Do Performance Bonds Cover Warranty?
When a contractor takes out a performance bond, they may assume that it covers their warranty, however, that isn’t the case. A performance bonds primary focus is on performance during the construction phase, it does not inherently cover post-completion warranty obligations unless specified. However, some performance bonds include warranty provisions, depending on the bond wording and the terms agreed upon by the parties.
In cases where performance bonds don’t cover warranty, there is something that helps ensure the warranty is still covered: warranty bonds. These bonds complement performance bonds, providing comprehensive coverage for all phases of a construction project, from execution to post-completion warranty.
Warranty Bonds
A warranty bond is a is a formal agreement between a surety company, a contractor, and a beneficiary, guaranteeing that the contractor will fulfil their obligations during the warranty period. It functions similarly to a performance bond by offering financial assurance; however, its focus is on the post-completion phase, specifically addressing the correction of defects or issues that arise during the agreed-upon warranty period.
This differs from a performance bond, which ensures the completion of the work to a satisfactory standard as per the terms of the contract, typically during the construction phase. A performance bond does not inherently guarantee compliance with post-completion warranty obligations.
In the construction industry, a warranty bond serves as a critical safeguard for both contractors and project owners. Contractors may need warranty bonds to assure project owners that their work will remain defect-free and in compliance with the agreed-upon terms for a specified warranty period.
This is especially valuable in cases where the contractor’s financial stability is in question or when the project owner seeks assurance that defects will be promptly addressed. Warranty bonds are useful when undertaking construction projects, as they offer financial protection and help maintain the integrity of the work, ensuring that any necessary repairs are promptly and adequately handled.
CG Bonds Surety specialise in procuring warranty bonds through our technical knowledge and expertise. Due to our deep-rooted understanding, CG Bonds can navigate the intricacies of warranty bonds, meaning bespoke solutions can be tailored to each client’s unique needs. |
How Performance Bonds and Warranty Bonds Work Together
One option for contractors is to take out both a performance bond and a warranty bond together. This gives the contractor and beneficiary a double layer of protection, and guarantees that the work will be completed in time and to the standard as per the contract.
Performance and warranty bonds can also complement each other in the event of contractor insolvency. If the contractor becomes insolvent within the warranty period or fails to correct any defects in their original work to ensure the work is delivered as per the contract, the surety will compensate the owner for any losses incurred.
How Can You Obtain A Performance or Warranty Bond?
To obtain a performance or warranty bond through CG Bonds Surety, our dedicated client account team will guide you through the process and request the following essential information:
- Completed & Signed Application Form
- Most Recent Audited Financial Accounts
- Latest Management Accounts (if available)
- Copy of Warranty and Performance Bond Wording (if available)
How Can CG Bonds Help With Performance and Warranty Bonds?
Here at CG Bonds, we work with an exclusive panel of underwriters to obtain the best possible performance bonds for contractors. We can turn around quotes in as little as 7-10 days for last-minute jobs, and we ensure a smooth and efficient process.
Fill in our application form today, and one of our dedicated account managers will be in touch.
The information provided in this blog is not intended to constitute legal advice or any other advice of a professional nature. The recipient of this information contained in this blog should always consult legal or professional advice.
