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Maintenance Bonds vs. Performance Bonds – Comparing the Two

Performance Bonds

Whether you are a construction contractor or a motor vehicle dealer, you might require a contract surety bond to operate in your industry.

These types of bonds guarantee your customers that you will carry out the project according to the set guidelines. Also, if any problem does occur later on, you will be responsible to fix that.

This provides peace of mind to your customers. They get an assurance that if something goes wrong, they will get compensation and will not incur any losses.

Performance bonds and maintenance bonds are two of the most common types of contract bonds.

Let’s discuss each of them separately to get a better idea:

Maintenance Bonds

Maintenance bonds, or warranty bonds as they are often called, are created to give customers a guarantee that there will be no problems in the product for a specified period of time.

They ensure that the contractors have followed the set guidelines, such as state regulations and building codes (if it’s a construction project).

These bonds work like an agreement. If any issue or defect does occur, the customers can call in these professionals to take care of it. The contractor is legally obliged to fix any issues in the specified period of time. If the contractor fails to oblige, the customer will be compensated by the surety company.

Often confused with insurance, maintenance bond is not an insurance policy. However, it does guarantee that the customer will not incur any costs in a particular timeframe.

The cost of the maintenance bond is a percentage of the amount of the total bond, typically 1 percent. However, factors such as credit score, might also weigh in.

Performance Bonds

As the name suggests, a performance bond is designed to guarantee that the contractor will meet the set performance requirements of the project.

From project specifications to time schedules, it ensures that each aspect of the project is being handled efficiently.

If the contractor fails to meet the pre-set guidelines or exceeds the time limit, he/she will be required to compensate the customer for this.

Performance bonds also protect customer in cases where the contractor goes bankrupt or insolvent. In these unfortunate circumstances, the compensation is paid by the bond company.

Performance bonds are also a fraction of the total amount of bond (generally, 1 percent). Factors, such as credit reports, are taken into account.

With a team of professional and experienced underwriters, we at BondPro issue both performance bonds and maintenance bonds. Over the years, we have helped many projects complete in a smooth and timely manner.

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