1.4 Criteria for Use of Warranties 3

Warranty Guide

TABLE OF CONTENTS

1. WARRANTIES 1

1.1 Scope 1

1.2 Statute 1

1.3 Definition 2

1.4 Criteria for Use of Warranties 3

1.4.1 Nature and use of the supplies or services 4

1.4.2 Cost 4

1.4.3 Administration and enforcement 4

1.4.4 Trade practice 4

1.4.5 Reduced requirements 5

1.5 Authority for use of Warranties 5

1.6 Warranty Terms and Conditions guidelines 5

1.6.1 Extent of contractor obligations 5

1.6.2 Remedies 6

1.6.3 Duration of the warranty 7

1.6.4 Notice 7

1.6.5 Markings 7

1.6.6 Consistency 8

1.7 Tailoring Warranty Terms and Conditions 8

1.8 Warranty Analyses 8

1.9 Developing the Cost Benefit Analysis 12

1.10 The Warranty Analysis Process 12

1.10.1 Analysis Steps 12

Step 1 -- Establish and Define Objectives 12

Step 2 -- Specify Ground Rules and Assumptions 14

Step 3 -- Identify Alternatives 14

Step 4 -- Determine Costs of Each Candidate 14

Step 5 -- Determine Benefits of Each Candidate 14

Step 6 -- Compare Candidates 15

Step 7 -- Evaluate Risk and Uncertainty 15

Step 8 -- Analyze/Update as Needed 15

Step 9 -- Provide Recommendations 16

Step 10 -- Document the Analysis 16

1.10.2 Personnel 16

1.10.3 Data Research, Collection, and Analysis 16

1.11 Questions Concerning the Warranty CBA 17

1.12 applicable documents 18

1.13 Conclusion 19

2. Warranty of Systems and Equipment Under Performance Specifications or Design Criteria 21

2.1 Warranty of Supplies 21

2.2 Warranty of Technical Data 21

2.3 Warranty of Technical Publications 23

2.4 Reliability Warranty 23

2.5 Maintainability Guarantee 23

2.6 Reliability and Maintainability Warranty 25

2.7 Reliability Improvement Warranty (RIW) 25

2.8 Reliability and Maintainability Improvement Warranty (R&MIW) 25

2.9 Mean Time BETWEEN Failure--Verification Test (MTBF-VT) 27

2.10 RIW with MTBF-VT 27

2.11 R&MIW with MTBF-VT 27

2.12 Component Reliability Warranty 28

2.13 Chronic WRA/LRU Guarantee 28

2.14 Availability Guarantee 29

2.15 Logistics Support Cost (LSC) Guarantee 29

2.16 Maximum Parts Cost Guarantee 30

2.17 Spare Parts-Level Warranty 30

2.18 Utility Functions Guarantee 30

2.19 Ultimate Life Warranty 31

2.20 Commercial Service Life Warranty 31

2.21 Software Design Commitment Guarantee 31

2.22 WRA/LRU Software Configuration Control and Support Agreement 32

2.23 Fault Detection, Isolation, and Repair Warranty 32

2.24 Test and Repair Improvement Guarantee 33

2.25 Quality of Training Warranty 33

2.26 Rewarranty of Repair/Overhaul Equipment 34

2.27 Repair and Exchange Agreements 35

3. checklists 36

3.1 Warranty Development Checklist 36

3.2 WARRANTY ADMINISTRATION PLAN CHECKLIST 40

3.3 INDEPENDENT lOGISTICS ASSESSMENT(ILA) CHECKLIST 44

iii

Warranty Guide

1. WARRANTIES

1.1 Scope

It is NAVAIR policy to pursue cost effective warranties on all procurements. The NAVAIR Program Managers (PMs) are responsible for the development and inclusion of appropriate warranty provisions in solicitations. The program manager should include the expertise of the integrated product team when determining warranty requirements. Additionally, warranty periods must be clearly stated in the solicitation.

Warranty clauses should explain what benefit would be derived by the Government; for example, explain how the warranty would improve fleet readiness and mission effectiveness. Because most business considerations are metric driven, a cost/benefit analysis is required to support the specific business case for use of a warranty. If a warranty can not be supported by a cost/benefit analysis, then the program manager should not invoke warranty clauses. This means the warranty clause should only be invoked to support a smart business decision. The warranty is the exception rather than a legal requirement.

1.2 Statute

Section 847 of the 1998 National Defense Authorization Act (NDAA) repealed 10 U.S.C. 2403. Under 10 U.S.C. 2403, defense departments and agencies could not contract for the production of a weapon system with a unit weapon system cost of more than $100,000 or an estimated total procurement cost in excess of $10 million unless each contractor for the weapon system provided the government written warranties that (1) the weapon system conformed to the design and manufacturing requirements in the contract, (2) the weapon system was free from all defects in materials and workmanship, and (3) the weapon system, if manufactured in mature full-scale production, conformed to the essential performance requirements of the contract. Language from the NDAA and Conference report is as follows:

NDAA Section 847: "REPEAL OF REQUIREMENT FOR CONTRACTOR

GUARANTEES ON MAJOR WEAPON SYSTEMS

(a) Repeal.--Section 2403 of title 10, United States Code, is repealed."

Defense Departmental Letter D. L. 98-002 implemented the changes required by the repeal of the Law requiring warranties. These changes were incorporated into Change 4 of DOD 5000.2-R, dtd 6/11/99.

The final release of DOD 5000. 2R, dated 10, June, 2001 states in C2.9.3.7: The PM shall examine the

value of warranties on major systems and pursue them when

appropriate and cost-effective. If appropriate, the PM shall

incorporate warranty requirements into major systems contracts in accordance with FAR Subpart 46.7.

