There are three parties involved in a maintenance bond agreement. These are:

• The principal: Typically, the “principal” is the contractor, subcontractor, or builder on a construction project.
• The obligee: In essence, the obligee is the party that has hired the principal. Project owners or groups, public entities, and general contractors may fall into this category.
• The surety: In a maintenance bond agreement, the surety is the company that provides the bond.

If there are defects or the project doesn’t meet standards after completion, the obligee can file a claim to get funds for repairs. The surety company will pay repair costs, but contractors will be required to reimburse them for that amount.

Technically, they’re the same thing. Since maintenance bonds guarantee that the owner of a completed construction project is protected against possible defects and faults, they’re also known as “warranty bonds.”

Although both terms are often used interchangeably, the truth is that a warranty bond can be different from a maintenance bond depending on the context.

Maintenance bonds focus on the contractor’s duty to repair defects that occur during a maintenance period.

Although similar, warranty bonds typically offer broader protection, extending beyond maintenance to cover malfunctions, defects, and performance issues.

As mentioned, maintenance bonds are a type of construction bond that creates a financial obligation for bonded builders. This warranty makes them financially responsible for fixing defects and faults that may occur if the work isn’t done correctly.

A warranty bond guarantees that contractors will remedy any issues involving the project design, workmanship, and materials used. These are some examples:

• Worker mistakes
• Design flaws, deficiencies, or weaknesses
• The use of substandard materials
• Poor workmanship
• Unsatisfactory structural framework

Unless otherwise stated in the contract, a maintenance surety bond is limited to defective materials, design flaws, and issues involving workmanship. However, in some cases, this warranty covers regular wear and tear for a specific period.

Unlike performance and payment bonds, which are also used in the construction industry, maintenance bonds aren’t required by law.

The obligee may require them at their discretion if they consider it necessary to have additional protection beyond the guarantees granted through the contract documents.

A performance bond is another type of surety bond. It ensures the builder will complete the project to the standards set forth in the contract by guaranteeing they’ll fulfill all of their obligations under the construction agreement.

While both protect construction project owners from poor workmanship, there are important differences between performance and maintenance bonds, including the following:

• Both types of bonds are required in the construction process but in different phases.
• Performance bonds guarantee that a project will be completed according to the terms set forth in the contract.
• Maintenance bonds guarantee that contractors will maintain such projects for a specific period after they’re completed.

The cost of a maintenance bond may vary depending on several factors. However, it’s often a portion of the total bond amount. This percentage is determined by the surety based on the following:

• The principal or contractor’s credit score
• The amount of coverage required
• The principal or contractor’s financial records, such as cash flow statements and income statements
• The principal or contractor’s experience in construction projects

More often than not, the cost of a maintenance bond for contractors with excellent credit scores ranges from 1% to 4% of the total bond amount.

Do you want to know the cost of the maintenance bonds you need for your upcoming project? S Philips Surety & Insurance Services can help! Fill out our form and get a quick quote today!