Supply bonds are basically contract bonds that guarantee that the supplier will furnish supplies or materials in accordance with the contract. Supply bonds are required by the law for a project owner to obtain public construction projects and guarantee that the work will be performed in accordance with the terms and conditions specified in the supply agreement. In the event of a possible default by the supplier, the surety will underwrite the purchaser of the supplies against any loss. There are no special markets or any contract bonds for supply bond.
Supply bonds include bid bonds, performance bonds and payment bonds. Bid bonds are meant “to provide financial assurance that the bid has been submitted in good faith, and that the contractor intends to enter into the contract at the price bid and provide the required performance and payment bonds.”
Performance bonds protect the owner from financial loss if the contractor fails to honor the contractual terms and payment bonds guarantee payment by the contractor to the subcontractors, laborers, and material suppliers associated with the project.