What is a Warranty Bond?

by Michael Hinckley; Updated September 26, 2017

Adding on to a new or existing home is often a risk. Plumbing, electricity and even general contracting are expensive undertakings and there is a chance that things may go very wrong if they are done improperly. Understanding what a warranty bond is and how it can protect you and your major investment is an important factor in deciding upon a contractor to work on your property.

Function

A warranty bond ensures that the work done by a contractor is not only to your satisfaction, but adheres to all state and local codes for the work done. Warranty bonds are usually administered by the state in which a contractor operates. Most reputable contractors will advertise their "licensed and bonded" status.

Benefits

The benefit of a warranty bond is to repay money invested if the work can not be done within the specified time, or if the company or contractor goes bankrupt. For example, if a bonded plumber's business goes bankrupt while installing plumbing on several houses, the warranty bond repays the money that was invested in a project if it is not completed yet.

Considerations

Most warranty bonded services are somewhat more pricey than non-bonded work, particularly because the workmanship is guaranteed. Some contractors may opt to go with unb-onded sub-contractors, especially in large construction projects, but run the risk of the sub-contractor under performing or disappearing with the money paid up-front.

Time Frame

Typically, the lifespan of a warranty bond is one year from the completion of the work. For homeowners and contractors who hire a bonded workman, this means that they can rely on the contractor to fix any problems that arise without having to pay for additional supplies or labor. Beyond a year, however, it is up to the workman to decide how to handle any needed repairs.

Misconceptions

A warranty bond is no guarantee of flawless performance or trouble-free operation, but merely an insurance policy against it. Typically, as long as the bonded workman continues to repair any problems for the specified period of time, the homeowner or contractor who hired him or her has no legal recourse unless they can prove gross negligence or fraud in the execution of the work.

About the Author

Michael Hinckley received a Bachelor of Arts degree in US history from the University of Cincinnati, a Master of Arts degree in Middle East history from the University of California at Santa Barbara. Hinckley is conversant in Arabic, and is a part-time lecturer at two Midwestern universities.