Minnesota Construction Bonds

At Surety Bonds Agent, we offer a full range of surety bonds nationwide through an extended carrier network. Continue below to learn more about Minnesota construction bonds.  If you have additional questions or want to explore bonding solutions for your business, speak with one of our knowledgeable surety bond experts.

What Is a Minnesota Construction Bond?

Minnesota construction bonds are designed to protect project owners (public or private)  against financial losses stemming from a contractor’s regulatory or contractual violations. Every construction surety bond requires the contractor purchasing it (known as the bond’s “principal”)  to meet specific legal and contractual obligations and compensate any injured party for monetary damages caused by violations.

What Types of Minnesota Construction Bonds May Be Needed?

Some types of contractors are required to obtain a state license, which may or may not involve purchasing a contractor license bond. Some Minnesota cities and counties have their own licensing or permitting rules, which may entail bonding.

Minnesota’s “Little Miller Act” requires contractors to purchase performance bonds and payment bonds if awarded state-funded construction projects with an estimated value above a certain threshold level. The Little Miller Act does not apply to privately funded construction projects, but it’s not uncommon for private project owners to require performance and payment bonds, particularly for higher value projects. Both public and private project owners (referred to as the “obligee” in their respective construction bond agreements) may choose to require bid bonds for contracts to be awarded through competitive bidding. 

Other construction bonds that may be required by both public and private project owners include:

  • Maintenance bonds
  • Subdivision/site improvement bonds
  • Supply bonds
  • Solar decommissioning bonds
  • Right of Way bonds

How Does a Minnesota Construction Bond Work?

Every Minnesota construction bond involves three parties, the aforementioned obligee and principal, and a third party known as the surety. This is the party acting as the bond’s guarantor. 

The principal bears the full legal obligation to pay claims the surety finds to be valid. To guarantee that those claims are paid, the surety agrees at the time the bond is purchased to extend credit to the principal for the purpose of paying them. 

In practice, the surety will pay a valid claim on the principal’s behalf, essentially lending the funds to the principal. If the principal does not then repay that debt to the surety as agreed, the surety will take leal action to recover the funds.

How Much Does It Cost?

The annual premium for a Minnesota construction bond is the result of multiplying the amount of the bond, which is set by the obligee, and the premium rate the surety assigns to the principal through underwriting.

The surety’s biggest concern is not being repaid for claims paid on the principal’s behalf. That risk is directly related to the principal’s creditworthiness as measured by the individual’s personal credit score.

A principal with a high credit score assumed to present little or no risk to the surety, which results in a low premium rate. A low credit score is evidence of greater risk, which means the premium rate will be higher. 

The premium rate for a principal with good credit usually is in the range of 1% to 3%.

At Surety Bonds Agent, we offer a full range of surety bonds nationwide through an extended carrier network. Continue below to learn more about Minnesota construction bonds. If you have additional questions or want to explore bonding solutions for your business, speak with one of our knowledgeable surety bond experts.

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FREE CONSTRUCTION BOND QUOTE

What Is a Minnesota Construction Bond?

Minnesota construction bonds are designed to protect project owners (public or private) against financial losses stemming from a contractor’s regulatory or contractual violations. Every construction surety bond requires the contractor purchasing it (known as the bond’s “principal”) to meet specific legal and contractual obligations and compensate any injured party for monetary damages caused by violations.

 

Some types of contractors are required to obtain a state license, which may or may not involve purchasing a contractor license bond. Some Minnesota cities and counties have their own licensing or permitting rules, which may entail bonding.

Minnesota’s “Little Miller Act” requires contractors to purchase performance bonds and payment bonds if awarded state-funded construction projects with an estimated value above a certain threshold level. The Little Miller Act does not apply to privately funded construction projects, but it’s not uncommon for private project owners to require performance and payment bonds, particularly for higher value projects. Both public and private project owners (referred to as the “obligee” in their respective construction bond agreements) may choose to require bid bonds for contracts to be awarded through competitive bidding. 

Other construction bonds that may be required by both public and private project owners include:

  • Maintenance bonds
  • Subdivision/site improvement bonds
  • Supply bonds
  • Solar decommissioning bonds
  • Right of Way bonds

Every Minnesota construction bond involves three parties, the aforementioned obligee and principal, and a third party known as the surety. This is the party acting as the bond’s guarantor. 

The principal bears the full legal obligation to pay claims the surety finds to be valid. To guarantee that those claims are paid, the surety agrees at the time the bond is purchased to extend credit to the principal for the purpose of paying them. 

In practice, the surety will pay a valid claim on the principal’s behalf, essentially lending the funds to the principal. If the principal does not then repay that debt to the surety as agreed, the surety will take leal action to recover the funds.

The annual premium for a Minnesota construction bond is the result of multiplying the amount of the bond, which is set by the obligee, and the premium rate the surety assigns to the principal through underwriting.

The surety’s biggest concern is not being repaid for claims paid on the principal’s behalf. That risk is directly related to the principal’s creditworthiness as measured by the individual’s personal credit score.

A principal with a high credit score assumed to present little or no risk to the surety, which results in a low premium rate. A low credit score is evidence of greater risk, which means the premium rate will be higher. 

The premium rate for a principal with good credit usually is in the range of 1% to 3%.

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Request a quote online or call today to speak with one of our surety bond experts about obtaining a Minnesota construction bond.