What is a Maintenance Bond?

maintenance bondsA Maintenance Bond, also referred to as a Warranty Bond, is a type of surety bond that contractors may purchase to help reduce the risk of a project owner if there are defects in the work that the contractor was hired to complete.

The requirement to purchase a maintenance bond is at the project owner’s discretion. He or she will notify the contractor, typically during the contract-writing phase, of the type of bonds they will require for the project.

 

How does a Maintenance Bond work?

A maintenance bond serves as a guarantee that if the project does not meet set standards or there are defects in the workmanship; then the project owner will be able to file a claim to get the money needed to make repairs needed.

For example:

A Contractor (Principal) won a bid for the new Milton building. The company has already secured its bid, performance, and payment bonds, overseeing all the construction workers, the license and permits, and all the aspects associated with the construction. Upon project completion, the contractor purchases a maintenance bond issued by the Surety for the new owner of the building (Obligee).

After a month of moving in, the Obligee discovers a defect in construction (specification issues or material deficiencies) and will cost a huge amount of dollars and expenses for repair and renovation. The Surety Company steps in for financial backup and pays those fees instead.

The contractor would then be responsible for reimbursing the surety company for the amount paid out on the claim.

 

Do I need to get a Maintenance Bond along with a Performance Bond?

You can obtain a performance bond separately. However, a separate maintenance bond is required along with a performance bond.

Typically, sureties offer packaged deals specifically containing the four main construction bonds: Bid Bonds, Performance Bonds, Payment Bonds, and Maintenance Bonds. Sometimes, there is no additional charge for maintenance bonds that are contracted for less than a year.

 

Why is a Maintenance Bond important to get?

Maintenance bonds are insurance policies on a contractor’s workmanship. They guarantee that the owner of a construction project is compensated because of a contractor’s shoddy workmanship. This type of construction/contract bond also prevents contractors from coming up with cash to reimburse clients. Maintenance bonds can remain valid for varying time periods, and if the Obligee files a claim, it will be used during a defects liability period.

A defects liability period is when a contractor may be recalled to rectify the defects that surface.

 

How long will Maintenance Bonds stay in effect?

The length of time that maintenance bonds remain in effect will depend on the period set by the project owner. The bond will only cover any defects in materials and workmanship for the amount of time specified once the project has been completed. The project owner would have to file a claim on the bond within that window before it is no longer valid.

Additionally, maintenance bonds are used when a project owner wants a warranty period exceeding one year. Warranty periods can be extended, but you need to pay for its annual fee.

Note that some sureties are hesitant to go beyond a few years. Maintenance terms are often bound for 12, 18 or 24 months, but not more than that. If the contractor is incapable of resolving the warranty issue or their business is unavailable during the specific warranty period, the warranty bond provides the owner with financial support. The annual fee for a warranty bond is a fraction of the usual or expected cost of a Performance Bond.

 

How much does a Maintenance Bond cost?

The amount that you pay for this type of bond is only a fraction of the bond amount. If an applicant proved to have a high credit score, the bond cost could range between 1% and 4% of the total bond amount.

For instance: A $50,000 maintenance bond can glean a premium between $500 and $2000.

Our licensed surety agents can quickly get you a free quote for the maintenance bonds that you need for your upcoming project.

 

How do I get Maintenance Bonds?

Once you know the amount of the maintenance bond that the project developer requires, you will complete our simple, downloadable Maintenance Bond Form to request a free quote. The application is simple, and our agents will tell you about any additional paperwork that may be needed to complete your bond.

Along with the Maintenance Bond form, you may submit the following (but not limited to):

  • Application form
  • Financial statements (net worth, cash flow, assets, credit score, income, etc.)
  • Work history/project experience
  • Contract/revenue backlog (if any)
  • Nature of the project (preferably documentation)

Once that is completed, and payment is received, we will get your maintenance bond paperwork sent to you right away. Call us today!

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