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Supply Bond

Your Guide to Supply Bonds

What is a supply bond? A supply bond is one of many contract bonds that ensures a supplier will produce the supplies or materials specified in the contract. If the supplier were to default, the bond protects the purchaser from any losses.

What is a supply bond needed for? During the course of a typical construction or renovation project, nearly every party will be involved with some type of construction surety bond. A supply bond would be necessary for the process of obtaining supplies for a project.

Although the bond covers incidentals involving materials it does not cover any type of labor. In the case of ensuring labor coverage, a performance bond would be appropriate. If there is a claim on the bond due to contractual breach, the obligee, protected party, files a claim on the bond. If the claim is found to be valid, the surety that issued the bond will make sure the wronged party is compensated for their loss.

How Much is a Supply Bond?

Supply bond costs will vary depending on a number of details including who the applicant is, the bond amount, and the bond type. Likewise, not all public work projects actually require a supply bond. Every state has its own requirements, while federal projects typically require a supply bond when it exceeds $100,000. Contact a surety specialist to get more information on your bond today.

Learn More About Surety Bonds in Construction

The Federal Miller Act mandates the use of contract surety bonds for all public construction projects that exceed $100,000. However, some laws at the state, county and city levels mandate their use on public projects that cost much less. Although they aren’t required by law, many private project owners also require contractors to provide contract bonds. As their name suggests, each contract bond binds three entities together in a legally binding contract.

  1. The principal is the contractor who purchases the bond to guarantee performance quality.
  2. The obligee is the government agency or another project owner that requires the bond.
  3. The surety is the underwriter that issues the bond, thus guaranteeing the owner the successful performance of the contractor.

Since this process brings a neutral third party - a surety - in to execute the agreement, it reassures those involved with any project, particularly large and expensive developments, that the contract bond insures rightful compensation.