46.703 Criteria for use of warranties
Source: FAR 46.703 on acquisition.gov
Warranties in government contracts are optional and should only be included after careful evaluation of risk, cost, enforceability, and industry norms.
Overview
FAR 46.703 outlines the criteria contracting officers must consider when deciding whether to include a warranty in a government contract. The regulation makes clear that warranties are not mandatory, but provides a structured approach for evaluating their appropriateness based on the nature of the supplies or services, associated costs, administrative feasibility, industry trade practices, and the potential for reducing other quality assurance requirements. The goal is to ensure that warranties are only used when they add value and are practical to administer, balancing risk, cost, and benefit to the Government.
Key Rules
- Nature and Use of Supplies/Services
- Consider complexity, development stage, state of the art, end use, defect detection difficulty, and potential harm from defects.
- Cost Considerations
- Evaluate both the contractor’s charge for assuming warranty liability and the Government’s cost to administer and enforce the warranty.
- Administration and Enforcement
- Ensure the Government can effectively enforce the warranty, with adequate systems for defect reporting and responsibility tracing.
- Trade Practice
- If warranties are standard in the industry and do not increase cost, include them for the Government’s benefit.
- Reduced Requirements
- Offset warranty costs by reducing other quality assurance requirements if the warranty provides sufficient assurance.
Responsibilities
- Contracting Officers: Assess all listed factors before including a warranty; ensure administrative systems are in place for enforcement.
- Contractors: Be prepared to justify warranty costs and support defect reporting and resolution processes.
- Agencies: Oversee that warranties are used judiciously and that enforcement mechanisms are effective.
Practical Implications
- This section helps prevent unnecessary or impractical warranties, focusing on risk management and cost-effectiveness.
- It impacts acquisition planning, negotiation, and contract administration.
- Common pitfalls include overlooking administrative burdens or failing to align with industry practices.
The use of warranties is not mandatory. In determining whether a warranty is appropriate for a specific acquisition, the contracting officer shall consider the following factors:
(a) Nature and use of the supplies or services. This includes such factors as-
(1) Complexity and function;
(2) Degree of development;
(3) State of the art;
(4) End use;
(5) Difficulty in detecting defects before acceptance; and
(6) Potential harm to the Government if the item is defective.
(b) Cost. Warranty costs arise from-
(1) The contractor’s charge for accepting the deferred liability created by the warranty; and
(2) Government administration and enforcement of the warranty (see paragraph (c) of this section).
(c) Administration and enforcement. The Government’s ability to enforce the warranty is essential to the effectiveness of any warranty. There must be some assurance that an adequate administrative system for reporting defects exists or can be established. The adequacy of a reporting system may depend upon such factors as the-
(1) Nature and complexity of the item;
(2) Location and proposed use of the item;
(3) Storage time for the item;
(4) Distance of the using activity from the source of the item;
(5) Difficulty in establishing existence of defects; and
(6) Difficulty in tracing responsibility for defects.
(d) Trade practice. In many instances an item is customarily warranted in the trade, and, as a result of that practice, the cost of an item to the Government will be the same whether or not a warranty is included. In those instances, it would be in the Government’s interest to include such a warranty.
(e) Reduced requirements. The contractor’s charge for assumption of added liability may be partially or completely offset by reducing the Government’s contract quality assurance requirements where the warranty provides adequate assurance of a satisfactory product.