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Supply Bonds for Supplies and Materials in Construction.

Interested In Supply Bonds? Here Is What You Need To Know


As you likely already know, Canada’s construction industry is currently experiencing a massive boom. Numerous companies are eager to seize the moment and begin profiting enormously from the increasing demand. In order for a construction project to be brought to a successful conclusion, a handful of companies, contractors and subcontractors need to cooperate closely with one another. Suppliers are essential and provide the purchaser or project owner with the materials needed to successfully complete the job.


If you wish to purchase from a supplier or are a supplier yourself, it is pertinent to learn about supply bonds. These will be explored in greater depth below.



Performance Bond


A performance bond is a security guarantee that a contractor will perform according to the guidelines written in the contract. Construction Supply bond canadaTypically these bonds are written to cover only half of the full amount of the contract, but it is not unusual for a surety to issue them for the full amount of the contract. It is important to note that the performance bond is almost always utilized in conjunction with the supply bond.


If the performance bond is for 50% of the contract amount, the supply bond will cover the other half, which is often the cost of the materials and supplies. These two bonds work together better than they would alone. Supply bonds can also be issued for 100% of the contract amount.





As with other types of surety bonds, three parties are involved in a supply bond scenario. Below, you’ll learn about the three parties, which will be covered by the bond.


  • Surety – The surety is the company, which provides the principal with backup. They’ll pay a portion of the surety cost and will hold the principal responsible in the event that they fail to live up to their end of the contract.

  • Principal – In the supply bond arrangement, the principal is the supplier. The principal is the one that is required to fulfill their end of the arrangement. Their livelihood and profits are at stake and both could be put into jeopardy, if they fail to satisfy the obligee.

  • Obligee – The obligee is the group, company or individual, who is purchasing the materials from the supplier. The bond protects this group in the event that the supplier fails to provide the materials, which are needed.


The bond is capable of providing the obligee with reassurance that they’ll be reimbursed, if the supplier fails to deliver the needed materials and supplies.



Why Is It Needed?


Generally, the requirement for surety bonds is put in place to protect one group or another. In regards to a supply bond, the purchaser is protected and will be reimbursed, if the supplier is unable to fulfill the terms set forth in the contract. The amount reimbursed will depend on the amount of the bond issued. Usually, the bond is a necessity for larger public sector projects. If the supply bond weren’t a requirement, it would be possible for anyone to enter into a contract with a purchaser only to back out and run off with the money in the future.


Therefore, the bond is set in place to try and prevent problems, before they even occur.



Meeting the Deadline


If you are familiar with contractual building processes and working in a team to complete a building project, you should know the importance of a surety bond. While, many project owners, contractors, subcontractors, and suppliers know exactly what a supply bond covers, they may not understand the role they play in meet the deadline. If a performance and supply bond is in place and a supplier defaults on the obligations of the contract, there is a better chance of resolution, without halting or delaying the finish deadline.



Filing a Claim


Primary bonded contractors will often hire a subcontractor or supplier to fulfill the needs of building materials and etc. If at any time, the supplier does not comply with the contract, the contractor can file a claim against the bond. There is an expiration date on supply bonds, which means that claimant must complete the process within this time frame, in order for the claim to be valid. You will have up to 120 after the last day of working on the development project, since this is the date of expiration. Of course, you should never wait until the last day to file the claim, because anything can happen to delay the process, eliminating the opportunity to receive a payout.



Documents That Can Be Helpful


When attempting to file a claim on a supply bond, it is essential to backup your claim with documentation. Below, you’ll find documents, which may prove to be helpful.


  • A copy of the original contract

  • Information regarding any change orders issued on the contract

  • Copies of invoices or progress billings

  • A summary of all submitted payments and dates for each

  • Proof the last date, which material was provided to the purchaser

By showing the surety that you’ve remained loyal to the original contract, you’ll be able to avoid bond forfeiture.


Understanding Supply Bond Costs & Turn around times


If you’re even somewhat familiar with surety bonds, you’ll know instantly that the costs can vary substantially. This is especially true, when it comes to supply bonds. There are a handful of variables, which will play a role in figuring up the overall cost. The size of the contract and your surety company of choice are both vital. Your personal credit score will also prove to be enormously impactful. Although there is no universal fee, the generalized rates tend to range from $1.50 to $10 per $1,000 of the overall contract price.


As per this Surety Bond turn around times, that ranges between 3 to 48 hours. If all documents required are presented to the broker in time, the bond can be issed within the same day.





Bonds can be incredibly effective tools for guaranteeing that construction contracts are honored. Of course, in order for suppliers and purchasers to benefit to the fullest, both parties need to better familiarize themselves with the functionality, maintenance and proper use of the supply bond. Whether you’re a supplier or developer, you should utilize the bond and abide by the original contract, in order to prevent future problems and to ensure your business remains out of a potentially devastating dilemma.