Supply Bonds

A supply bond is a surety bond that guarantees a supplier will deliver the exact materials a project requires on time, in full, and according to the specifications in the contract. If the supplier fails to deliver, delivers late, or sends materials that don’t meet the agreed standards, the project owner has financial protection.

These bonds matter because construction and manufacturing projects depend heavily on steady material deliveries. A single missing shipment of steel, lumber, or mechanical equipment can bring an entire jobsite to a halt. A supply bond gives owners confidence that the project won’t be derailed by delivery failures or supplier issues.

A supply bond creates a three-party agreement among:

• The supplier (principal)
• The project owner or general contractor (obligee)
• The surety company
   

If the supplier doesn’t fulfill their contract, by failing to deliver materials, delivering the wrong products, or missing deadlines, the project owner can file a claim. When a claim is valid, the surety steps in to cover the cost of replacement materials or hire another supplier to finish the job. Afterward, the supplier must reimburse the surety. 

Public Projects

Required when a supplier provides materials for federal, state, or municipal projects.

• Federal jobs follow the Miller Act, which often requires bonds on contracts over $150,000.
• Most states have Little Miller Acts requiring bonds on public construction contracts.
   

Large Commercial Projects

General contractors often require supply bonds from:

• Steel suppliers
• Lumber/timber suppliers
• Concrete or aggregate producers
• HVAC or mechanical equipment manufacturers
• Electrical material suppliers
• Custom-fabricated items (windows, panels, structural components)
   

Specialty or Long-Lead Materials

Supply bonds are also common when the items must be custom made, expensive, or imported, because delays are more likely.

A supply bond guarantees that the supplier will:

• Deliver materials in the quantity stated in the contract
• Meet the delivery schedule
• Provide materials that match the specifications
• Replace defective or rejected materials
• Avoid unauthorized substitutions
   

These guarantees focus solely on material delivery. Supply bonds don’t cover installation or overall project performance, those fall under performance bonds.

A supply bond is a three-party agreement between:

• The supplier (principal)
• The project owner or general contractor (obligee)
• The surety company
   

If the supplier fails to meet their contractual obligations, such as not delivering materials, delivering incorrect or substandard products, or delivering late, the obligee can file a claim with the surety.

If the claim is valid, the surety compensates the project owner or secures another supplier to provide the materials. The supplier must then reimburse the surety for any losses, which is why avoiding claims is critical.

A supply bond is typically required when a project owner or general contractor wants guarantee-backed assurance that materials will be delivered as promised.

These bonds are required by:

• Public project owners (federal, state, and municipal agencies)
• Private owners or general contractors, depending on the contract terms
   

Suppliers providing large quantities of materials, steel, lumber, concrete, mechanical/electrical components, specialty fabrication, etc. are the most likely to need a supply bond.

The cost of a maintenance bond is based on a percentage of the bond amount, usually between 1% and 10%. The better the contractor’s financial profile, the lower the rate. Factors affecting the cost include:

• Credit and financial strength: Contractors with excellent credit get the best pricing, usually 1% to 3%, while weaker credit results in higher premiums.
• Bond amount: The required bond amount, often a percentage of the project’s contract value, directly impacts the total cost.
• Maintenance period: A longer warranty term means more risk for the surety, which can add small additional premiums.
• Project size and complexity: More complex or higher-risk work can lead to slightly higher rates.
• Experience and claims history: A contractor with a strong track record and no prior claims is seen as lower risk and typically receives better pricing.
• The surety company itself: Different sureties evaluate risk differently, so rates can vary. Working with reputable, competitive companies helps secure better terms. Lance Surety Bonds works with a number of acclaimed and highly professional sureties. All of them are A-rated and T-listed, which means that any bond issued by them is among the best bonds available in the country.

Example: For a $50,000 maintenance bond, a contractor with solid credit might pay $500 to $1,500.

If the bond is purchased as a stand-alone bond, without a performance bond, small projects may have slightly higher pricing.

