Representations and Warranties: Negotiating a Guarantee That Works for You

The representation and warranty provisions of an MSA contain the basic guarantees concerning the goods or services to be exchanged and dictate what remedies are available if those goods or services are, or become, faulty. Strictly speaking, a representation guarantees certain conditions at a point in time, such as when goods are delivered or services are completed. In contrast, a warranty describes an ongoing guarantee that goods or services will continue to meet set standards for at least a minimum period. In practice, these terms are often used interchangeably in commercial contracts.

The terms of a warranty generally include a set period for which the provider is willing to guarantee the goods or services, a frequently negotiated point between the parties depending on the nature of the goods or services being provided. The terms of a representation and warranty provision can become quite detailed, such as making special requirements where a provider uses rental goods or equipment or mandating that third-party goods be covered by certain additional express warranties assignable to the company.

Most importantly, the representation and warranty provisions set out the company’s remedies in case a provider breaches the terms of the provision. The remedies are a frequent point of negotiation as the representations and warranties provided mean nothing if the company has no remedy. Potential remedies include a refund or credit for the defective goods or services, rework, and cover. Rework replaces faulty goods or services at no additional cost to the company. Cover is the payment by the provider of the cost for a third party to perform the rework.  

The terms of the remedies may include additional incentives for a provider to cure the defects. For example, a company may only allow a provider a short time to cure and then assert their right to cover.  The cost of cover may be substantially more than what was initially charged by the provider to perform the work.

While companies prefer to have broadly described warranties and favorable remedies to fall back on, providers are typically cautious with the scope of liability they are willing to accept, especially if their services are somewhat limited. Representation and warranty language are often some of the most negotiated in an MSA, and the final terms highly depend on the specific products or services provided. The attorneys at RR&A are highly experienced with such intricacies and are available to assist in your next MSA negotiation.

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