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How Does a Warranty Bond Work?

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Warranty bonds

Warranty bonds are a form of surety, typically used in the construction industry to ensure that a project is completed per the code and with the best quality materials.  If the work or materials are sub-par, then the contractor is obligated to remedy the issues or his bond will be subject to a claim.

The bond ensures that the owner of the project has recourse in case problems arise during the project’s maintenance period.

How Does A Warranty Bond Work?

Warranty bonds safeguard project owners against poor quality workmanship or materials.

Even though State projects mandate use of warranty bonds, private construction projects may also require them.  Hence, the bonds work as an agreement between the principal, the obligee and the surety company.

In cases where the contractor fails to meet client expectations, the project owners can file a claim. If the claim is confirmed upon evaluation, the surety is obligated to financially recompense the obligees for losses occurred.

Similarly, contractors who have claims made against their bonds are obliged to repay the surety later, therefore it is best to avoid all chances of claims.

Who Requires a Warranty Bond?

Warranty bonds are required of all contractors working on State funded construction projects; however individual project owners might also suggest warranty bonds as part of project requirements.

Are There Different Types of Warranty Bonds?

There is only one type of warranty bond. However, the specifications for the bond including the conditions, amount and the warranty term may be different depending on the contract being bonded.

Is It Possible to Get A Warranty Bond With Bad Credit?

As with all types of bonds, applicants with severely bad credit may not be issued warranty bonds. However, contractors facing mild issues with their credit score may be considered as exceptions. If you have an average credit score and are wondering if you would be issued a warranty bond or not, give us a call today.

How Much Does It Cost?

The cost of warranty bonds is a fraction of the total face value of the bond. When determining the costs of the premium, the surety company will consider a number of personal, business and financial factors. Rule of thumb—the better a client’s credit, the more favorable the premium.  All of this being said, 2-3% of the contract price is what you should expect to pay.

In case of construction project warranty bonds, surety companies would also inquire the amount mentioned on the contract. In addition to this, financial statements and past business records will also be assessed.

If you are looking to secure the best rates for warranty bonds, get in touch with us. At BondPro Inc, we partner with a wide network of carriers to provide you with the best possible bond rates.

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