Bond Titles Don’t Tell the Whole Story
“Don’t judge a bond by its title” might not have the same ring as the phrase it’s based on, but it’s worth remembering when questions about surety bond obligations arise. When it comes to the guarantees provided by bonds, it’s important to look beyond the title and examine the details before claiming that a bond is or isn’t fulfilling its intended purpose.
Responsibility Is in the Details
I recently received a call about a potential claim on a maintenance bond where an owner/obligee indicated that the contractor wasn’t maintaining a road they had installed. Because the bond said maintenance in its title, the owner/obligee interpreted that to mean that the contractor must maintain the work. However, the actual obligations of the bond lie not in the title, but in the language of the bond form.
A maintenance bond — or maintenance guarantee as it’s often referred to — is provided either in conjunction with a typical payment and performance bond on a public project or it can be provided independently on a private project, like a subdivision, upon completion of the work. The purpose of the bond is to guarantee the work will not fail within a specified period, typically anywhere from one to five years.
For projects where the city will take over responsibility for public improvements such as streets, sewers, and watermains, city officials want to make sure the work is properly done and won’t fail prematurely. The language in the bond form (and often within the state code as well) specifically states that the bond will provide coverage against faulty workmanship and/or materials.
However, this does not mean the contractor is responsible for failures to the improvements for any and all issues. For example: Damage to a street from a snowplow or subsequent construction would not be related to poor workmanship or materials, meaning the bond would not provide coverage.
For the owner/obligee who called with these concerns, a simple explanation of the purpose of the maintenance bond was enough to address their concerns, but that’s not always the case. Being familiar with the language of the bond is crucial for understanding its guarantees and what that means for you as an owner/obligee or for the contractor that provided the bond.
Ask the Experts for Bond Insights
The maintenance bond example is just one of many examples demonstrating the importance of the language in the bond form and understanding the intended purpose of the provided guarantees. The details are just as crucial for payment and performance bonds that you provide to an owner, sub bonds you have been asked to provide when you’ve entered a subcontract or have received as a prime contractor, and other kinds of bonds specific to your project or situation. Whatever you are providing or receiving, the context of the bond must provide the assurances intended.
If you have questions about the bonds you have provided or the forms you need in the future, reach out to your surety agent to gain a better understanding of potential risk and ensure you receive the benefits and protection you need.
Ready to take the next step and learn more about how bonds can work for you? Reach out today, and our Holmes Murphy team can help!
Published on: 11.02.23