Maintenance Bonds

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What is a Maintenance Bond?

Maintenance bonds are a type of construction bond that provide for the upkeep of a project for a specified period of time after the project is completed.

These bonds guarantee the quality of a contractor’s work, and that they have performed their work in accordance with state regulations, building codes and construction standards. Maintenance bonds protect obligees against defective workmanship or materials, and are also referred to as “warranty bonds”.

Maintenance bonds are often required on state and public construction projects. They are sometimes requested by private construction owners, though less often.

Hence, they work like an agreement between the principal (the contractor), the obligee requesting the bond (the private or public construction owner) and the surety bond company that issues and backs the bond financially.

If a contractor’s workmanship on a certain project is not satisfactory, either in terms of craftsmanship or materials, the obligees can file a claim against the maintenance bond, during the so-called ‘maintenance term’. If the claim is proven, the surety has to financially compensate the obligees for damages and losses due to these issues.

A contractor who has had a claim filed against their bond must the indemnify the surety for any compensations it has made to obligees. This, too, is part of the surety bond agreement. It is therefore always best to avoid possibilities of claims.

How Much Is A Maintenance Bond Cost?

Maintenance bond cost is a percentage of the total amount of the bond. When considering what percentage, or premium, to offer to the principal, sureties consider a variety of financial and non-financial factors. The most important among these factors is personal credit score. The higher an applicant’s score, the lower their rate usually is.

In the case of maintenance bonds in particular, sureties will also want to know the amount of the initial contract for the construction project. They may also want to see a principal’s financial statements, and receive more information about their experience and their work records.

Typically, if an applicant has a high credit score, they can expect their bond to cost between 1%-4% of the total bond amount. For a $30,000 maintenance bond, for example, principals can expect a premium between $300 and $1,200.

The surety which issues the bond is also an important determining factor of the cost of your bond. Lance Surety Bonds works with a number of acclaimed and highly professional sureties. All of them are A-rated and T-listed, which means that any bond issued by them is among the best bonds available in the country.

Furthermore, some applicants may be able to reduce costs by obtaining their maintenance bond and performance bond together, due to any performance-related risks being spread more evenly between these bonds.

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