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. Principal

    1. The amount borrowed or the amount still owed on a loan, separate ...
  2. Guarantor

    A person who guarantees to pay for someone else's debt if he ...
  3. Surety

    The guarantee of the debts of one party by another. A surety ...
  4. Insurance

    A contract (policy) in which an individual or entity receives ...
  5. Credit

    1. A contractual agreement in which a borrower receives something ...
  6. Interest

    The charge for the privilege of borrowing money, typically expressed ...
Related Articles
  1. Home & Auto

    Do-It-Yourself Projects To Boost Home Value

    These simple projects can add value to your property without taking too much out of your wallet.
  2. Home & Auto

    How To Stage Your Home For A Quick Sale

    Learn how to make your house appealing to the largest number of buyers and increase your chances at a fast sale.
  3. Home & Auto

    4 Types Of Home Renovation: Which Ones Boost Value?

    You think your updated house looks great, but potential buyers may not feel the same way.
  4. Home & Auto

    Will Your Home Remodel Pay Off?

    Some renovations will mean a bigger sale price on your home, while others will just cost you.
  5. Investing

    How to Ballast a Portfolio with Bonds

    If January and early February performance is any guide, there’s a new normal in financial markets today: Heightened volatility.
  6. Mutual Funds & ETFs

    5 Vanguard Fixed Income Fund Underperformers

    Learn about three Vanguard fixed income mutual funds that underperform compared to their benchmark indexes. Find out why low expense ratios are important.
  7. Mutual Funds & ETFs

    Top 3 Allianz Funds for Retirement Diversification in 2016

    Discover the top three Allianz funds for retirement diversification in 2016, with a summary of the portfolio's managers, performance and risk measures.
  8. Mutual Funds & ETFs

    3 PIMCO Funds Rated 5 Stars by Morningstar

    Learn about three fixed income mutual funds managed by Pacific Investment Management Company (PIMCO) that have received five-star overall ratings from Morningstar.
  9. Retirement

    Shopping the New Retirement Products

    There are more options than ever for retirement portfolios these days. Choosing the right product comes down to your needs, time and management style.
  10. Investing

    How Rising Interest Rates Affect Junk Bonds

    We examine the impact of rising interest rates on higher-yielding bonds.
RELATED FAQS
  1. What's the difference between Social Security Disability Insurance (SSDI) and Supplemental ...

    Disabled persons can receive payments through two programs: Social Security Disability Insurance and Supplemental Security ... Read Full Answer >>
  2. Does renters insurance cover personal injuries?

    Renters insurance provides two main forms of coverage – liability and contents insurance – and they are offered together ... Read Full Answer >>
  3. Does renters insurance cover jewelry?

    Renters insurance provides personal property coverage that covers your personal property – including jewelry – in case of ... Read Full Answer >>
  4. Why might landlords require renters insurance?

    Landlords can require renters insurance to lower their own liability and insurance costs. According to data from the Insurance ... Read Full Answer >>
  5. What are the maximum Social Security disability benefits?

    The average Social Security disability benefit amount for a recipient of Social Security Disability Insurance (SSDI) in 2 ... Read Full Answer >>
  6. How do I calculate the future value of an annuity?

    When planning for retirement, it is important to have a good idea of how much income you can rely on each year. There are ... Read Full Answer >>
Hot Definitions
  1. Liquidation Margin

    Liquidation margin refers to the value of all of the equity positions in a margin account. If an investor or trader holds ...
  2. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  3. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  4. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  5. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
Trading Center