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What is a warranty of merchantability?

This implied warranty provides that an item is reasonably fit for the ordinary purposes for which it is used. The item must be of at least average, fair, or medium-grade quality, and it must be comparable in quality to items of the same description that will pass without objection in the trade or market.

What is a warranty for a particular purpose?

This implied warranty provides that an item is fit for the particular purpose for which the government will use the item. The government can rely on this implied warranty when:

The contractor knows the particular purpose for which the government intends to use an item

and

The government relied on the contractor's skill and judgment that the item would be appropriate for the known particular purpose.

What tasks will the COR need to perform regarding remedies?

The COR must:

1. Notify the CO of performance failures

2. Provide technical assistance to the CO.

Notifying the co of Performance Failures

What kind of performance failures may occur during contract performance?

While monitoring the contract, the COR may identify performance failures or other breach of contract situations. These may include:

Anticipated or actual late delivery

Failure to control costs

Unsatisfactory performance

Nonconforming supplies or services.

Once a performance failure or breach of contract has been identified, the COR must notify the CO of the problem in a timely manner. Because many remedies are time-sensitive, any delay in informing the CO may result in harm to the governmentit may lose its rights to relief.

Recommendations for remedies for performance failures should:

Best match the problem

Include documentation that is adequate and timely to support the decision.

Providing Technical Assistance to the CO

What does the COR typically do to provide technical assistance to the CO in the event of a performance failure?

To provide the CO with technical assistance in this situation, a COR may need to:

Prepare documentation and make appropriate recommendations to support the government's legal position for:

- Any monetary or non-monetary consideration (i.e., relief)

- A new delivery schedule

- Modification of other terms and conditions of the contract.

Attend meetings with the contractor and provide technical advice as requested by the CO.

The COR can also assist the CO in the remedy process by:

Providing technical analysis for delinquency notice situations. CORs are asked to provide an analysis of performance problems that are so critical as to justify the issuance of a delinquency notice. If a delinquency notice is issued, the COR's technical analysis must be presented to the contractor. The contractor is then given an opportunity to respond to the delinquency notice.

The COR may be asked to determine the ability of the contractor, in response to a cure notice, to:

- Correct the work

- "Cure" performance problems

- Provide a downward price adjustment before acceptance

- Provide substantial performance (i.e., significantly more work or better work than has been done thus far) in exchange for relief from some terms or conditions in the contract

- Analyze and negotiate a revised delivery schedule for a conforming product with consideration (i.e., something of value from the contractor)

- Present a case for excusable delay.

The COR may be required to assist the CO with the contractor's response to a show cause notice by evaluating:

- The impact of no reply or one that offers no justification for performance problems

- A claim for a case of excusable delay

- A claim that performance is impossible under the contract terms and conditions

- A claim that contract work is substantially complete.

Calculating liquidated damages. When assessment of liquidated damages is appropriate, payments are withheld based on an accurate computation of the amount due. The actual computation will depend not only on the specific amount or specific formula in the contract, but also on actual events that occurred during the contract administration phase of the contract. Liquidated damages are calculated by:

- Identifying all factors that control how these amounts are computed, to reflect an accurate maximum amount authorized under a specific liquidated damages contract clause

- Subtracting amounts of time that may have constituted an excusable delay from the period for liquidated damages assessment

- Examining the contract for any restrictions. Generally, the contract will restrict the total amount withheld to the greatest amount that can be withheld under the authority of a single clause.

To ensure that the total liquidated damages amount is reasonable and not a penalty, there may be special contract terms limiting the overall dollar amount that may be charged or the period of time over which damages may be assessed, or both, for liquidated damages assessment. The courts and administrative boards will not uphold liquidated damages that are so excessive that they can be construed as a penalty.

Preparing a written rejection of nonconforming supplies and services. The written rejection of nonconforming supplies and services must clearly explain how the supply or service did not conform to the specification. CORs need to provide supporting documentation identifying which part of the contract the contractor did not perform correctly and why. Inspection and acceptance clauses in the contract provide the basis upon which supplies and services may be rejected.

When a nonconformity seriously affects the requirement, the item should be rejected. It is recommended that the COR discuss the rejection with the contractor before issuing any written notification because the contractor may have additional information concerning the deliverable. Before rejecting the product or service, a determination must be made by the CO or the COR that no changes have been made in the contract requirements. CORs, when authorized by the CO to perform inspections and to determine acceptance, may also be required to notify the contractor of the rejection of nonconforming supplies or services.

The notification of rejection must be in writing if:

- The rejection took place at a location other than the contractor's plant

- The contractor persists in providing items or services with minor nonconformities

or

- Supplies that were delivered late are being rejected, and no excusable delay factors were involved in the delinquency.

Written notification should:

- Provide the reason for rejection

- Allow time for the contractor's reply

- Be furnished to the contractor promptly. There is no specific time period in which the notification must be submitted to the contractor, but the contractor is entitled to prompt notice of rejection in the interest of mitigating costs and perhaps further delay.

CORs need to note the specific supplies or services that were rejected and must consider the following points when issuing rejection notices:

- The contractor's acknowledgment of delivery of the notice is required.

- A rejection notice does not extend the delivery period.

Determining warranty provisions. The CO may request that the COR assist in collecting some of the following information:

- A summary of all warranties that apply to a specific product or service

- A listing of the specific components to which a warranty applies if all components are not included (i.e., all components are not delivered at the same time, or some are actually missing)

- Who has government responsibility to report warranty incidents and the authority to implement a warranty's clauses

- The duration of the warranty

- Packaging and transportation requirements.

CORs may also be asked to verify that a warranty clause applies to a specific failure by:

- Confirming that the government has officially accepted the items or services

- Examining the written terms and conditions of the warranty. This examination should reveal:

□ The duration of the warranty

□ The extent of coverage for specific defects.

- Determining if any government obligations under the warranty were met or providing assurance that they will be met

- Confirming that the facts support invoking the warranty (i.e., that the technical deficiencies are in fact covered or applicable to the particular warranty).

Providing technical review of the contractor's responses. CORs are asked to assist in evaluating the impact of the contractor's response to the proposed remedy. Contractor responses can include:

- A proposal to repair or correct the work

- A proposal to provide a downward adjustment in price or cost as a basis for acceptance

- No reply

- A refusal to repair or correct the work or to offer any consideration to the government's suggested remedy.

For additional information, see Exhibit 7-3, Decision Table for Selecting a Contract Remedy, at the end of this chapter.

 
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