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 Idaho Maintenance Bonds?
Idaho maintenance bonds protect project owners from financial losses due to construction defects that remain undetected until after a project has been completed and accepted. A maintenance bond requires the contractor (the bond’s “principal”) to remediate defects related to workmanship or materials at no additional cost to the project owner (the bond’s “obligee”) as long as those defects surface during the period covered by the maintenance bond. In most cases, the duration of the maintenance period is 1-2 years.
A contractor who fails to correct a covered defect is legally obligated to pay the obligee’s claim for the costs incurred in having it repaired by someone else. A third party (the “surety”) guarantees the payment of valid claims up to the full bond amount.
Who Needs Them?
Idaho has no statewide requirement for maintenance bonds on public works projects. However, some state or municipal contracting entities may make the purchase of a maintenance bond a condition for entering into a contract. Private construction project owners often impose the same requirement as financial protection for themselves and any investors.
How Do Idaho Maintenance Bonds Work?
In signing a maintenance bond agreement, the surety is agreeing to extend credit to the principal when a valid claim needs to be paid. That doesn’t mean the surety writes a check to the principal. Rather, the principal pays the obligee directly, transforming the principal’s legal obligation to pay the claim to an obligation to repay the surety. Failing to repay the debt in accordance with the surety’s credit terms exposes the principal to the strong likelihood of being sued by the surety to recover the funds.
How Much Do They Cost?
The premium cost of a maintenance bond is a small percentage of the required bond amount. That percentage, the premium rate, is set by the surety for each maintenance bond. The surety assigns a premium rate that is high enough to offset the risk of not being repaid for claims paid on the principal’s behalf. That risk is measured based on the principal’s personal credit score.
A high credit score gives the surety enough confidence that the risk level is low to assign a low premium rate. A low credit score, however, means the risk is higher, and a higher premium rate is warranted.
A well-qualified principal typically will be assigned a premium rate in the range of .5% to 3%.
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