Overview
FAR Subpart 46.7 prescribes policies and procedures for using warranties in government acquisitions to foster quality performance and define the rights and obligations of both parties regarding defective items and services. While not mandatory, warranties serve to provide the Government with a contractual right to correction or replacement of defects for a specific period after acceptance, provided the benefit to the Government outweighs the cost.
Key Rules
- Discretionary Use: Warranties are not mandatory; the Contracting Officer (CO) must determine if a warranty is appropriate based on complexity, cost, and the Government’s ability to enforce it.
- Cost-Benefit Requirement: The benefits derived from a warranty must be commensurate with the cost of the warranty (including both the contractor’s fee for deferred liability and the Government's administrative costs).
- Cost-Reimbursement Limitation: Warranties are generally prohibited in cost-reimbursement contracts, except for specific inspection clauses (52.246-3 and 52.246-8) or as authorized by agency regulations.
- Inherent Rights: Warranty clauses cannot limit the Government’s rights regarding latent defects, fraud, or gross mistakes amounting to fraud.
- Post-Acceptance Rights: Except in construction, warranties apply notwithstanding inspection and acceptance or other contract terms.
- Remedies: Standard remedies include the contractor repairing or replacing defective items at their own expense or the Government obtaining an equitable adjustment (price reduction).
- Marking and Notice: Contractors must mark or stamp supplies to notify Government personnel that the items are under warranty, including the duration and whom to notify of defects.
Responsibilities
- Contracting Officers:
- Determine the appropriateness of a warranty for a specific acquisition.
- Ensure warranty terms are clear regarding the nature of the warranty, remedies, and duration.
- Ensure consistency between the warranty clause and other contract specifications.
- Approve the use of warranties in accordance with agency-specific procedures.
- Contractors:
- Fulfill obligations to repair, replace, or provide equitable adjustments for defects discovered during the warranty period.
- Bear the costs of labor, materials, and transportation (usually to the original point of delivery) for warranty claims.
- Properly mark supplies to indicate warranty coverage.
- Using Activity/Program Managers:
- Establish and maintain an adequate administrative system for reporting defects.
- Identify and document defects within the specified notice period to ensure the warranty remains enforceable.
Practical Implications
- Market Research is Critical: Contracting Officers should leverage "Trade Practice" (FAR 46.703(d)). If a product is customarily warranted in the commercial marketplace, the Government should include that warranty, as the cost is likely already embedded in the commercial price.
- Risk Mitigation vs. Inspection: A robust warranty can allow the Government to reduce its own Contract Quality Assurance (CQA) requirements. If the contractor assumes the liability for defects via a warranty, the Government may save resources by performing less rigorous initial inspections.
- The "Enforcement" Trap: A warranty is valueless if the Government lacks the infrastructure to track when an item was accepted, where it is located, or how to report a failure. COs should avoid purchasing warranties for items that will be deployed to remote areas where returning the item to the contractor is logistically impossible or cost-prohibitive.
- Fixed-Price Incentive Contracts: In these arrangements, warranty costs must be bundled into the target and ceiling prices. Once the final price is established, the contractor is responsible for all subsequent warranty compliance at no additional cost to the Government.