Maintenance Bond

DEFINITION of 'Maintenance Bond'

A type of surety bond purchased by a contractor that protects the owner of a completed construction project for a specified time period against defects and faults in materials, workmanship and design that could arise later if the project was done incorrectly. A maintenance bond is not technically insurance, but basically functions as an insurance policy on a construction project to make sure a contractor will either correct any defects that arise or that the owner is compensated for those defects. Pricing a maintenance bond is very different from pricing regular coupon paying bonds.

BREAKING DOWN 'Maintenance Bond'

A surety bond is a three-way contract where a third party called the surety guarantees the contractual obligations of one party (the principal) to another party (the obligee) by agreeing to pay a sum to the obligee as compensation if the principal does not fulfill its obligations. The surety assures the obligee that the principal will perform the required tasks. A maintenance bond is structured in such a way.

RELATED TERMS
  1. Bond Violation

    A breach of the terms of a surety agreement. A bond violation ...
  2. Construction Bond

    A type of surety bond used by investors in construction projects ...
  3. Surety

    The guarantee of the debts of one party by another. A surety ...
  4. Associate In Fidelity And Surety ...

    A designation earned by bond producers, bond underwriters, and ...
  5. Performance Bond

    A bond issued to one party of a contract as a guarantee against ...
  6. Warehouse Bond

    A type of financial protection that assures an individual or ...
Related Articles
  1. Home & Auto

    How To Choose The Right Bond For You

    Bond investing is a stable and low-risk way to diversify a portfolio. However, knowing which types of bonds are right for you is not always easy.
  2. Bonds & Fixed Income

    Safety and Income: Bonds

    By Brian PerryWhen investing for safety and income, bonds are one of the most attractive asset classes. In this chapter, we will discuss some of the characteristics of bonds that make them an ...
  3. Options & Futures

    Top 6 Uses For Bonds

    We break down the stodgy stereotype to see what these investments can do for you.
  4. Bonds & Fixed Income

    Advanced Bond Concepts: Bond Type Specifics

    Before getting to the all-important subject of bond pricing, we must first understand the many different characteristics bonds can have. When it comes down to it, a bond is simply a contract ...
  5. Retirement

    Bond Basics: Conclusion

    Now you know the basics of bonds. Not too complicated, is it? Here is a recap of what we discussed: Bonds are just like IOUs. Buying a bond means you are lending out your money. Bonds are ...
  6. Professionals

    Types Of Bonds

    We look at the many types of bonds and explain what differentiates them from each other.
  7. Retirement

    Analyzing The Best Retirement Plans And Investment Options: Bonds

    What they are: Debt securities in which you lend money to an issuer (such as a corporation or government) in exchange for interest payments and the future repayment of the bond’s face value. ...
  8. Bonds & Fixed Income

    Using Excel PV Function to compute Bonds PV

    To determine the value of a bond today - for a fixed principal (par value) to be repaid in the future at any predetermined time - we can use an Excel spreadsheet.
  9. Retirement

    Should I Invest in Bonds After I Retire?

    Yes, retirees should invest in bonds, but remember that not all bonds are safe investments. Seek the help of a financial advisor.
  10. Options & Futures

    20 Investments: Corporate Bond

    What Is It? Similar to a mortgage with a bank, bonds are an issue by a borrower to a lender. When you buy a corporate bond, you are loaning your money to a corporation for a predetermined period ...
RELATED FAQS
  1. Under the Uniform Securities Act, a broker-dealer is generally required to obtain ...

    The correct answer is c. The correct answer is $10,000. While the Act states that the Administrator may set the amount, the ... Read Answer >>
  2. What is accrued interest, and why do I have to pay it when I buy a bond?

    A bond represents a debt obligation whereby the owner (the lender) receives compensation in the form of interest payments. ... Read Answer >>
  3. How does an investor make money on bonds?

    Bonds are part of the family of investments known as fixed-income securities. These securities are debt obligations, meaning ... Read Answer >>
  4. In the context of a bond, what does the principal refer to?

    Get introduced to the world of bond investing and learn what the term "principal" means in reference to a corporate or government ... Read Answer >>
  5. What forms of debt security are available for the average investor?

    Discover the various different types of debt securities, issued by government entities or corporations, that are available ... Read Answer >>
  6. How is a bank guarantee different from a traditional loan?

    Read about the differences between a traditional bank loan and a bank guarantee, and why a third party might require a guarantee ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center