A maintenance or warranty bond protects the owner of a finished construction process for a specific period, known as the warranty period. Maintenance bonds are often required for work on public works and can also be required for private projects. In most cases, a maintenance bond is requested along with a performance bond because a performance bond guarantees the completion of the work. The maintenance bond guarantees the project's owner a warranty for their project, and the contractor will make the needed repairs up to the specified period.
The surety company usually includes a 12-month maintenance period for purchased maintenance bonds and a performance bond at no additional charge. If a maintenance period of more than 12 months is required, the surety company typically rates any additional months for less than 1% of the total bonded amount.
For stand-alone maintenance bonds, the cost will depend on a few factors, including the duration of the warranty, the type of warranty being provided, and the overall financial strength of the applicant’s company. Out of these factors, the financial strength of the applicant’s company will have the largest impact on the rate since a bond guarantees that it will fulfill its obligations. Typically, applicants with good credit will pay less than 1% of the bonded amount for the maintenance bond, and applicants with bad credit should expect to pay higher rates for their bond. Our rates for a 12-month $50,000 maintenance bond start at $400.
Getting a maintenance bond can be a straightforward and quick process. We have been able to start an application and purchase maintenance bonds for our customers within the same day. Maintenance bonds for smaller projects and a shorter maintenance period can be purchased faster since the underwriting may be quicker. For larger projects or longer maintenance periods, the underwriting may be a more extensive process to understand the risk associated with the bond entirely. In our experience, the most common reason for a maintenance bond to take longer than expected is due to underwriting and if we are unable to speak with the customer for additional information or to go over the bond quote.
General contractors who are completing a project, usually for the state or city, will need a maintenance bond if there is a warranty period as part of the contract. They could also be required for a private project, but if required, they’ll be a part of the pre-construction requirements before a project can start.
No, there aren’t different types of maintenance bonds, but they can also be referred to as warranty bonds. The only difference between different maintenance bonds would be the warranty period, bond amount, and the project description since each bond will be specific to a project. A maintenance or warranty bond will most likely be required if a contract has a warranty period.
Maintenance bonds must be in effect for the agreed warranty period. Typically, surety companies will only want to issue bonds with short warranty periods since that will increase the risk associated with the bond. Over time, maintenance will be required due to normal wear and tear, so a more extended warranty period could increase the number of repairs required for a project. Most surety companies will only offer a maintenance bond for up to 36 months, and most would prefer a warranty bond that is 12-24 months in length. Certain obligees, like the Iowa Department of Transportation, require a 60-month maintenance period, which our surety partners can offer. However, any maintenance period over 60 months is challenging to obtain due to the risk associated with future repairs more than half a decade in the future.
Claims are rare on maintenance bonds because the contractor usually correct any necessary repairs before a claim is filed. One way to avoid claims being filed on your bond is by checking in with your customers periodically to ensure that the work doesn’t need any repairs. If a claim is filed on a maintenance bond, the surety company will first ask the contractor to complete the repairs to avoid paying any money for the claim. If the contractor refuses, the surety company will investigate the claim to evaluate it’s validity and value. Should the claim be valid, the insurance company will pay up to the bonded amount to complete the repairs. After the claim has been paid out, the contractor must pay back the claim amount to the surety company. If the contractor does not pay the surety company back, it can lead to them having difficulty obtaining future bonds due to their work history showing an unpaid claim.
