Surety Bond Professionals is a family owned and operated bonding agency with over 75 years of experience. With access to a broad range of surety markets, our expert agents are ready to assist with all of your maintenance bond needs.
What Are Alaska Maintenance Bonds?
An Alaska maintenance bond is a contractor’s guarantee to address any defects in workmanship or materials that might emerge after the completion of a construction project. It ensures that any necessary repairs due to faulty materials or workmanship that surface during the ensuing “maintenance period” are made without the project owner (the bond’s “obligee”) incurring any additional costs.
The bond guarantees that the contractor (the bond’s “principal”) will repair any defects discovered during the maintenance period specified in the bond—typically one to two years. A third party (the “surety”) guarantees payment of the obligee’s costs to bring in another contractor to make repairs if the principal fails to remedy the problem. Any such payment to the obligee is capped at the bond amount.
Who Needs Them?
Alaska has no statutory requirement for maintenance bonds, but that doesn’t mean you won’t have to purchase one. It’s not uncommon for a state or municipal contracting entity to require a maintenance
bond to protect the public interest. And the owners of larger private construction projects may require maintenance bonds to protect themselves and any other investors. The obligee will base the required bond amount on the contract price.
How Do Alaska Maintenance Bonds Work?
The basic concept underlying all maintenance bonds is that the surety guarantees the payment of valid claims by extending credit to the principal for the purpose of paying them. That doesn’t relieve the principal of the legal obligation to pay; it merely transforms it into an obligation to repay the surety.
In practice, if the principal does not repair the construction defects, the surety will pay the obligee directly for the costs incurred by bringing in another contractor to make the repairs. The principal then must repay that debt according to the surety’s credit terms, which typically allow repayment of larger amounts in installments over a specified time period. A principal that doesn’t fulfill this financial obligation is likely to become the subject of legal debt recovery proceedings initiated by the surety.
How Much Do They Cost?
The premium cost of an Alaska maintenance bond is calculated by multiplying two factors: the bond amount and the premium rate. The bond amount established by the obligee is tied to the contract price. The surety sets the premium rate based on the risk of the principal not repaying the debt resulting from the surety’s payment of a claim on the principal’s behalf. The principal’s personal credit score is the accepted measure of this risk.
A high credit score is the hallmark of financial responsibility, meaning the risk to the surety is low, and a low premium rate is appropriate. However, the lower the credit score, the higher the risk and the higher the premium rate must be to offset the greater risk to the surety.
A well-qualified principal typically will be assigned a premium rate in the range of .5% to 3%.
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