In the construction world, project completion doesn’t mean everything is done. In fact, the post-project phase, the maintenance period, often carries equally significant potential risks. Many contractors assume that once the work is handed over to the project owner, their responsibility is over. However, damage that occurs after handover can have serious financial and legal consequences. This is where maintenance warranties come in.maintenance bond) plays an important role.
A maintenance bond is a form of financial protection that ensures the contractor remains accountable for the quality of the work during the agreed maintenance period. In the context of government tenders and large private projects, this bond is not only an administrative requirement but also a form of trust that the contractor’s work meets high quality standards and is accountable.accountable). The maintenance guarantee is proof of the contractor’s true commitment to professionalism.
To better understand the benefits and process of managing maintenance guarantees, this article will review the definition, how it works, requirements, and benefits contractors can gain from managing project guarantees. Because risks can arise at any time, it’s crucial to understand the right protection solutions. Therefore, before risks stop your business,Get in touch L&G Insurance Broker now in08118507773 for free consultation before the risk comes.
What Is a Maintenance Guarantee and Why Is It Important for Contractors?
Definition and Duration of Guarantee
Maintenance guarantee is a form of project guarantee given by the contractor to the project owner (obligee). Its function is to cover the repair costs for damage or defects in work found during the maintenance period. The value of this guarantee is usually around 5% of the project contract value and is valid for six months to two years after the project is completed, depending on the contract agreement and the type of project (for example, high-rise building projects often have longer maintenance periods).
Maintenance Guarantee as a Credibility Tool
For contractors, this guarantee is an important tool for building trust with project owners. With a maintenance guarantee, the employer is assured that the contractor has a professional responsibility to repair any damage or deficiencies resulting from negligence or technical errors, without burdening the project owner’s budget.
Further, in the tender process In government projects, this guarantee is a mandatory requirement that must be met by each participant at the handover stage. Without a maintenance guarantee, the handover process and disbursement of retention funds will be hampered, or even the opportunity to win the project tender will be affected.the next one automatically disappears.
The Main Function of Maintenance Assurance in the Project World
1. Guaranteeing the Quality of Work
Main function A maintenance guarantee ensures the contractor is fully responsible for the work even after the project has been handed over. This includes responsibility for the quality of the materials, structure, and functionality of the project within a specified time period.
2. Building Client Trust
Owner Projects will be more confident in working with contractors who have an official guarantee. A maintenance guarantee indicates that the contractor is ready to bear the financial consequences if there are workmanship problems, thus minimizing the risk for owners.
3. Avoiding Legal Disputes
As is maintenance guarantees, resolution of damage or defects can be carried out professionally through a claims mechanism to the guarantee institution (surety), without having to go through a long and expensive legal process between the contractor and owner. This project guarantees to be effective mediation.
4. Maintain Long-Term Business Reputation
Contractors who are able to maintain the quality of their work during the maintenance period tend to be trusted for subsequent projects. A guarantee of orderly and proper maintenance is track record which is highly considered in the evaluation of contractor qualifications.
However, for this guarantee to function optimally, contractors must ensure that the documents and policies used are valid and comply with the Financial Services Authority (OJK) regulations. To ensure this, Contact L&G Insurance Broker now at 08118507773 for free consultation before risk come
Terms and Procedures for Applying for Maintenance Guarantee
Application process/maintenance guarantee is relatively easy if the contractor understands the administrative steps required.
A. Required Document Requirements
To apply maintenance guarantee, contractor must complete two main sets of documents:
- Corporate Legal Documents:
- Company deed of establishment and latest amendments.
- NPWP, SIUP, TDP, and SBU (Business Entity Certificate).
- The most recent financial statements (usually the last 2 years) for accounting purposes/underwriting.
- Project Documents:
- Work Order Letter (SPK) or contact the original project.
- Work Handover Report (PHO) which shows that the project has been completed.
- A tender document that includes the validity period and the value of the maintenance guarantee required.
B. Submission Procedure
- Determining the Value and Validity Period of the Guarantee: Mark maintenance guarantee must be in accordance with the contract (usually 5% of the contract value).
- Choosing an Official Guarantee Issuer: Choose an insurance company or guarantor that is recognized by the government and has an official permit from the OJK.
- Applying Through an Insurance Broker: Brokers play an important role in helping contractors prepare documents, negotiate premiums, and secure guarantees.Trusted. Brokers also speed up the processunderwriting.
With the help of brokers like L&G Insurance Broker, management process guarantee can be done more quickly, efficiently, and legally in accordance with government tender regulations.
