Supply Bonds
A Supply Bond is a type of contract surety bond that guarantees a supplier will deliver materials, equipment, or goods exactly as required under a purchase agreement. If the supplier fails to deliver on time, provides defective materials, or defaults on the contract, the bond protects the purchaser by covering the cost of securing a replacement supplier. Unlike a Performance Bond, which covers labor and project completion, a supply bond applies strictly to the delivery of goods. Supply bonds are commonly required for federal government contracts under the Miller Act, state and local public projects, and large private procurement agreements to protect against supply chain disruptions.
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Why You Need a Supply Bond
A Supply Bond is often required to secure large purchase orders, especially for government contracts and public works projects. Under laws like the federal Miller Act or state-level “Little Miller Acts,” government agencies must protect taxpayer funds against supplier defaults.
For manufacturers, distributors, and equipment suppliers, a supply bond also acts as a stamp of credibility. It assures the purchaser (Obligee) that if you fail to deliver goods on time, provide defective materials, or miss the agreed-upon price, the surety company will cover the cost of sourcing replacement supplies.
Without a supply bond, purchasers face supply chain disruptions, financial risk, and price volatility if a supplier encounters production delays, bankruptcy, or other issues. Having a bond not only meets contractual requirements—it also builds trust and strengthens your business reputation with clients.
Supply Bond FAQs
These are some of the most common questions asked about Supply Bonds and how they work.
An intrastate movers bond is a type of surety bond required by state government agencies for moving companies that transport household goods entirely within the borders of a single state. Unlike interstate movers, who are regulated federally, local movers must comply with state-specific laws. This bond serves as a financial guarantee that the moving company will adhere to state regulations, charge honest rates, and fulfill their contractual obligations to the customer. If a mover commits fraud, damages property, or fails to complete the job as agreed, the consumer can file a claim against the bond for compensation. It is a critical licensing requirement in states like Florida and California to ensure ethical business practices in the local moving industry.
The cost of a Supply Bond is typically a one-time premium ranging from 1% to 3% of the total contract value (the bond amount). For example, if you are supplying $100,000 worth of materials to a job site, your premium would likely fall between $1,000 and $3,000. Because this is a type of contract bond, the rate is heavily influenced by the Principal’s(supplier’s) credit score, financial strength, and the specific nature of the goods being manufactured. Standard "off-the-shelf" materials generally command lower rates than custom-fabricated equipment, which carries a higher risk of production failure.
A Supply Bond is a three-party contract that guarantees the delivery of materials. The Principal (you, the supplier) signs the bond to promise the Obligee (the project owner or general contractor) that goods will be delivered according to the purchase order’s specifications. If you fail to deliver the materials on time, or if they are defective, the Obligee can file a claim against the bond. The surety company will then pay the Obligee the difference in cost to buy the materials from a new vendor (up to the bond amount). Crucially, under the indemnity agreement, you must reimburse the surety for all claims and legal fees paid out.
Supply Bonds are most frequently required for manufacturers and distributors bidding on government contracts or large public works projects. Under the federal Miller Act (and state equivalents like Florida’s Little Miller Act), general contractors must often secure bonds for their material suppliers to protect public funds. Additionally, private sector General Contractors may require these bonds from their vendors on critical-path items - such as structural steel or custom HVAC units - where a delivery delay could freeze the entire construction schedule and cost millions in liquidated damages.
To get a Supply Bond, you must submit a copy of your supply contract or purchase order to a surety agency, along with your business financial statements. For smaller contracts (under $250,000), a simple credit check is often sufficient; larger contracts require a full underwriting review of your company’s liquidity and production capacity. Unlike license bonds, Supply Bonds are typically "term bonds," meaning they are tied to a specific project and do not renew annually. They remain active until the goods are delivered and accepted. However, if you have a multi-year indefinite delivery contract, you may need to pay an annual renewal premium or file a Continuation Certificate to keep the bond in force.