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 Connecticut Maintenance Bonds?
Connecticut maintenance bonds are designed to protect project owners from incurring additional costs when construction defects aren’t discovered until after a project has been completed and accepted. When a maintenance bond is in place, the contractor must repair defects related to workmanship or materials that surface within the maintenance period at no additional cost to the project owner (the bond’s “obligee”). The duration of the maintenance period typically is 1-2 years.
If the contractor (the bond’s “principal”) fails to remediate the problem, the bond ensures that the obligee will be compensated for the costs incurred having to bring in someone else to fix it. A third party (the “surety”) guarantees the payment of valid claims submitted by the obligee, up to the full bond amount.
Who Needs Them?
The state of Connecticut does not impose a blanket requirement for maintenance bonds on public works projects. However, to protect the public interest, some contracting entities at the state or municipal level may make the purchase of a maintenance bond a prerequisite for entering in into a contract. It’s not uncommon for private construction project owners to do the same, as financial protection for themselves and investors.
How Do Connecticut Maintenance Bonds Work?
The surety’s guarantee of a maintenance bond is actually a binding agreement to extend credit to the principal for the purpose of paying a valid claim. The process is for the surety to pay the obligee’s claim after investigating it and finding it to be valid. That payment is made on behalf of the principal, who must subsequently repay the resulting debt in compliance with the surety’s credit terms. Failing to do so typically results in the surety taking legal action against the principal to recover the funds.
How Much Do They Cost?
Perhaps you’re wondering what a maintenance bond will cost you. It’s an easy calculation: the required bond amount multiplied by the premium rate. The surety assigns an appropriate premium rate for each bond, based on the risk of the principal not repaying the credit extended in paying a claim. The principal’s personal credit score is the standard measure of that risk.
A high credit score assures the surety that the risk of nonrepayment is low, making a premium rate appropriate. Conversely, a low credit score means greater risk for the surety, which must be offset by a higher premium rate.
A well-qualified principal typically will be assigned a premium rate in the range of .5% to 3%.
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