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 Arizona Maintenance Bonds?
An Arizona maintenance bond serves as a contractor’s guarantee to remediate any construction defects related to workmanship or materials that might not surface until after a construction project has been completed and accepted. It ensures that any defects discovered within the maintenance period specified in the bond agreement are repaired at no additional cost to the project owner (the bond’s “obligee”).
If the contractor (the bond’s “principal”) does not make the necessary repairs, the obligee can submit a claim against the maintenance bond for the costs incurred by having another contractor do the repair work. A third party (the “surety”) guarantees payment of the obligee’s claim, up to the full bond amount.
Who Needs Them?
Arizona’s statutes do not mandate maintenance bonds for state-funded construction projects, but that doesn’t mean you won’t have to purchase one. It’s not unusual for state or municipal contracting entities to require a maintenance bond to protect the public interest. Private project owners also may require payment bonds from contractors as financial protection for themselves and investors, particularly in the case of larger projects.
How Do Arizona Maintenance Bonds Work?
Project owners and contractors alike need to understand the role of the surety and the nature of the surety’s guarantee of payment. The basic concept is that the surety will extend credit to the principal for the purpose of paying valid claims and is the arbiter of whether or not a claim is legitimate. If it is, the surety will pay it on behalf of the principal. This creates a debt the principal must subsequently repay in accordance with the surety’s credit terms, which often allow repayment of larger amounts in installments. Not repaying the surety is likely to result in the surety suing the principal to recover the funds.
How Much Do They Cost?
The premium cost of an Arizona maintenance bond is the product of multiplying the bond amount by the premium rate. The obligee establishes the required bond amount based on the contract price. The surety sets the premium rate based largely on the level of credit risk—the risk of the principal not repaying the surety for the credit extended in paying a claim. The principal’s personal credit score is the accepted universal measure of credit risk.
A high credit score is reliable evidence of financial responsibility and low credit risk. Therefore, a low premium rate is appropriate. However, a lower credit score signals higher risk, which calls for a higher premium rate.
A well-qualified principal typically will be assigned a premium rate in the range of .5% to 3%.
Call Us Today
Our surety bond professionals will help you grow your revenue by maximizing your surety capacity. Call us today!