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Maintenance Bond

Maintenance Bond

There are dozens of different types of surety bonds, one of them are maintenance bonds. If your business requires one of these surety bonds, it's important to know more about them. Obtaining a bond doesn't have to be difficult or confusing, but there can be significant consequences if you don't obtain the bond you need. Use this resource to explore everything you need to know about a maintenance surety bond.

What is a Maintenance Bond?

A Maintenance Bond (also known as a warranty bond) is a type of contract performance bond. They are often required for state and public construction projects. A maintenance bond provides a guarantee that completed work will stay in a satisfactory condition for a set period of time after its completion. If the work doesn't meet this standard, an entity may file a claim against the bond seeking financial compensation for damages. This claim is guaranteed to be paid as long as it proves valid. Essentially, maintenance bonds make the bonded party financially accountable for any work that does not meet previously agreed upon standards.

How Does a Maintenance Bond Work?

The warranty bond guarantees that the contractor will maintain the completed work on a project to a certain standard; if they don't, the obligee (the person who requires the bond) will be able to file a claim and then receive financial compensation from the surety provider to get the issues fixed themselves without delay. Unlike many other types of surety bonds, warranty and maintenance bonds are not issued until the job is completed.

A maintenance bond is an important part of many construction contracts because they create a system of accountability, which builds trust between partners. A project owner can be confident that maintenance will meet the necessary standards when there's a surety bond in place. The maintenance provider also benefits from this process as they ensure the confidence of prospective business partners via that bond.

Who Should Get a Maintenance Bond?

Government entities usually require a maintenance bond, but they can factor into any kind of contractual agreement that involves ongoing maintenance or commitments to meeting performance standards. It's up to the obligee to decide if and when they require a bond. When one is necessary, the other party should seek out a bond to avoid unnecessarily holding up the contract.

A lot can depend on what surety company you end up working with, which is why Viking Bond Service is here to help. As a nationwide surety brokerage with extensive resources, we can help applicants in any state get a quote for a maintenance bond in a matter of hours. Get the bond requirement out of the way so that you can focus on the business at hand.

What Parties Are Involved in a Maintenance Bond?

A bond will involve three parties. These are:

  • The principal is the person who obtains the bond (you). The principal takes on the cost of the surety bond, as well as the responsibility to pay for any claims filed by the obligee.
  • The obligee is usually a government or business entity that requires the bond. The obligee also has the right to submit a claim for damages if they believe that maintenance standards have not been met by the principal.
  • The surety is the underwriter who issues the bond. The surety pays the obligee to settle all valid claims, but afterward, the principal must reimburse the surety and pay interest and fees.

Maintenance Bond vs Performance Bond

Even though maintenance bonds and performance bonds work in a similar way, the latter ensures that contractors complete projects according to predetermined standards and timelines. A maintenance bond ensures contractors address any problems related to construction quality, materials, or design that may arise after the initial contracted project is completed. These bonds address two phases of the same project. Consequently, it's not unusual for someone to need both of these bonds. Make sure that process runs seamlessly by working with the same surety provider for both bonds.

How Much Does a Maintenance Bond Cost?

Warranty bond costs are based on many factors. The cost is determined by the amount of the required bond itself, what type of bond you're applying for, what state the bond is being issued in, and the credit score of the principal applicant. Typically, a maintenance surety bond costs a small percentage of the bond value. Given you don't have any claims filed against your bond, the premiums would be the only cost associated with it. To find out how much a maintenance surety bond would cost you, request a free quote from Viking Bond Service. We will run the numbers, identify the most economical rates/terms available, and get back to you within 48 hours.

Can You Get a Maintenance Bond With Bad Credit?

It is not impossible to get a maintenance bond while having bad credit, but you do need a good surety agency. Viking Bond Service is abundant in resources and connections throughout the industry and will do everything possible to get all applicants approved for a quality bond at a fair price – even with bad credit. If you think you might have trouble getting bonded elsewhere because of your credit score or financial history – and especially if you've been denied for a surety bond before – take advantage of a special program we designed for applicants like you.

Besides poor credit scores, there might be an issue of having a history of criminal activity. Every state has different requirements for eligibility, but things like that might be the reason you're denied a warranty bond. If that happens, keep looking for a maintenance bond agency. If you haven't qualified in one, it doesn't necessarily mean you won't go through in another. Depending on the case, Viking Bond Service might be able to help.

How Long Does a Maintenance Bond Stay Valid?

The warranty bond is in effect for as long as it's agreed upon in the contract. The warranty period might have to factor in governing laws and ordinances that set minimum warranty periods. The maintenance bond term will cover the warranty period specified in the contract. Once that period is done, the bond expires.

How Are Claims Handled For Maintenance Bonds?

The surety commits to pay for all valid claims, but not before conducting an investigation to prove that warranty/maintenance obligations were not met. Sometimes this is easy to determine. In other cases, it takes time, research, and additional resources such as investigators or lawyers. Sureties want to prove as definitively as possible that a claim has merit before they agree to pay it. When the surety does settle a claim, the principal (the contractor who obtained the bond) must pay the surety back the full amount with interest and fees added.

How to Apply For a Maintenance Bond?

To obtain warranty bonds, you'll have to submit an application and provide any required supporting documentation. Required documentation often includes a credit report, business financial statements, and a business resume. You will also need a document from the obligee detailing the maintenance work required and the standards expected, if not already contained in the contract. You'll often be provided with a document checklist as part of the application process. Take advantage of an easy application process and helpful support team by working with Viking Bond Service.

Viking Bond Service – Your Bond Partner

We're one of the leading providers of warranty & maintenance bonds in the United States, helping you obtain the bond you need for your business. Our friendly team of experienced staff can help make the application process for your warranty and maintenance bond quick and easy. Get your application process started or get more info from our experts by contacting us through the form on this page or at 1-888-2-SURETY (1-888-278-7389).

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