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Supply Bonds

Supply bonds

Supply bonds are a type of contract bond that provide a guarantee that a supplier will deliver the promised materials. A supply bond does not cover any labor costs and is simply used to ensure that the required materials are delivered according to the terms of the contract.

What is a Supply Bond?

A supply bond is a guarantee that a supplier will deliver the materials outlined in a contract. If the supplier fails to deliver the goods then the bond provider will be required to pay for the cost of the missing materials. Supply bonds give financial protection to the purchaser of the materials ensuring that they either receive the goods, or receive financial reimbursement if the goods aren't delivered within the time and quality constraints defined in the contract. Supply contract bonds can be required by state or federal law for some projects.

How does a Supply Bond work?

If a shipment of supplies doesn't arrive on time, in full, up to the required standards for quality, or sufficient according to some other previously-established expectation, the purchaser may file a claim for damages. Even though the supplier is liable for those damages, that party may be unwilling or unable to pay. Since the surety company that issues the bond guarantees payment for valid claims, it ensures that purchasers don't take a financial loss because of the mistakes of their suppliers. Similarly, by forcing suppliers to pay the surety back for any claims it settles, supply bonds force the bonded contractor to be accountable for their actions, which then deters bad behavior. Overall, supply bonds, like all types of surety bonds, work to create trust between parties in the bond agreement and facilitate robust business activity as a result.

What parties are involved with a Supply Bond?

A supply contract bond needs three parties:

  • The surety who will underwrite the surety bond.
  • The obligee who requires that a bond is purchased.
  • The principal who is the supplier of the materials.

Who should get a Supply Bond?

Anyone required to do so to complete a purchase order. Supply surety bonds aren't necessary in all cases, particularly with smaller orders. But they're certainly not uncommon either. Suppliers that need them once typically need them frequently because they work with similar kinds of purchasers, so it's valuable to have a consistent bond partner to work with. It's also important to move quickly to secure a bond as soon as the requirement presents itself to avoid unnecessary obstacles to commerce. Make the bonding process easy while still treating it seriously with the help of Viking Bond Service - a national surety agency with all the resources you require.

How are Supply Bonds Obtained?

To obtain a supply bond you'll need to submit an application to a bonding company. You'll also need to include additional supporting documentation that helps the bonding company gauge the financial stability of your business. You'll be provided with a list of the documents that you'll need to submit. These usually include business financial statements, proof of insurance, a business resume and your own credit score information. You'll then be provided with a quote for the cost of the bond. Once you've signed all of the necessary paperwork and submitted your payment you'll be provided with the supply bond.

How much do Supply Bonds Cost?

The cost of a supply contract bond is not fixed, neither is the bond amount which will be based on the value of the supplies the supplier is under contract to deliver. A surety bond company will use the information you provide in your application to determine what they think is the appropriate bond premium. Bond costs are lower if your business is considered a low risk, in other words the bonding company does not expect to have to pay out on a claim against your bond. Your risk factor is calculated using the financial strength and credit history of your business, and your personal credit score. People with low credit scores are still able to get supply bonds but can expect to pay a higher premium.

How are claims handled for Supply Bonds?

When the obligee files a claim with the surety company, the surety guarantees payment in full up to the amount of the bond. Before paying, however, the surety will conduct an investigation into the details of the claim. In some instances, it's straightforward to establish that supplies didn't arrive as the purchaser intended. But there are also instances where outcomes are less clear and there's serious contention between the principal and obligee. That's why the surety investigates. They may enlist professional investigators, lawyers, or any other specialist necessary to make a definitive ruling on the merits of a claim. As long as everything holds up, the obligee always receives payment from the surety. The final step of the claim is for the principal to pay the surety back, with interest added to the debt along with the cost of the investigation and any other fees.

Get your Supply Bond with Viking Bond Service

Don't let bonding become a burden on your business. Turn it into an asset instead. Viking Bond Service can make it quick, easy, and affordable to obtain a supply surety bond. And with the aid of a bond from a trusted provider like us, you can attract a lot more customers and close more deals with confidence. Speak to one of our bond experts by calling 1-888-278-7389, or submit your questions through the form on this page. You can also request a quote for a supply bond at any time.

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