligations, even in the presence of required manufacturer’s warranties, can be limited by careful negotiation. The same is true for other warranty pitfalls, to be discussed in a future Part 2 of this article.

Tony Adams is a founding partner of Adams Leclair. Part 2 of this article will be published in May 2021.

New York continues to provide legislation designed to speed up payment to contractors. Following on the heels of Prompt Pay Act, (albeit eleven years later) Governor Cuomo signed into law the “Substantial Completion” act on December 19, 2020.  

Law clarifies “substantial completion” for the purposes of requisition payments to contractors, subcontractors and materials suppliers in construction contracts. 

Substantial completion triggers:

• release of retainage
• commencement of warranties
• punchlist completion
• claims resolution

Law clears up ambiguities on when a contractor’s right to file a mechanic’s lien for retainage accrues.

The new legislation applies to public contracts only. The law’s critical new language is in bold below: 

When the work or major portions thereof as contemplated by the terms  of the  contract has reached substantial completion which, for the purposes of this section, shall mean the state in the progress of the project when the work required  by  the  contract with  the  public  owner is sufficiently complete in accordance with the contract so that the public owner may occupy or utilize the work for its  intended use; provided  further,  that  “substantial  completion”  shall apply  to  the  entire project or a portion of the entire project if the contract with the public owner  provides  for  occupancy  or  use  of  a portion  of the project, the contractor shall submit to the public owner and/or his agent a requisition for payment of the  remaining  amount  of the contract balance.

Essentially codifies substantial definition from AIA construction documents. 

The new legislation also starts the clock on the owner’s obligation to provide the contractor with a single defined “punchlist” of remaining open items of work:

Not later than forty-five business days after the date when the project  has  reached  substantial  completion, the  public owner shall submit to the contractor a written list describing all  remaining items to  be  completed  by the contractor. Not later than seven calendar days after receiving a written list describing all remaining  items to be completed by the contractor, the contractor shall submit to each subcontractor from whom the contractor is withholding retainage a written list of  all remaining items required to be completed by the subcontractor. Such list may include items in addition to those items on the public owner’s list.

The inclusion of the punchlist requirement will be welcomed by contractors throughout the state. Too often public projects linger for excessive amounts of time due to the owner generating successive generations of punchlists; each of which must be completed by the contractor before the project can be closed out, and final payment received. The courts’ strict interpretation of this new provision should be an immense improvement in closing out public construction projects. 

The new law enjoys broad support among construction trade groups. 

Two significant caveats to consider. First, the law provides a different definition for school projects, and second, the law leaves in place the phrase “…as contemplated by the terms of the contract.” It remains to be seen how the courts will interpret the legislature’s intent in leaving in place the “as contemplated” language. 

The law provides support to contractors who find themselves at the mercy of public owners who unreasonably delay issuing a certificate of substantial completion. Taking the determination of when a project is substantially complete out of the control of a public entity whose interests may be at odds with a contractor or subcontractor, will presumably result in a quicker release of retainage on public works contracts. Hopefully, the players in the construction industry and the courts when necessary, will remember the stated purpose of the legislation, which is to streamline completion and final payment on public projects.  

Daniel Adams is a founding partner of Adams Leclair LLC.

Updated 4/1/2021

Now that vaccines have become more widely available, can employers require their employees to take COVID-19 vaccinations?

Back in December 2020, I wrote a blog advising that it appeared that employers in New York State are legally allowed to enact mandatory COVID-19 vaccine policies, with certain guiderails, including providing reasonable accommodations for people with a disability or sincerely held religious belief preventing vaccination.

Current federal guidance continues to support this position.

Vaccines Authorized Under an Emergency Use Authorization (“EUA”)

Some commentators have suggested that mandatory vaccine policies are not allowed because COVID-19 vaccines are currently available under an Emergency Use Authorization (EUA) issued by the Food and Drug Administration.

All of the COVID-19 vaccines currently available in the United States – manufactured by Pfizer-BioNTech, Moderna, and Johnson and Johnson’s Jansen – have been authorized by the FDA under the EUA statute.

What is an EUA?  Under the Federal Food, Drug and Cosmetic Act, the Secretary of Health and Human Services may declare that emergency circumstances exist (meaning an emergency involving chemical, biological, radiological, and nuclear agents, including infectious disease threats).  21 USC § 360bbb-3(b)(1).  After the HHS declares an emergency, the FDA may issue an emergency use authorization (EUA), authorizing the emergency use of a drug, device, or biological product intended for use in connection with the emergency.  

