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Using Performance Standards to Mitigate Customer Disputes
Matthew J. Whipple and Frank C. Thompson
Presented by:
J2059931
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The “Default” Universe Basic Contract, Description of Work And Price Warranties are Implied
Not Well Defined, Unclear Duration and Content
Enforced Only In Court Likely Court of Common Pleas Need an Attorney/Long Road of Litigation
Decided By Judge Or Jury No Expertise in Construction Likely Sympathetic to Homeowner Uncapped Risk Exposure
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The “Controlled Universe” Detailed Contract, Includes Dispute Resolution
Mechanisms Warranties and Standards Are Express
Defined in both content and duration
Alternative Dispute Resolution More Cost Effective Decided by Neutral with Expertise
Show benefits of controlled universe and give contractual guidance for how to make it happen
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General Warranty Principles Warranty is “an express or implied promise that
something in furtherance of a contract is guaranteed by one of the parties” (Black’s Law Dictionary)
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General Warranty Principles
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General Warranty Principles A guarantee of quality, condition, or functionality,
related to goods or services May be “Express” or “Implied” “Implied” warranty is one that arises by operation of law. “Express” warranty is explicitly granted by one party
Often related to a contract, but does not have to be part of a contract
Legally Binding Obligation
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Implied Warranties
Warranty implied by law/courts Do not need to intend to make warranty Often designed to protect consumers/buyers
(minimal level of protection) Examples:
Workmanlike Construction/Habitability Builder is in best position to perform in “reasonably
workmanlike manner” and to ensure building is fit for purpose of habitation
Not well defined/question of degree
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Examples (continued) Merchantability
Applies to sale of goods Product will perform like products of similar type Typical lawnmower lasts 5 years, all lawnmowers
should last that long Fitness for Particular Purpose
Goods should be fit for purpose intended Insulation will keep room at certain temperature
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General Warranty Principles
Problem is uncertainty – duration, scope, remedy
Breach of Implied Warranty -Workmanlike Manner
In the absence of an express agreement to the contrary, the law implies a promise by a builder that the construction will be performed in a reasonably good and workmanlike manner and in accordance with good usage and accepted trade practices, resulting in a merchantable structure. “Good and workmanlike” means that quality of work performed by one who has the knowledge, training, or experience necessary for the successful practice of a trade or occupation and performed in a manner generally considered proficient by those capable of judging such work.
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General Warranty Principles (Cont’d)
“Workmanlike” may also be defined as the degree of care that a skilled workman, in this instance a [contractor], would exercise under like or similar circumstances in the community in which the work is done.
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General Warranty Principles (Cont’d)
Court, and likely jury, will decide these things No particular expertise, have to be educated on
the spot by professionals with conflicting opinions May be sympathetic to homeowner/consumer
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Implied Warranties may be disclaimed (if proper procedures followed) If you can disclaim, why give any warranty?
Customer relations/business reasons The “Tommy Boy” effect – stand behind your work
No warranty may be unenforceable in certain circumstances, particularly warranty of habitability. Express warranty more likely enforceable
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Express Warranty Terms explicitly stated, usually both in function
and duration Can be written or oral Most home construction contracts, both new
construction and remodeling, reference some express warranty
Example – roof will last for 20 years
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Limited Warranty
Many agreements have general language about a “one year warranty” Confusion about builder’s warranty and
manufacturer’s warranty May be unenforceable May be unclear as to scope, how to address
alleged problems Sample Agreement in Handout
Incorporates reference to “Residential Construction Performance Guidelines,” published by National Association of Home Builders16
Performance Guidelines Generally
Comprehensive set of recommendations for standards in residential construction, both how to assess problems and appropriate remedies
Meant to give clarity to the contractor, but also peace of mind to the homeowner
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The NAHB Residential Construction Performance Guidelines
• Beyond building codes and local regulations, builders, remodelers and their customers have sought measurable benchmarks that deal with the expectations of performance and workmanship in the products provided by the residential construction industry.
• Codes address matter of health, safety and welfare, these guidelines match expectations of performance and workmanship.
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History of the Guidelines
• The core of these guidelines were first established under insured warranty programs.
• More than 20 years ago the NAHB Remodelers embraced similar standards.
• NAHB Remodelers and the NAHB Single Family Builders Committee combined to publish the first edition in 1996.
