Supply Bond

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A supply bond, in simple terms, is similar to an insurance policy ensuring that the proper supplies, materials or equipment is delivered to complete a job on time so that a project can be completed within budget and to the proper specifications. What that means is that a surety firm ensures that the company that is the supplier for a particular project has the means to provide the required materials to the contractor on time as specified in the contract.

In the case of a supply bond, the supplier becomes the principal, or the company to purchase the supply bond, rather than the contractor, which is the typical bond purchasing situation and the contractor would become the oblige in this limited circumstance. There are many ways that a supplier could default, one way would be by either providing substandard materials, defective supplies or faulty equipment, another would be by providing not damaged, but pristine just short of immaculate items in a time frame far outside of that set forth in the contract. Worst case scenario, whether by accident or design, meaning that whether the company is or is not at fault, the supplies or equipment does not arrive at all and then the surety firm does have options available to ensure that the project can still continue as planned.

Some of the possible remedies may include covering the cost of having to replace supplies that were not up to contractual standards from a different supplier at a higher rate or having to locate an entirely new supplier or possibly equipment rental or purchase if need be if this was also a part of the previous contract.