 The controversy over the EUA statute involves language in the statute which requires the Secretary of HHS to provide certain notices to recipients of the vaccine, including the following information:

(I) that the Secretary has authorized the emergency use of the product;

(II) of the significant known and potential benefits and risks of such use, and of the extent to which such benefits and risks are unknown; and

(III) of the option to accept or refuse administration of the product, of the consequences, if any, of refusing administration of the product, and of the alternatives to the product that are available and of their benefits and risks.

21 USC § 360bbb-3(e)(1)(ii) (Emphasis added.)

The statute does not state that the above notice requirement applies to private employers or states.  Some commentators have indicated that the reference in this section of the statute to “the consequences, if any, of refusing administration of the product” indicates Congress’ intention that the administration may in some instances be mandated.  [There is a law allowing the President to waive the requirement to advise members of the armed forces that a drug or vaccine is optional under an EUA if it is not in the interest of national security.  10 USC § 1107a.]  

The FDA explains that the Section 360bbb-3(e) notice for COVID-19 vaccines is being provided in a patient fact sheet available on its website, as is its usual practice. The fact sheet for the Moderna vaccine is here.

There is no requirement that an employer require employees get the vaccine administered by a third-party provide similar notice.

CDC and FDA Guidance

The CDC’s guidance, updated March 25, 2021, seems to resolve this issue.  The CDC states that while the FDA does not make COVID-19 vaccines mandatory, a state, local government, or employer may mandate vaccination based on state or other applicable law:

The Food and Drug Administration (FDA) does not mandate vaccination. However, whether a state, local government, or employer, for example, may require or mandate COVID-19 vaccination is a matter of state or other applicable law.

Employer Vaccine Mandates and Proof of Vaccination

Whether an employer may require or mandate COVID-19 vaccination is a matter of state or other applicable law. If an employer requires employees to provide proof that they have received a COVID-19 vaccination from a pharmacy or their own healthcare provider, the employer cannot mandate that the employee provide any medical information as part of the proof.

[Then the CDC identifies the factors to consider relative to accommodations for disability or religious belief.]

EEOC Guidance Supports the Employer’s Right to Require Vaccination

The EEOC is responsible for enforcing laws that prohibit discrimination in employment based on disability, religion, or other protected classes, and approaches this issue from the standpoint of whether requiring vaccinations violates the Americans With Disabilities Act, Title VII, or other anti-discrimination laws.  

The EEOC’s guidance continues to indicate that an employer may institute a mandatory COVID-19 vaccination policy as long as it provides reasonable accommodations to people with disabilities that prevent them from receiving a vaccine under the Americans With Disabilities Act, and also provides reasonable accommodations to people with a sincerely held religious belief that prevents vaccination.  There are additional guidelines if the employer is administering the vaccine (rather than a third-party provider, such as a pharmacy or health care provider).

The EEOC’s guidance references the EUA statute, acknowledging that a patient fact sheet is supposed to be provided to recipients of the vaccine stating that they may refuse the vaccine.  Of note, the EEOC does not state that the EUA statute prohibits an employer from mandating vaccination or even requires the employer to provide this notice (as opposed to the FDA providing the notice, as is the current practice).  Instead, the EEOC provides guidance as to how an employer may implement a mandatory COVID-19 vaccine policy.

It is expected that courts will follow the EEOC’s guidance.  Courts routinely hold that, while EEOC guidance is not controlling on the courts, the EEOC’s interpretation of discrimination laws “constitute[s] a body of experience and informed judgment to which courts and litigants may properly resort for guidance.”  Jin v Metro. Life Ins. Co., 310 F3d 84, 95 (2d Cir 2002), quoting Meritor Sav. Bank, FSB v Vinson, 477 US 57, 65, 106 S Ct 2399, 2404, 91 L Ed 2d 49 (1986).

Courts Have Not Yet Ruled on Whether Employers May Require Vaccination

There are no court decisions stating whether private employers may mandate vaccines or other drugs authorized under an EUA.   

In the first lawsuit by an employee subject to a mandatory COVID-19 vaccine requirement, just weeks after filing the lawsuit, in March 2021 the plaintiff withdrew his request for relief, and the Court did not enter any decision.  This short-lived litigation may foreshadow how other lawsuits would unfold. 

