Supply Bond Basics
The Associate General Contractors of America project that half of all construction firms will be out of business in less than a decade for one reason or another. Jacksonville construction lawyers understand the increased risk of companies failing and contracts falling through and strive to keep you informed of the options you have to protect your construction business. Surety bonds are a great security measure utilized in contract processes.
What’s A Supply Bond?
Surety bonds are an important component of the contract process because they provide insurance protection for construction projects in case a project is left incomplete due to unmet contractual obligations.
A supply bond is an inexpensive surety bond required by federal law for projects over $100,000, and is established and obtained by contractors during the initial contract negotiation phase of a project. It’s an assurance that critical supplies and materials will be delivered and utilized as obligated in the contract agreement.
Who Supplies the Supply Bond?
Contractors must obtain their surety bond from a surety bond company who, upon the evaluation of the contractor’s credit and financial portfolio, will approve the supply bond. The supply bond is an agreement between three parties: the contractor, the owner, and the surety bond company that acts as a go-between. The surety bond promises the contractor will perform and protects the owner should the contract not fulfill his contractual obligation.
If material and supplies aren’t provided by the supplier as agreed in the contract, the supply bond is used to either find a replacement to complete the project or to compensate the supply purchaser for the loss.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.