Stand Alone Maintenance Bond

Stand Alone Maintenance Bond Information

A maintenance bond (warranty bond) is a contract surety bond that protects the owner of a construction project for a certain period after its completion against defects and faults in the structure. On certain structures, such as those for public or commercial purposes, maintenance bonds are required by local governments, while on private and residential projects they are mostly optional. Maintenance bonds guarantee that once a contractor has completed work on a project, if any faults in workmanship, materials or design should become obvious, the contractor will either fix these or the owners will be compensated for the losses. Maintenance bonds also work as a form of security that the project has been constructed in accordance with local regulations, building codes and standards. Maintenance terms usually vary between 12 and 24 months. Like all surety bonds, a maintenance bond is a three-party agreement. The obligee is the party requesting the bond (the project owner), the principal is the side being bonded (the contractor) and the surety is the company underwriting the bond. In the case of a defect or failure in the structure or breach of regulations, within the span of the maintenance term, the obligee is eligible to raise a claim against the maintenance bond. The surety then has to proceed with remedying the problem or compensating the obligee for its losses.

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Three party agreement

Surety Bond Definition: The definition of a surety bond is as follows: A surety bond is a binding agreement between three parties. This agreement sets forth a financial guarantee by one party ( “surety” ) to another party ( “obligee” ) that a third party ( “principal” ) will fulfill required obligations to the obligee, and that state, federal, and local laws and applicable regulations will be adhered to. Let’s examine each of the three parties.

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