• The fifth edition has just been compiled and published.
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Fifth Edition
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Scope of the guidelines• A collection of minimum performance criteria.• Many contractors build to tighter tolerances.• Not intended to answer all questions related
to construction workmanship and performance in a specific residential project.
• Based on building techniques and quality measures across the United States.
• Local variations in techniques, materials, or environmental conditions may render some guidelines inappropriate in evaluation or remedy. 21
• In that instance, the parties should provide in writing another standard to take precedence.
• The Guidelines have the flexibility to reflect remodeling specific conditions such as out of plumb or out of level existing structures.
• The Guidelines are available for purchase at the NAHB Builder Books table in the conference hallway exhibit area and may also be purchased online at builderbooks.com
• Here are a few specific examples of the Guidelines.
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Implementation of Guidelines
Unlike building code, do not apply by default Incorporate into contract, depending on
engagement, may want to incorporate specific sections/provide applicable sections to homeowner in advance
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Implementation of Guidelines (con’t)
Exclude other warranties Sample language (from standard PBA Model
Agreement): OWNER VOLUNTARILY, KNOWINGLY AND INTENTIONALLY,
AFTER HAVING HAD THE OPPORTUNITY TO CONSULT WITH SEPARATE COUNSEL, HEREBY UNCONDITIONALLY WAIVES ANY EXPRESS OR IMPLIED WARRANTY OF HABITABILITY, INCLUDING WITH RESPECT TO ANY LATENT DEFECTS, AND ANY IMPLIED WARRANTY OF WORKMANLIKE CONSTRUCTION AND ANY OTHER EXPRESS OR IMPLIED WARRANTIES EXCEPT FOR THOSE SPECIFICALLY SET FORTH [HEREIN]
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Right to Repair Clause
Notice of Claim and Right to Repair Handout Can be tailored to situation
Major features: Places requirement on homeowner to notify
contractor within 30 days of discovery of an alleged defect Prevents aggrieved homeowner from simply initiating a
dispute Gives right of inspection, before homeowner takes
any action
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Right to Repair Clause
Gives right to correct work that might be defective
Opportunity to explain if not at fault Tries to keep lines of communication open If no agreement, document steps in writing
and provide to homeowner
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Alternative Dispute Resolution
ADR is an alternative way to traditional litigation to resolve disputes
Takes many forms, most often “mediation” and “arbitration”
Mediation is usually non-binding, negotiation with outside input
Arbitration is binding, a decision by one neutral or a panel
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Alternative Dispute Resolution
Goals are to both cheaper and quicker than litigation Complaint to trial is easily a year ADR, particularly for smaller claims, can be weeks
or months Additional goal is decision maker with subject
matter expertise. Can be a lawyer or ex-judge, but could also be an engineer, architect, or contractor
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ADR (con’t)
Preserves privacy of dispute process Reduces risk of large judgments
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ADR Clauses
ADR generally must be laid out in contract Some courts have mandatory ADR for certain
types of cases Under PA’s Home Improvement Consumer
Protection Act, specific requirements as to form of clause, font, signature lines, recovery of attorney’s fees. See Sample Clause Handout, designed to comply
with HICPA guidelines
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ADR Clauses
Efficiency of ADR is only as effective as the clause
General ADR clause can be problematic Lawyer as arbitrator, may see dispute as litigation,
allow arbitration to drag on Sample clause is more specific, includes
requirements for the arbitrator, pre-hearing discovery, time frame for holding arbitration
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ADR and Performance Guidelines
Work in tandem to address disputes Guidelines give more objective standards Curtails protracted litigation battles Tiered escalation
Notice of Claim/Right of Repair Possible Mediation Arbitration with clear guidelines
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Construction Dispute Resolution Services
• CDRS is a nationwide professional dispute resolution firm that specializes in both residential and commercial construction disputes and is available to conduct mediations and/or arbitrations.
• CDRS provides construction specialists and expert witnesses for any form of dispute resolution including civil litigation.
• Trained in mediation and arbitration.
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• Many of the CDRS professionals are / have been, licensed contractors, architects, home inspectors, building code officials, construction attorneys or other construction related industry personnel who can provide an expertise that only an experienced construction related professional can provide.
• Several local professionals including Frank Thompson.
• Visit us at http://www.constructiondisputes-cdrs.com for more information.
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