There’s no question that large-scale construction projects are fraught with several internal and external risks. A project owner can’t make it big unless they play smart. If you’re working in the construction industry, a maintenance bond is just what you need to ensure timely completion of your project.
Maintenance Bond: What is it?
A maintenance bond is a type of surety bond that protects project owners and ensures that contractors perform top quality work.
A typical maintenance bond agreement consists of three parties:
- The principal (the project contractor buying the bond)
- The obligee (the project owner / state requiring the bond)
- The surety agency (the party issuing the bond)
In simple terms, construction contractors need to give project owners a guarantee of their work. They are required to utilize materials and tools and follow proper building codes, construction standards and state laws during the construction phase. If they are unable to do so, the construction project is likely to experience setbacks and delays.
Needless to say, the project owner will face financial losses. In the event that a contractor fails to fulfill their obligations, the project owner can file a claim against a maintenance bond and receive compensation (up to the amount of the bond) for the losses incurred.
The surety agency is responsible for paying the obligee on behalf of the principal. However, they will be reimbursed by the principal.
Do you need it?
Generally speaking, all public construction projects require a maintenance bond. If you are working on a private project, the project owner will decide whether they need the bond or not.
Ultimately, a maintenance bond increases a project owner’s trust and confidence in their contractors. It gives them reassurance and peace of mind that the project will be completed successfully. Trust in a contractor is crucial for project success.
How much does it cost?
There’s no one-size-fits all answer for this. The cost of a maintenance bond depends on several factors, which includes but is not limited to, a contractor’s credit report, financial records (financial statement), evidence of experience in the construction industry, and more. In majority of cases, the cost of a maintenance bond is around 1 to 4 percent of the total bond amount.
Interested in applying for a maintenance bond? We’ve got your back!
With over 60 years of combined experience, BondPro, Inc. offers maintenance bonds at great rates in all 50 states. Visit our website to learn more.