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A Florida surety bond guarantees principal owners and the public that services will be performed with excellence and security. Florida legally requires a variety of contractors and organizations to secure bonds to conduct business across the public service industry. Single Source Insurance is a leading Florida bonding company. Apply easily online and take advantage of lowest rates. Browse the most common types of FL surety bonds, or contact us for a full list.
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What Are Maintenance Bonds?
A maintenance bond�sometimes referred to as a warranty bond�is a type of surety bond that serves as a warranty on a completed construction project.�?A maintenance bond protects the project owner in the event that construction flaws, faulty materials, or design problems don�t become apparent for some length of time after the job is finished.
A maintenance bond also guarantees that the construction was done in accordance with all applicable building codes and industry standards. Maintenance bonds often are required as part of or in conjunction with a performance bond. The project owner (the �obligee�) establishes the required bond amount and the duration of the warranty period, which is most often a year.
Maintenance bonds are required for many state-funded and some municipal public works projects. Increasingly, private project owners are also requiring their contractors to purchase maintenance bonds.
In addition to the obligee, there are two other parties to the surety bond agreement: the contractor (the �principal�) and the company underwriting and issuing the bond (the �surety�).
Any defects or problems detected during the post-construction warranty period have the potential to trigger claims against a maintenance bond. However, the surety will attempt to negotiate an amicable settlement that avoids legal action. If no settlement is reached, the surety usually will go ahead and pay the claim to preserve goodwill.
The surety has no legal obligation to pay claims, so when a claim is paid by the surety, it�s on behalf of the principal. In effect, the surety is extending short-term credit to the principal, but the principal is legally obligated to reimburse the surety in full.
The cost of a stand-alone maintenance surety bond (one that isn�t incorporated in a performance and payment bond), is a small percentage of the required bond amount. The obligee establishes the required bond amount based on the total value of the project. The premium rate is assigned by the surety.
The surety�s primary concerns in setting the premium rate are the likelihood of claims and the risk being assumed in extending credit to the principal. That risk is assessed based on the principal�s personal credit score and personal and business financial standing. Prior industry experience is the proxy for the likelihood of defects that could result in claims.
There is an inverse relationship between the principal�s personal credit score and the premium rate assigned by the surety. In general, someone with good credit can expect to pay an annual bond premium that is between 1% and 3% of the required bond amount. With poor credit, that premium rate could be as high as 15%.
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