In early March 2021, in the US District Court, District of New Mexico, a detention center employee filed a complaint seeking a temporary restraining order and preliminary injunction against Dona Ana County.  The employee argued that the County’s mandatory COVID-19 vaccination requirement for first responders is preempted by the EUA statute, 21 USC § 360bbb-3, and violates his 14th Amendment right to a zone of privacy.  (See scheduling order at Legaretta v. Macias, 21-CV-179 MV/GBW, 2021 WL 833390 (DNM Mar. 4, 2021).)

The County/defendant filed a well-reasoned response to the motion for an injunction on March 15, 2021, explaining the EUA statute 21 USC § 360bbb-3 at most requires vaccine recipients to be informed of the consequences of refusing the vaccine.  The County cited the above-stated guidance by the CDC, stating “whether a state, local government, or employer . . . may require or mandate COVID-19 vaccination is a matter of state or other applicable law.”  

In response to the Fourteenth Amendment argument, the County/defendant cited numerous authorities holding that the argument that mandatory vaccination program violates the Fourteenth Amendment was “foreclosed by the Supreme Court’s decision in Jacobson v. Commonwealth of Massachusetts, 197 U.S. 11 (1905).”  See Phillips v. City of New York, 775 F.3d 538, 542 (2d Cir. 2015).   

Just four days after the defendant/County filed the response brief, the plaintiff filed a notice withdrawing the motion for injunction on March 19, 2021.  Thus the Court did not rule on any of these issues.

In one other case that mentions the EUA statute relative to COVID-19, Aviles v Blasio, 20 CIV. 9829 (PGG), 2021 WL 796033 (SDNY Mar. 2, 2021), parents sued the City of New York seeking a preliminary injunction requiring the reopening of all public schools for in-person instruction and forbidding the City from requiring students to take COVID-19 tests for in person instruction.  The Southern District of New York denied the motion, holding that the students were not deprived of any constitutional rights because they were offered remote learning, and their parents could opt out of COVID-19 testing and still receive remote instruction.  In a footnote the Court dismissed the parents’ argument that the COVID tests are EUA products, and thus cannot be mandatory under 21 USC § 360bbb-3, because the testing program is premised on parental consent and is not mandatory.  The Court did not reach the issue of whether the statute would prohibit the school from requiring testing if it were a mandatory requirement.

New York State

New York State has not issued any guidance or law indicating whether an employer may require employees to take a COVID-19 vaccine.  A new law does require that New York employers provide up to four hours of paid leave to get the vaccine, in addition to sick leave or other types of leave available to the employee.  (New York Labor Law § 196-c.)

The New York State Human Rights Law has requirements similar to federal discrimination laws that require accommodations for those with a disability or religious belief preventing vaccination.

It is still possible that a state, county, or municipality could issue laws or guidance either allowing or prohibiting employers from enacting a mandatory vaccine policy.  This is an area that employers should keep an eye on.

Should I Enact a Mandatory Vaccine Policy?

It depends on an analysis of factors including your particular industry, business needs, employee composition, and safety concerns.  At this time, there does not appear to be any legal prohibition on requiring that employees take one of the COVID-19 vaccines. 

In some industries, such as construction, government entities or prime contractors are starting to require that sub-contractors comply with mandatory vaccine policies.  Employers who are contractually required to mandate the vaccine should make sure that they are in compliance with any union obligations, and otherwise complying with the requirement to accommodate those with disabilities and/or sincerely held religious beliefs.

In the restaurant industry, employers are starting to enact mandatory vaccine policies which they believe will be helpful for marketing purposes in an effort to bring customers back to indoor dining.  This may be a crucial policy for retail businesses and restaurants that have been hard-hit by the pandemic. 

It is still relatively early on in terms of vaccine availability, and if possible, it may be beneficial to wait a few weeks or months to see if the State or courts provide additional guidance on this issue.  An employer should weigh its options to determine whether a more flexible policy may achieve the same or similar goals.  An employer should also seriously consider the consequences for non-compliance with the policy with respect to employees, vendors, and customers, the effects of terminating employees who do not comply, and the impact of the policy generally on the morale of employees who will be impacted. 

Stacey E. Trien is a partner with the law firm of Adams Leclair LLP.  She focuses her practice on employment law and commercial litigation.  She can be reached at strien(Replace this parenthesis with the @ sign)adamsleclair.law.