A supply bond, also referred to as a material supply bond is essentially a performance bond except rather than guaranteeing completion of a particular project or perhaps guaranteeing ongoing upkeep of a completed project (maintenance bond), the obligation is for the supplier to fulfill a materials procurement agreement at the price offered for the term of the agreement. Although the supply bond is not required under statutes such as the Heard or the Miller, the surety bond provides benefits to several interested parties.
The recipient (purchaser) or beneficiary of a supply contract requires a bond for several reasons. The first and likely most important is that the purchaser can mitigate his or her risk of a significant increase in supply costs during the term of the contract. The supplier generally offers a fixed price bid for the length of the agreement thereby "locking the supplier in" to the stated price regardless of fluctuations in market prices. Secondarily, the supply bond guarantees that the supplier will provide an uninterrupted flow of materials regardless of what steps that the supplier must take to ensure it.
A supplier benefits from supply bond requirements by gaining access to often lucrative jobs that are unobtainable by contractors that cannot qualify for surety bonding. Surety bond capacity makes contractors more competitive. Contractors working under a supply contract are often in a better position to negotiate discounted material pricing which not only benefits the suppliers "bottom line" on the bonded agreement but also with regards to other work on hand which may require goods from the same materialsmen.
Where supply contracts provide materials for a public good, the public enjoys reduced costs due to the volatility of materials pricing, albeit indirectly by way of reduced tax burden. Food supplies to public schools, janitorial supplies to public entities and the paper that every local, state and federal agency demands are good examples of the importance of materials procurement that directly affect the taxpayer.
Would you like to know more about contract surety bonds? We recommend two excellent publications on the topic. Visit PerformanceBond.com, and click on "Learn". Call us at (800) 373-2804, email Underwriting@SuretyOne.com or click here to chat with an underwriter. Surety bond leader, Surety One, Inc. is an experienced underwriter of supply bonds. We provide unmatched support of your surety bond need based on our knowledge about the industry and our focus on our personal relationship with suppliers. We facilitate expeditious review and response to your bond request.
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