Secrets of Bonding 131: Maintenance Bonds – Breezy Free & Easy

Surety bond bonds for free. Do you know of anything better? Actually, I could think of a few things, but… Are they perfect? Yes, they are.

Everyone loves free things. The problem is that they’re not always easy or free. Sometimes they’re a massive P.I.A. Therefore, let’s explore maintenance bonds and understand the facts.

The most frequent Maintenance Bond situation is a bonding of a private or public contract. The contract’s specifications stipulate that there should be a 100 percent (of the contract value) of the performance as well as payment Bond and the Maintenance Bond typically with a lower amount, possibly 20 percent of the contract value. Maintenance bonds cover complete work in the event of a defect in materials or workmanship for a specific duration.

It is the P&P bond that will be issued at the time the project begins, as well as the Maintenance Bond, which is given when the project is complete and is accepted. It is typical for the owner of the project (obligee) to send an acceptance letter confirming the correct conclusion of the contract and to state that the Maintenance Bond is now due to be issued.

In terms of the guarantee the bond offers, it is an easy choice. They already paid to cover the P&P bond. They have already had to face the possibility of a claim due to defective work or the use of materials. The contractor (Principal) is required to pay an additional amount to get another bond for the same project.

In some instances, the surety won’t charge for this bond after their P&P obligation. It’s straightforward and straightforward! If they charge, the cost could be lower than for a P&P bond. Why is it not simple and accessible… then what’s the reason?

Timing

Maintenance bonds are usually needed after that contract is signed (work done). In some instances, the owner may require to issue the bonds concurrently, at the time of the start or beginning of the construction. This can be difficult for the surety to accept since the approval process for maintenance bonds can be a relatively simple but not automatic process. The surety needs to decide whether or not they are willing to take on the risk that comes by the obligations to maintain. It is contingent on the efficiency and smooth execution of the terms of the contract. If the project was plagued with issues and was challenging to complete, they might not be willing to accept the commitment.

Inviting the underwriter to issue the bond prior to the issuance eliminates the chance to make an educated decision.

General Underwriting Issues

There is a period of time for each of these bonds. The company must be sure that over the one or two-year duration, you will find the owner able and willing to answer any calls backs (things that fail crack and so on. ).

If the applicant’s situation has recently suffered from deterioration, like decreasing ratings on their credit score or weak financial report, The underwriter could decline to approve their application.

The Term

The length of the obligation to maintain can create an underwriting concern. A one-year commitment is typical. Two years could be an option.

How about the next five years or ten years? Most likely not.

No P&P Bond

Sometimes, a Maintenance Bond is required. However, there is not a Performance Bond. Another surety could be the one who issued this P&P bond.

If another surety was associated with this undertaking, it could be tough to get the support of a new underwriter, the idea being “this risk is the responsibility of another surety.”

If there is no P&P bond or maintenance bond underwriter, the company will need an Obligee’s Contract Status Report. The obligee’s contract status report is a written declaration that the contract was executed in a satisfactory way and that the related bills have been paid. A clear and healthy report is required to get the endorsement of the underwriters.

Conclusion

It is unlikely that you will receive an update request for every project. If you get one, it can be easy and affordable; however, it’s not always. Now you understand why.

Steve Golia is an experienced supplier of bid and performance bonding for contractors. For over 30 years, Steve has been a specialist in resolving problems with bonds for contractors and assisting them when other providers have failed.

The professionals in Bonding Pros have the underwriting ability and market access that you require. They also provide exceptional service and an excellent level of accessibility.