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What is a Warranty Bond?

A Warranty Bond, also called a Maintenance Bond protects the owner of a completed construction project for a specified time period. This is done in order to avoid faulty workmanship, materials and design if such faults may arise later on. Construction projects are often too large to risk mistakes and faults with workmanship. However, some contractors may not be able offer the best guarantees due to a lack of experience or financial stability. When this is the case, owners have an option in obtaining what's called a maintenance bond from one company that will cover any flaws for up to ten (10) years after construction completion at no cost other than paying regular premiums until that time period has elapsed.

How Much does a Warranty Bond Cost?

Just what should you expect to pay for a Warranty Surety Bond? When it comes down to rates, they can fluctuate depending on the type of work for the maintenance bonds. For example, if your project is construction related and has a 10% risk level or more then that may translate into higher costs per thousand dollars. Bonds such as those in need of industrial jobs will be quoted at 1-15%. That translates into $1 -$150 per 1000 worth borrowed!

You should expect to pay approximately 0.5-1% per year for the Warranty Bond on a typical performance contract bond.

Does a Standard Performance Bond Cover the Warranty Period?

Performance & Payment Bonds typically have a one-year warranty that the surety company is responsible for. One thing to keep in mind with performance and payment bonds, though, is they respond to the contract itself. So if you're looking at taking out this type of bond on your new construction project, then make sure it's worth your while as premium rates include cost associated with these types of warranties.

If you need a warranty beyond the first year, then that will be an additional cost.

Warranty Bond Guarantee

What is the difference between a bond and a warranty?

A warranty bond ensures that the project will be repaired if there are any defects in materials or workmanship. It's crucial to have a performance bond on projects, because it guarantees that this contract is completed according to specifications and within the allotted time frame. A warranty bond guarantees the repair of a project should there be defect in materials or workmanship, while performance bonds guarantee that projects will get done according to specifications and on schedule.

What are Warranty Bonds and How Does a Warranty Bond Work?

A good way to protect yourself against shoddy projects is with a surety bond. Warranty bonds safeguard project owners against poor quality workmanship or materials. Hence, the bonding works as an agreement between the principal (project owner), obligee (contractor) and surety company if things go bad for contract obligations have not been met by contractor because of lack of skill, wrong material used etc... In cases where contractors fail to meet client expectations through no fault on their part- clients can file claims which could be anything from loss in profit due to faulty manufacturing process caused delays that resulted in lost revenue up until complete reimbursement but only when all contractual clauses have been fulfilled according your business needs.

How Does a Maintenance Bond Work?

It's really another name for the warranty bond. A maintenance bond is a three-party guarantee where the Surety (Bond Company) provides a guarantee to the Obligee (Owner or Upstream Contractor) that you will warranty your project for an agreed amount of time and fix any defects.

The purpose of a performance warranty is to provide the project owner with an assurance that if problems arise, they will be resolved. Unlike workmanship and materials warranties which are limited in duration; this type of agreement can last for several years, although most sureties do not prefer to write them that long.

What is a Performance Warranty?

A contractor may have their own requirements before signing off on such agreements as well - particularly those who want more protection than just replacing or repairing faulty products under manufacturer's warranty policies. Performance guarantees typically offer these contractors additional protections like design alterations, cash indemnity payments during construction delays not caused by them and even time extensions beyond what was agreed upon initially.

A warranty bond guarantees the repair of a project should there be defective materials or workmanship, while performance bonds guarantee that projects will be completed according to contract requirements and on time. One of the most common misconceptions about performance bonds is that they are for projects with a low probability of success. This couldn't be farther from the truth, as even large and complex construction jobs often require them in order to guarantee completion within deadlines set by contract terms.

Warranty Bond Definition (Maintenance Bond Definition)

A warranty bond is a legal document that guarantees to the project owner that if an issue arises with defective work or materials during the specified time period, then they will be made good by someone who did it. A warranty bond provides significant peace of mind as it ensures that the work was done properly and will continue to last.

The most common form is the AIA A313 Warranty Bond form, which can be found here.

Example on How a Warranty Bond Works

For example, let's assume that a HVAC contractor installs a cooling system for office complex.  Let's assume that one of the cooling pipes breaks within the first nine (9) months.  The Obligee could then make a claim on the bond for the pipe to be fixed and any damages.  The contractor, even though the initial construction bond work was done properly, would have to fix the damages.  For maintenance work outside of the first year, the warranty bond could be taken out, which would extend that maintenance period.  This would make the contractor legally liable for any additional maintenance issues. If the contractor is defunct, then the surety would have to find another contractor to fix/replace any issues during that maintenance period.  As you can see, the maintenance bond provides significant peace of mind to the owner of the property.

Conclusion - A Summary on Warranty Bonds & Maintenance Bonds

When it comes to contractor maintenance and warranty bonds, you're probably wondering what they are and how to get them. Don't worry! Get in touch with us here at Swiftbonds today so we can answer all your questions about this topic.

AIA A313 bond form sample

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