Construction & Contractors/Performance bond and warranty bond
I want to know about performance bond and warranty bond.
First, bond rate of each bond securing for warranty period is the same?
Second, when the performance bond ends and the warranty bond starts?
Lastly, is it normal that the warranty covers after the FAC?
Dear Mr.Dong Woo,
In general ,there is a fundamental difference between performance bond and warranty bond in construction contracts.It is all depending on the Form of Contract what you are using in your project.Performance bond is functionally using as a warranty of the construction for workmanship and performance of the construction project till completion of the project.Performance bond is providing by contractors to owners at the time of award of contract before commencement of the work.
Warranty bond are providing by Contractors to Owners after completion of the project(after receipt of Psychical Completion Certificate) and validated till the completion of Defects Liability Period as mentioned in Contract.
Now,we come into your question:
Your Question:First, bond rate of each bond securing for warranty period is the same?
Answer: The bond rates shall be different and it is not be same in many cases.
In general,the bid bond is adjusted into Performance bond after award of the work and the remaining value to be provided by Contractor if required.Likewise,the Contractor can adjust the performance bond into warranty bond.
Your Question: Second, when the performance bond ends and the warranty bond starts?
Answer:Normally Performance bond ends at issuance of Final Completion certificate and warranty bonds starts from the day one of Defects Liability Period and completes till the end of defects liability period.
Your Question:Lastly, is it normal that the warranty covers after the FAC?
Answer: Yes.In many countries as per local law you have to oblige.
For Design warranty and latent defect liability,you have to check with the origin of the project(country)and the local law is applicable for the main contractor's obligations.
In some countries,even after the completion of the defect liability period the main contractor is responsible for latent defect liability and binding with their contract till the period of latent defect liability(10 to 15 years).
I hope it is useful for you.Please do not hesitate to ask any further questions in this regards.