Minnesota Construction Bonds

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Surety Bond Professionals is a family owned and operated bonding agency with over 30 years of experience. With access to a broad range of surety markets, our expert agents are ready to assist with all of your construction bond needs.

 

What Are Minnesota Construction Bonds?

Minnesota construction bonds are surety bonds that help ensure that contractors working in Minnesota operate lawfully and ethically. This protects the state, project owners, and the public against financial losses due to contractors’ regulatory and contractual violations. When covered losses occur, the injured party can file a claim for monetary damages against the applicable construction bond.

What Minnesota Construction Bonds May Be Needed?

Some commonly required construction bonds in Minnesota are:

  • Bid bonds
  • Performance bonds
  • Payment bonds

Contractor license bonds may be required by the Minnesota Department of Industry and Labor and by local contractor licensing bodies.

Other Minnesota construction bonds that project owners may require include:

  • Maintenance bonds
  • Subdivision improvement bonds
  • Solar decommissioning bonds
  • Right of Way bonds, and more

How Do Minnesota Construction Bonds Work?

Minnesota construction bonds are legally binding contracts between three parties known as the obligee, the principal, and the surety.

  • The party requiring the contractor to furnish the bond is the “obligee,”
  • The contractor purchasing the bond is the “principal,” and
  • The bond’s guarantor is the “surety.”

The principal is legally obligated to pay any claim the surety’s investigation finds to be valid. But the surety has agreed to extend credit to the principal if that is what it takes to pay a claim, and the surety will pay the claim initially as a loan to the principal. The surety can sue a principal that does not repay the resulting debt to recover the funds.

How Much Do They Cost?

The annual premium cost for a construction bond is calculated by multiplying the required bond amount established by the obligee by the premium rate set by the surety through an underwriting assessment of the risk to the surety. The primary risk is that the surety won’t be repaid for claims paid on the principal’s behalf. The key metric used is the principal’s personal credit score. The higher the credit score, the lower the risk, and the lower the premium rate will be. A low credit score means the risk is greater, and the premium rate will be higher.

A well-qualified principal typically will be assigned a premium rate in the range of .5% to 3%.

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