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Warranty Bond Vs. Performance Bond Vs. Payment Bonds


Renovating an existing home or taking on a new construction project is often a huge risk.

With the massive number of contractors in the market, it is often a challenge finding one that meets all your requirements, in terms of quality and cost.

What sets apart quality contractors from incompetent ones are factors like licenses, insurance and bonds.

When you invite bids for a project, evaluating contractors on the basis of factors like whether they have warranty and performance bonds will let you have your peace of mind. Protection against all sorts of risk should be among the top priorities when choosing to work with a contractor.

To provide clients assurance and to highlight their credibility, many contractors offer warranty and performance and payment bonds.

Here is a quick breakdown of these types of bonds and how they differ from one another:

Warranty Bonds

A warranty bond is a legal document that guarantees to the project owner that the contractor who did the work will come back and fix defective work or material should an issue arise during the warranty period specified in the contract.

The most important reason to work with contractors who acquire warranty bonds is the assurance of having recourse after the project is complete and accepted, should you find that there is a problem with the work or material installed on the job.

Take the example of a bonded plumbing contractor who, after successfully installing plumbing to code on a large construction site, finds after six months that the pipe installed was defective and a leak has developed.  Even though the plumber did everything correctly, he is legally bound to replace the defective pipe per the terms of the contract.  The plumber’s warranty bond is in place to protect the project owner should the plumber refuse to replace the pipe for any reason.  In this example, the owner of the project could then make a claim on the plumber’s maintenance bond and use the funds from the claim to hire another plumber to fix the problem.

Performance Bonds

While a warranty bond guarantees the repair of a project should there be a defect in materials or workmanship, performance bonds are in place to guarantee that the project will be done according to the contract’s specifications and on schedule.

If a contractor fails to follow contractual outlines by skimping out on any part of the project, the surety company would be liable for paying up to the bond’s face value.  A simple example of a performance bond claim would be if a painter applied the finish coat of paint but failed to apply primer first.  In this instance the project owner could make a claim on the painter’s performance bond if the painter refused to strip the paint reapply it correctly, per the contract specifications.

Payment Bonds

Payment bonds are in place to protect the owner’s project against liens filed by laborers and materials suppliers should they not get paid by the contractor performing the work.  For example, if after the work is complete and accepted, the owner pays the contractor for a job well done but as time goes by he finds that his construction project has liens filed against it because the materials used to construct it were purchased on credit and never paid for, then the project owner can make a claim on the contractor’s payment bond to pay off the liens and clear the title of the project/property.

Are you a contractor wondering what performance bonds are? Would you like to know how warranty bonds work? Get in touch with us to ask all your questions.

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