What Are Supply Bonds?
Supply bonds provide security to the project owner, or “obligee”, that certain materials will be delivered by the supplier or “principal”, according to the terms of the contract. Should the supplier default, the surety will underwrite the purchaser of the supplies against any loss. The conditions of supply bonds are similar to performance bonds except that the obligation is for supplies only.
Supply bonds may include extended warranty or maintenance conditions and may often be for extended periods of time. Contracts for these longer periods require unique underwriting; therefore, on larger and longer contracts where delivery, warranty efficiency and delay penalties are more demanding, the help of a surety expert is critical.
In addition – many supply contracts involve foreign buyers who want assurance that Canadian suppliers can deliver. If the product has unique qualities that no other supplier can duplicate – the surety requirements will be more demanding since it will be more difficult to negotiate alternative suppliers in the event of a default.
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