Dealing with Vendors and Suppliers: Warranties and Performance Standards

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May 03, 2018

Dealing With vendors and suppliers: Warranties and Performance

A closely related issue to clearly defining the vendor’s scope of work is clearly defining the performance standards to which the vendor’s performance must comply. Contractually, these standards often appear as “warranties,” which are the vendor’s promises with respect to its performance.

Under the Uniform Commercial Code, which applies to the sale of goods, an express warranty is any affirmation of fact or promise relating to the goods in question that becomes part of the basis for the bargain. U.C.C. § 2-608. Warranties can also be implied under the U.C.C., as unless the seller expressly disclaims in intent to do so, the seller impliedly warrants that the goods at issue are merchantable, meaning that they are suitable for the purpose to which the goods are typically put. See U.C.C. § 2-314. Where the seller is aware that the buyer intends a particular use for the good, unless the seller specifically disclaims the intent to do so, the seller impliedly warrants that the goods are fit for the particular purpose intended. See U.C.C. § 2-315.

Courts have expressed a variety of views as to whether software provided by vendors by way of development contracts is a service rather than a good, and therefore not covered by the U.C.C. See, e.g., Arbitron, Inc. v. Tralyn Broadcasting, Inc., 400 F.3d 130, (2d Cir. 2005) (holding that it was not clear whether, under New York law, a software license agreement constitutes a contract for the sale of goods, or is otherwise governed by the U.C.C.); ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir.1996) (“[W]e treat [ ] licenses as ordinary contracts accompanying the sale of products, and therefore as governed by the common law of contracts and the Uniform Commercial Code.”). It is therefore especially important to obtain specific warranties from vendors with respect to software and other services.

As with drafting the scope of work, the customer must strive to express the applicable warranties or performance standards in objective metrics and avoid subject adjectives and adverbs. Often, the business needs giving rise to the procurement provide the material for the warranties. If, for example, the buyer needed a machine that could produce a certain number of units per time period, than this attribute would be the core of the warranty that the customer would need to include. If the buyer needed a software application that could handle orders from a certain number of concurrent users, then this attribute would be at the core of the required warranty.

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In numerous other situations, the vendor itself will provide technical specifications for or descriptions of the vendors’ products or services. In these situations, the appropriate warranty, assuming that the specifications or descriptions are sufficiently objective, can come from the vendor itself.

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