Supply bonds are important because they help protect against suppliers unable to meet the demands of the development. This is one of the few bonds that directly protects the purchaser of the bond. Supply bonds are typically used in any type of construction project and are only required if specified, although anyone can purchase a supply bond if they choose to.
These bonds cover materials and equipment, but they do not cover any labor. A performance bond would be needed for that. Supply bonds are required on a state-by-state basis, and not every project needs a supply bond. Most projects that exceed $100,000 will require a Supply Bond.
A claim can be made on a supply bond if a supplier fails to fill an order and provide the negotiated materials or equipment based on their purchase order. The bond will make sure the oblige is paid any losses that resulted from the claim.