What are Maintenance Bonds, aka Warranty Bonds?
The guarantee for the owner that any work defects found in the original construction will surely be repaired during the warranty period is referred to as Warranty Bonds (aka Maintenance Bond).
How do Maintenance Bonds work?
Maintenance Bonds are typically used when an owner wants a warranty period for more than a year. Warranty periods may be extended for an annual fee, but sureties are reluctant to go beyond a few years. In the event a contractor is unable to resolve the warranty issue, or is not in business during the specific warranty period, the warranty bond provides the owner with a remedy. The annual fee for a warranty bond is a fraction of the cost of a performance.
Types of Maintenance Bonds
Maintenance or Warranty Bonds are parts of Contract Bonds. Contract Bonds are divided into:
• Bid Bonds
• Performance Bonds
• Payment Bonds
• Maintenance Bonds
How much do Maintenance Bonds cost?
Contractors can expect the rate to range between 2% and 3% of the value of the contract. Adjustments to the bond premiums are typically present, based on the final contract price. If price increases, the premium does to; and if it decreases, so does the premium. Contractors must include the cost of the bond in every proposal and change order, regardless of the total amount because bond premiums are usually reimbursed. Several small change orders may eventually turn into a large increase in the contract amount, thus resulting in an increase of the premium. Contractors want to avoid the premium to come from the profit.
Maintenance Bonds for Construction
Maintenance or Warranty Bonds are parts of Contract Bonds. Contract Bonds are divided into:
• Bid Bonds
• Performance Bonds
• Payment Bonds
• Maintenance Bonds
How to get a Maintenance/Warranty Bond
Just get in touch with one of our bond producers. They specialize in providing surety bonds in a variety of industries. With deep experience in different markets, we can help you obtain your bond step by step.
If I am not approved to get a Bond, what options do I have?
In the case that your company does not fill the requirements to get a Bond or you need to increase your bond capacity, you can look for the following options:
- SBA Surety Guarantee Program
- Funds Disbursement Programs
- Collateral
- Joint Venture/Mentor Protégé
- Small Contractor Development Programs
What are the factors the underwriter will consider for your bond?
The underwriter will verify your 3 C’s
Character
o Integrity
o Reputation
o Relationships
o References
o Indemnity
Capacity
o Financial Statements
o Working Capital
o Work-in-Progress
Capital
o People
o Experience
o Equipment
o Business Plan
o Continuity
What is a Collateral Bond?
A Collateral Bond is when you borrow money with the borrower offering an asset or a property as a security measure for the lender.
If the borrower fails to pay the debt on time, the lender acquires the asset or property that the borrower set as collateral.
Maintenance Bonds vs Warranty Bonds
Maintenance Bonds, aka Warranty bonds, are the same in essence. The main purpose of this type of bond is to protect the owner of the project from any defective work, material, or any other issue arising throughout the warranty period after the project has been completed.