Common Mistakes Contractors Make When Managing Maintenance Guarantees
Lots The contractor failed to properly manage the maintenance guarantee due to a lack of understanding of the procedures and considering this project guarantee to bewarm
1. Not Checking the Warranty Expiration Date
A fatal error is whenThe contractor did not ensure that the validity period of the maintenance guarantee corresponded to the maintenance duration agreed upon in the contract. If the validity period of the guarantee is less, the owner reserves the right to reject the guarantee and withhold retention funds.
2. Using an Unacknowledged Guarantor
A number of Contractors are tempted by low prices without checking the guarantor’s legality. As a result, the guarantee documents are rejected by the tender committee or owner. False guarantees or guarantees not registered with the OJK can result in legal sanctions and blacklist.
3. Not Understanding the Contents of the Warranty Limitations
Lots Contractors sign maintenance guarantees without reading the details of the clauses. However, there are limits to the coverage amount, damage reporting periods, and certain conditions that could invalidate a claim.
4. Not Anticipating Financial Risks
Maintenance warranties are often considered merely a formality to disburse the retention. In fact, their primary role is financial protection. If damage occurs during the maintenance period and the warranty has expired, the contractor will bear the entire cost of repairs, which can be draining.cash flow.
To avoid these mistakes, use professional services from L&G Insurance Broker who has experience in handling various project guarantees. throughout Indonesia. Contact L&G Insurance Broker now at 08118507773 for free consultation before risk come
Benefits of Long-Term Maintenance Guarantees for Contractors
Apart from being an obligation in tenders,maintenance guarantees also provide real and ongoing benefits to contractors.
1. Increase Business Credibility and Reputation
Contractors with active warranties demonstrate high professionalism in the eyes of clients. This is invaluable trust capital for long-term business. long.
2. Simplify the Next Tender Process
Good project guarantees, especially maintenance guarantees, are often a plus in the selection of new project administration contractors.considered to be low risk and more responsible.
3. Protecting Company Cash Flow
Maintenance warranties help contractors avoid the burden of unexpected costs resulting from post-project damage claims.only pay a relatively small premium, while the large repair costs are shifted to surety.
4. Evidence of Regulatory Compliance
Especially forFor government projects, maintenance guarantees serve as evidence of contractor compliance with strict project guarantee regulations. This compliance is key to winning future projects.
In this way, maintenance guarantees are not just an administrative obligation, but also a long-term investment to maintain business sustainability and ensure contractors can focus on quality workmanship.
Fatal Risks If Contractors Do Not Have Maintenance Guarantees
Ignoring maintenance guarantees can pose a major risk to contractors, exceeding the cost of repairs alone.
1. Direct Financial Loss
The contractor is obligated to bear all repair costs if damage occurs after the project. These costs can be very high for a project.infrastructure or large buildings.
2. Sanction of Withholding of Retention Funds
Without a valid maintenance guarantee, the owner will withhold the contractor’s retention funds (usually 5% of the contract) until the maintenance period has completely ended. This can be a disruptive cash flow contractor.
3. Failed in the Next Tender Process
Projectthe government usually only trustsContractors with a complete and valid project guarantee record. Without a maintenance guarantee, the chances of winning the tender are drastically reduced.
4. Lawsuits and Business Reputation at Risk
Clients will hesitate to give new projects if the contractor cannot provide valid collateral and has a history of post-project claim denials. One problematic project can tarnish a company’s reputation for life.
The Role of Insurance Brokers in Managing Maintenance Guarantees
Insurance brokers have a strategic role in helping contractors receive a guarantee of legitimate, efficient and appropriate maintenance.
Key Benefits of Using an Insurance Broker
- Access to Official Publishers: Brokers have extensive networks of government-recognized insurance companies and guarantors, thus minimizing risk.guarantee false.
- Negotiate Premiums and Terms: With extensive experience in the field, project guarantees, brokers can help contractors obtain competitive premium rates and even more favorable clauses.
- Legal certainty:All maintenance guarantees issued through brokers have been adjusted and verified for compliance with tender regulations.
- Claim Process Assistance: In the event of a claim, the broker ensures that the resolution is fast, fair and the contractor receives compensation according to their rights.
As one of the trusted brokers,L&G Insurance Broker has experience in handling various project guarantees, including maintenance guarantees for government tenders and projects.private sector. For further information, Contact L&G Insurance Broker now at 08118507773 for free consultation before risk come
Conclusion
A maintenance guarantee is more than just a formality, but a crucial component in ensuring the quality, credibility, and sustainability of a contractor’s business. By understanding how this guarantee works, its terms, and its benefits, contractors can minimize financial risk, avoid disputes, and increase their chances of winning future projects.
However, to ensure the entire process runs smoothly and legally, assistance from a professional insurance broker is highly recommended. L&G Insurance Broker, located in South Tangerang, is ready to assist contractors with all their project insurance needs quickly, legally, and reliably. Therefore, don’t wait until risk comes to a screeching halt to your business.
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