Applying for a maintenance bond is a structured process, similar to other contract bonds, but with a focus on ensuring the contractor will stand behind their work after the project is completed. Here’s what applicants need to know:

1. Gather the required information

Have these documents ready for underwriting:

• Personal credit details
• Business and ownership information
• Contractor license (if required by your state)
• The signed project contract
• Project value and the length of the maintenance period
• Work history showing successful, claim-free projects
• Recent business financials (balance sheet, P&L, bank statements)

2. Submit your application

Apply through a licensed surety bond agency such as Lance Surety Bonds using our online application. Include project details so the surety understands what you’re guaranteeing: workmanship, materials, warranty period, and any special obligations.

3. Provide any additional information the surety requests

Because maintenance bonds focus on your past performance, the surety may ask for references, past project details, or clarification about the type of work completed. 

4. Surety underwriting and review

The surety evaluates:

• Your credit history
• Financial strength
• Experience with similar projects
• Claims history (especially warranty issues or callbacks)
   

This helps them determine your eligibility and the bond premium.

5. Sign the General Indemnity Agreement (GIA)

If approved, you’ll sign a GIA. This is a contract saying you’ll reimburse the surety for any losses if they have to pay a claim related to defective workmanship or materials covered by the maintenance bond.

6. Pay the maintenance bond premium

Once the terms are set, pay the premium. Maintenance bond premiums are usually lower than performance or payment bonds because the exposure is limited to the post-completion warranty period.

7. Receive the bond and submit it to the project owner

After payment, the surety issues the maintenance bond. File it with the project owner or contracting agency to meet their warranty requirements.

When a supplier fails to deliver materials on time, provides defective products, or doesn’t fulfill their contract, the project owner or general contractor can file a supply bond claim. Here’s how the process typically works:

1. Notify the Supplier

Start by letting the supplier know about the issue. Give them a reasonable opportunity to deliver missing materials, replace defective items, or correct any mistakes. Always document your communications, emails, certified letters, or written notices, to protect your claim later.

2. Gather Documentation

The stronger your claim, the faster it can be resolved. Collect everything that shows the supplier didn’t meet their obligations, such as:

• The original supply contract and bond form
• Delivery records, shipping confirmations, or packing lists
• Photos or inspection reports of defective or missing materials
• Communication logs with the supplier
• Invoices or proof of payment for the materials
   

3. Identify the Surety

Look at the supply bond to see which surety issued it. Contact the surety to confirm their specific procedures for submitting a claim.

4. Submit a Written Claim

Prepare a written claim describing the problem, missing, late, or defective materials, include key dates and any costs for replacement or corrective actions, and attach supporting documents such as contracts, delivery records, photos, and communications with the supplier. This ensures the surety has the information needed to review and resolve the claim.

5. Cooperate with the Surety

The surety will review your claim and investigate. They may inspect the site, talk to the supplier, or request additional information. Respond promptly to avoid delays.

6. Resolution

Once the surety completes its review, one of three things usually happens:

• The supplier delivers or replaces the materials
• The surety hires another supplier to complete the order
• The surety compensates the project owner for the cost of replacement or corrective work
   

7. If the Claim Is Denied

If the surety denies the claim or it cannot be resolved, you may need to seek legal advice to enforce your rights under the bond.

Supply bond claims are usually filed when a supplier fails to meet their contractual obligations. Common situations include:

• Non-delivery: Materials are not delivered at all or only partially delivered.
• Late delivery: Shipments arrive after the agreed deadlines, delaying the project.
• Defective or substandard materials: Materials fail to meet contract specifications, are damaged, or are otherwise unusable.
• Unauthorized substitutions: The supplier provides materials that do not match the approved specifications.
• Supplier insolvency or abandonment: The supplier goes out of business or stops fulfilling their obligations.
• Documentation or compliance issues: Missing certifications, test reports, or materials that do not comply with building codes or contract requirements.