A Maintenance Bond is a type of surety bond guaranteeing good condition of constructed improvements for a period of time after acceptance of the work.
When Are Maintenance Bonds Required?
We commonly see Maintenance Bonds required in conjunction with commercial development projects. As part of the scope of the project infrastructure improvements such as water/waste water service, curb inlets and streets are constructed. These improvements are turned over to the municipality after acceptance so they require a Maintenance or Warranty period to make sure those assets don’t deteriorate due to poor workmanship or poor materials. A standard Maintenance period is one year from the date of acceptance but periods of two or three years are not unheard of.
Steps To Getting Into the Maintenance Period:
- Complete construction of improvements
- Inspection and acceptance by municipal engineer
- Acceptance letter issued by municipality
- Final cost and quantities of improvements is formalized
- Maintenance bond is provided
How Is The Amount Of The Maintenance Bond Determined?
The specific amount of the Maintenance Bond is based off of your final cost and quantities and will be determined by the municipality with whom you are working. We recommend making certain the amount of the bond you’re going to provide lines up with their requirement or you could end up delaying acceptance. Often the amount of the Maintenance Bond is based off of a percentage of the dollar value of improvements in question. The most common amount of the Maintenance Bond is 10%. Not all improvements constructed by a developer will need to be bonded. Only those items turned over to the municipality as public assets need to be covered by the Maintenance Bond.
Who Provides The Maintenance Bond?
The developer or the contractor? This is a common question and the answer may vary depending on the city or county where the project is located. Please be sure to communicate with the local staff and engineer to be sure to give them what they want. In our experience it’s most often viewed as the Developer’s requirement to provide the financial assurance. But in many instances it makes the most sense for the contractor who performed the work to provide the Maintenance Bond. He or she likely signed a contract with the developer that includes some fort of maintenance or warranty provision and would ultimately be the one the developer would call to come out and fix any issues.
What Do I Need To Obtain A Maintenance Bond?
- Letter of acceptance from the municipality
- Bond forms (some municipalities have their own forms for us to use)
- Depending on the size of the bond we may need to run personal credit
- Depending on the size we may need business and/or personal financial statements
Many municipalities such as City of Austin, TX may require maintenance bonds.