1.3 Definition

A warranty is a promise or affirmation given by a contractor to the government regarding the natures, usefulness, or condition of the supplies or the performance of services furnished under the contract.

The principal purposes of a warranty in a government contract are:

·  To delineate the rights and obligations of the contractor and the government for defective items and services and

·  To foster quality performance.

Generally, a warranty should provide:

·  A contractual right for the correction of defects notwithstanding any other requirement of the contract pertaining to acceptance of the supplies or services by the government, and

·  A stated period of time or use, or the occurrence of a specified event, after acceptance by the government to assert a contractual right for the correction of defects.

Life cycle cost estimates must support warranty cost/benefit analysis efforts. Warranty cost can increase or decrease a system’s life cycle costs. The benefits to be derived from a warranty must be commensurate with the cost of the warranty to the government.

·  In assessing the cost effectiveness of a proposed warranty, perform an analysis which considers both the quantitative and qualitative costs and benefits of the warranty. Consider:

à  Costs of warranty acquisition, administration, enforcement, and user costs, and any costs resulting from limitations imposed by the warranty provisions,

à  Costs incurred during development specifically for the purpose of reducing production warranty risks,

à  Logistical and operational benefits as a result of the warranty as well as the impact of the additional contractor motivation provided by the warranty.

·  Where possible, make a comparison with the costs of obtaining and enforcing similar warranties on similar systems.

·  Document the analysis in the contract file. If the warranty is not cost effective, initiate a waiver request.

1.4 Criteria for Use of Warranties

As specified in FAR 46.703 -- Criteria for Use of Warranties.

“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.”

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:

1.4.1 Nature and use of the supplies or services

This includes such factors as:

·  Complexity and function,

·  Degree of development,

·  State of the art,

·  End use,

·  Difficulty in detecting defects before acceptance, and

·  Potential harm to the government if the item is defective.

1.4.2 Cost

Warranty costs arise from:

·  The contractor’s charge for accepting the deferred liability created by the warranty, and

·  Government administration and enforcement of the warranty (see paragraph 1.4.3 below).

1.4.3 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:

·  Nature and complexity of the item,

·  Location and proposed use of the item,

·  Storage time for the item,

·  Distance of the using activity from the source of the item,

·  Difficulty in establishing existence of defects, and

·  Difficulty in tracing responsibility for defects.

1.4.4 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.

1.4.5 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.

1.5 Authority for use of Warranties

The use of a warranty in an acquisition shall be approved in accordance with agency procedures. (NAVAIR INST 13070.7A) for NAVAIR

1.6 Warranty Terms and Conditions guidelines

To facilitate the pricing and enforcement of warranties, ensure that warranties clearly state the:

·  Exact nature of the item and its components and characteristics that the contractor warrants,

·  Extent of the contractor’s warranty including all of the contractor’s obligations to the government for breach of warranty,

·  Specific remedies available to the government, and

·  Scope and duration of the warranty.

Consider the following guidelines when preparing warranty terms and conditions:

1.6.1 Extent of contractor obligations

Generally, the contractor’s obligations under warranties extend to all defects discovered during the warranty period, but do not include damage caused by the government. When a warranty for the entire item is not advisable, a warranty may be required for a particular aspect of the item that may require special protection (e.g., installation, components, accessories, subassemblies, preservation, packaging, and packing, etc.).

If the government specifies the design of the end item and its measurements, tolerances, materials, tests, or inspection requirements, the contractor’s obligations for correction of defects shall usually be limited to defects in material and workmanship or failure to conform to specifications. If the government does not specify the design, the warranty extends also to the usefulness of the design.

If express warranties are included in a contract (except contracts for commercial items), all implied warranties of merchantability and fitness for a particular purpose shall be negated by the use of specific language in the clause.

1.6.2 Remedies

Normally, a warranty shall provide as a minimum that the government may

·  obtain an equitable adjustment of the contract, or

·  direct the contractor to repair or replace the defective items at the contractor’s expense.

If it is not practical to direct the contractor to make the repair or replacement, or, because of the nature of the item, the repair or replacement does not afford an appropriate remedy to the government, the warranty should provide alternate remedies, such as authorizing the government to:

·  Retain the defective item and reduce the contract price by an amount equitable under the circumstances, or

·  Arrange for the repair or replacement of the defective item, by the government or by another source, at the contractor’s expense.

If it can be foreseen that it will not be practical to return an item to the contractor for repair, to remove it to an alternate source for repair, or to replace the defective item, the warranty should provide that the government may repair, or require the contractor to repair, the item in place at the contractor’s expense. The contract shall provide that in the circumstance where the government is to accomplish the repair, the contractor will furnish at the place of delivery the material or parts, and the installation instructions required to successfully accomplish the repair.

Unless provided otherwise in the warranty, the contractor’s obligation to repair or replace the defective item, or to agree to an equitable adjustment of the contract, shall include responsibility for the costs of furnishing all labor and material to:

·  reinspect items that the government reasonably expected to be defective,

·  accomplish the required repair or replacement of defective items, and

·  test, inspect, package, pack, and mark repaired or replaced items.

If repair or replacement of defective items is required, the contractor shall generally be required by the warranty to bear the expense of transportation for returning the defective item from the place of delivery specified in the contract (irrespective of the f.o.b. point or the point of acceptance) to the contractor’s plant and subsequent return. When defective items are returned to the contractor from other than the place of delivery specified in the contract, or when the government exercises alternate remedies, the contractor’s liability for transportation charges incurred shall not exceed an amount equal to the cost of transportation by the usual commercial method of shipment between the place of delivery specified in the contract and the contractor’s plant and subsequent return.