Supply contractors need to understand supply bonds and know when they need one to successfully manage their business. The following are five important things that all supply contractors need to be aware of regarding how this type of bond works:
There are three major parties in a supply contractor bond agreement.
The three parties involved in a supply bond agreement are the contractor, the client, and the supply bond provider. A supply bond is a surety bond and contract bond that ensures a contractor's client that work or a service will be carried out as described in an initial agreement.
In a supply bond, the bond service provider is helping to ensure that the contractor adequately supplies materials.
The supply bond provider backs the contractor up financially and vouches that they'll hold up their end of the contract agreement with the client. When it comes to supply bonds, the bond provider will have to compensate the client if the contractor fails to provide the necessary building supplies to get the job completed.
Important details when shopping around for the right supply contractor bond include information about the contractor's experience, finances, credit history, and insurance status.
A supply bond provider is going to want to feel confident that any contractors the provider works with show a high likelihood of successfully following through on contracts.
As such, the contractor's history, experience, finances, and credit will all be important considerations in evaluating potential contractors and determining how much those contractors will need to pay for the service of having a bond secure their work.
Better rates on supply bonds are typically offered to contractors with stronger credit histories.
Supply bond providers will typically be more willing to offer the most competitive rates to established contractors who have been around a while and have strong credit histories.
Younger contracting companies may struggle to enjoy these competitive rates, and contractors who are just starting out might find acquiring any supply bond difficult.
Supply contractors whose history or credit makes acquiring a supply bond difficult can take on smaller contracts to build up their credit and experience or to avoid needing supply bonds.
Generally speaking, the larger a construction project, the more important the supply bond is. A smaller project that involves a smaller monetary investment on the part of the client might not require a supply bond at all.
Contractors can initially take on smaller projects to build up a strong history before eventually being able to take full advantage of the security supply bonds offer. Check with some of the local supply contractor bond services for more information.