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What is a maintenance bond?
Maintenance bonds are a type of contract bond that contractors obtain to agree to fix defects that arise after project completion. Maintenance bonds are only active (providing financial security) for a specific period.
This bond ensures that a contractor performs a job well and uses quality workmanship. If they don’t, they may be held liable for fixing the defect or compensating the project owner.
Maintenance Bonds vs. Performance Bonds
Performance bonds and maintenance bonds are sometimes confused because they both protect a project owner against poor workmanship. However, a performance bond offers protection for work performed during the project. In contrast, a maintenance bond provides protection for a period after the job is finished and accepted.
As a contractor, you can obtain both bonds simultaneously, along with a payment bond, which ensures you compensate your subcontractors and suppliers fairly.
- Maintenance bonds are required to ensure quality workmanship after project completion.
- Federal, state, and some private construction jobs require prime contractors to obtain maintenance bonds to protect project owners financially.
- If a project owner finds issues with the quality of work, they can file a claim against your bond.
How do maintenance bonds work?
Maintenance bonds are often required for federal and state construction jobs. Sometimes, they may also be required for private projects. Like other surety bonds, maintenance bonds are three-way contracts between a surety, principal, and obligee.
Obligee: The party requiring the bond – often a project owner or client who hires the principal
Principal: The contractor guaranteeing to obligee the project owner by fulfilling the terms of the contract and purchasing the bond
Surety: The financial institution that ensures the principal carries out the contract terms (or steps in and makes it right if they don’t)
A maintenance bond typically adds additional costs to your performance bond. The first year will be free and every year after that will be an additional cost of 0.1-0.3% of the contract amount.
Before you can purchase a maintenance bond, a surety company will run your credit and look at your financial statements to ensure you have the financial ability to reimburse them if they settle a claim for you.
If the obligee finds defects or mistakes in the workmanship used for their project, they can file a claim against your maintenance bond. Design and material warranties are typically not included in the maintenance bond. The bond should offer the obligee protection from financial loss while the bond is active. If the obligee finds a mistake after the bond term, the bond will no longer provide coverage.
If, however, the obligee files the claim before the bond term ends and the surety company deems the claim valid, they may compensate the obligee for any sustained losses or damages. Afterward, the principal must indemnify the surety.
Get a Maintenance Bond in Your State
If you need a bid, performance, maintenance, or payment bond for your next project, we can match you with an excellent surety company. Apply online today to get pre-approved in a zip.
Founders Ryan Swalve and Zach Mefferd formed the vision for ZipBonds.com when they realized how overly complicated it was to help clients place surety. The frustration of being unable to incorporate the technology they’d used in other insurance-focused projects left them thinking “there has to be a better way.”
Fast forward a couple of years, and that better way is the impetus of everything we do at ZipBonds. We constantly look for innovative ways to improve the bonding process for our clients and agents. Our team comprises individuals who understand all angles of surety – for companies, agencies, and individuals. Incorporating everyone’s point of view to improve the process while simultaneously integrating cutting-edge technology is what sets our business apart.