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When a subdivision, commercial park, or other private development turns public improvements, streets, sidewalks, water and storm-sewer lines, over to the municipality, the job isn't truly “finished.” Most cities and towns require the developer to post a maintenance bond (sometimes called a “warranty bond”) that guarantees those new assets will remain free of construction-related defects for a set period, typically one to two years after final acceptance. (Schmalz & Associates, eCode360)
What a Maintenance Bond Is (and Isn't)
| Bond Type | When Posted | What It Guarantees | Who Draws On It |
|---|---|---|---|
| Performance bond | Before construction begins | Completion of the improvements per approved plans | Municipality if developer fails to finish |
| Maintenance bond | After the municipality issues a certificate of completion or accepts the project | Repair of defects in workmanship, materials, or design that appear during the maintenance period | Municipality if developer doesn't correct defects |
A maintenance bond is a three-party surety agreement: the developer (principal) promises to maintain the work; the surety backs that promise; the municipality (obligee) can demand payment if promises aren't kept. (NFP)
Typical Bond Amounts & Terms
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Duration: Most ordinances require 24 months, though some allow as little as 12 months. (Schmalz & Associates, General Code)
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Bond amount: Commonly 10% - 25% of the final construction cost of the public improvements. (Schmalz & Associates, General Code)
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Effective date: Begins on the date the governing board issues final acceptance or releases the performance bond.
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Coverage: Cost of labor, materials, design or workmanship defects, and any collateral damages the municipality incurs making repairs.
Why Municipalities Require Them
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Protect taxpayers - Ensures new assets won't drain the highway or utility budget immediately after takeover.
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Incentivize quality - Developers have financial skin in the game to build right the first time.
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Reduce litigation - A ready source of funds simplifies defect resolution without lengthy lawsuits. (CivicLive)
The Claim & Release Process
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Routine inspections - Public-works staff inspect assets near the end of the warranty window.
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Notice of defect - Municipality issues written notice; developer typically has 30-60 days to correct.
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Surety involvement - If work isn't done, the town can draw on or “call” the bond for the cost of repairs plus administrative overhead.
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Final release - Once the maintenance period expires and all defects are corrected, the governing board votes to release the bond. Documentation of release should go into the permanent project file.
Best Practices for Local Governments
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Codify standards - Clearly state duration, percentage, inspection schedule, and claim procedures in local code or subdivision regulations.
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Track expirations - Use an asset-management or permitting system to alert staff 60 days before each bond expires.
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Perform seasonal reviews - Inspect once in warm weather and again after a freeze-thaw cycle to expose latent pavement or utility failures.
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Coordinate with finance - Ensure any draw on the bond is booked to the correct capital-repair account and that recovered funds are used only for the bonded improvements.
Tips for Developers & Their Engineers
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Budget early - Sureties often charge 1% - 3% of the bond amount in premium; build it into the pro forma.
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Deliver as-built plans - Accurate records help resolve disputes and speed bond release.
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Maintain a punch-list reserve - Allocating funds and crew time for quick warranty repairs prevents costly bond claims.
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Communicate - Keep the town's inspector in the loop on corrective work and request re-inspection in writing.
Key Takeaways
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A developer maintenance bond transfers post-construction risk from the municipality back to the party who built the improvements.
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Requiring 10% - 25% of construction cost for two years is typical and widely upheld in court.
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Clear local procedures and proactive inspections help both towns and developers move smoothly from project completion to final bond release.
Understanding how maintenance bonds work, and enforcing them consistently, safeguards public infrastructure, protects budgets, and fosters trust between municipalities and the development community.