Maintenance Bonds

A maintenance bond, often called a warranty bond, is a construction surety bond that protects the project owner after a job is completed. It guarantees that the contractor’s work will hold up for a specific period and that any defects in workmanship or materials will be repaired.

These bonds are most common on public construction projects, but some private owners require them as well. Their main purpose is to make sure the project performs as promised once the contractor is finished.

A maintenance bond is a three-party agreement between:

• The contractor (principal)
• The project owner (obligee)
• The surety company
   

If an issue appears during the maintenance period and the contractor doesn’t fix it, the owner can file a claim with the surety. If the claim is valid, the surety pays for the repair or hires someone to complete the work. The contractor must then reimburse the surety, which is why avoiding claims is always best.

Any contractor working on a project that requires post-completion coverage may need a maintenance bond. They’re:

• Standard for public projects
• Sometimes required by private owners, depending on the contract

The cost of a maintenance bond is based on a percentage of the bond amount, usually between 1% and 10%. The better the contractor’s financial profile, the lower the rate. Factors affecting the cost include:

• Credit and financial strength: Contractors with excellent credit get the best pricing, usually 1% to 3%, while weaker credit results in higher premiums.
• Bond amount: The required bond amount, often a percentage of the project’s contract value, directly impacts the total cost.
• Maintenance period: A longer warranty term means more risk for the surety, which can add small additional premiums.
• Project size and complexity: More complex or higher-risk work can lead to slightly higher rates.
• Experience and claims history: A contractor with a strong track record and no prior claims is seen as lower risk and typically receives better pricing.
• The surety company itself: Different sureties evaluate risk differently, so rates can vary. Working with reputable, competitive companies helps secure better terms. Lance Surety Bonds works with a number of acclaimed and highly professional sureties. All of them are A-rated and T-listed, which means that any bond issued by them is among the best bonds available in the country.

Example: For a $100,000 maintenance bond, a contractor with solid credit might pay $1,000 to $3,000.

If the bond is purchased as a stand-alone bond, without a performance bond, small projects may have slightly higher pricing.

If defects or issues arise during the maintenance period and the contractor does not address them, the project owner can file a maintenance bond claim. The process typically involves the following steps:

1. Notify the Contractor

Before filing a claim with the surety, formally notify the contractor of the issues. Provide them with a reasonable opportunity to make the necessary repairs as specified in the contract. Document all communications carefully (emails, certified letters, or written notices).

2. Gather Supporting Documentation

Collect all relevant records to support your claim, including:

• Original construction contract and maintenance bond form
• Photos, reports, or assessments of the defects
• Communication logs with the contractor
• Invoices or payment records related to the project

3. Identify the Surety Company

Determine which surety issued the maintenance bond. This information is usually listed on the bond form or in the contract. Contact the surety to confirm claim procedures and requirements.

4. Submit a Formal Written Claim

Prepare and submit a detailed, written claim to the surety. Include all supporting documentation and clearly state the nature of the defects, the work required, and any associated costs.

5. Cooperate with the Surety Investigation

The surety will review the claim, verify the defects, and may conduct site inspections or contact the contractor for their response. Respond promptly to any requests for additional information to avoid delays.

6. Resolution

Once the surety completes its review, one of the following outcomes typically occurs:

• The contractor is required to make the repairs
• The surety hires another contractor to complete the work
• The surety compensates the project owner financially for the cost of repairs

7. If a Claim Is Denied

If the claim is denied or cannot be resolved satisfactorily, the project owner may need to seek legal advice to enforce their rights under the bond.

Example: A city is constructing a new community center with landscaping, playgrounds, and an HVAC system. The project may require all three bonds:

• Performance Bond: Guarantees the contractor completes the construction of the building, playground, and landscaping according to the contract specifications.
• Warranty Bond: Covers specific systems or materials, such as the HVAC system, plumbing, or roofing, ensuring they function properly for the warranty period.
• Maintenance Bond: Ensures post-completion repairs for general work, like fixing playground equipment, replacing damaged plants, or repairing pathways, for a defined maintenance period (e.g., 2 years).

A maintenance bond claim may be filed when a contractor fails to correct defects or issues during the maintenance period. Common situations include:

• Faulty workmanship: For example, a newly installed roof that leaks, improperly paved surfaces that crack, or structural elements that fail to meet contract standards.
• Defective materials: Materials that fail prematurely, do not meet project specifications, or are otherwise substandard.
• Failure to follow plans or building codes: Work that deviates from the approved design, contract documents, or applicable construction regulations.
• Ignoring warranty repair requests: The contractor delays, neglects, or refuses to address valid repair requests within the agreed timeframe.
• Contractor insolvency or abandonment: If the contractor goes out of business or abandons post-completion obligations, leaving defects unaddressed.
• System or equipment failures: Malfunctioning systems, such as HVAC, electrical, or mechanical installations, caused by improper installation or service.

Maintaining clear communication with the project owner and documenting repairs helps prevent disputes and claims.

The maintenance period depends on the project type, industry norms, and contract requirements. Based on years of surety and construction experience, typical terms are:

• Most common: 1 year, aligning with general construction practices and state statutes for latent defects
• Standard range: 12–24 months, which is comfortable for most sureties
• Extended terms: 3–5 years for public works projects or specialized construction (bridges, roofing, paving)
• Long warranties: 5–10 years for certain high-performance materials, like specialized pavements or roofing products. These are separate from maintenance bonds but provide added assurance
   

Selecting the appropriate maintenance period ensures proper post-completion protection and helps prevent disputes or regulatory issues.