A Supply Bond is a type of contract surety bond. Specifically it is used to guarantee a contract for supply of materials. For example, a construction project may require purchase of components that are high-dollar, specialized, and/or critical to completion of the project. A Supply bond could help manage the financial risk of not getting your delivery on time or at all.
Is a Supply Bond Different Than A Payment & Performance Bond?
Unlike a Performance bond, which would include labor exposure and execution of construction, a supply bond guarantees delivery of materials or equipment from point A to point B and receipt on a particular date specified in the contract.
When is a Supply Bond Used?
If you’re building a home, you probably wouldn’t ask the lumber yard down the road for a Supply bond on the lumber delivery. However, we’ve seen some interesting cases such as use of a Supply Bond to guarantee delivery of turbines associated with construction of a hydroelectric dam. You can imagine how critical it was to ensure delivery of this very expensive and critical equipment in a timely manner. Of course there are many applications where a Supply bond can be a solid way to reduce risk.