In this article we will review the requirements you need to obtain a contractor’s license in the state of Minnesota.
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What Contractor Licenses Are Issued in Minnesota?
The contractor licenses issued at the state level in Minnesota are primarily for specialty contractors, such as plumbing, electrical, mechanical, and roofing contractors. There is no specific general contractor license in Minnesota. However, residential building contractors or remodelers providing construction or improvement services to homeowners must be licensed if they perform more than one special skill, such as interior drywall work and exterior painting.
A contractor performing only one specific type of work for homeowners does not need a license but must register with the Department of Labor and Industry. In fact, all individuals and businesses engaged in commercial or residential building or improvement must register with DLI.
To complicate matters, some counties and municipalities have their own local licensing or registration requirements that must be met in addition to applicable state-level requirements.
Registration is not the same as licensing. If you are a registered contractor, you cannot represent yourself to potential clients as a licensed contractor, and you cannot enter into a contract to do any kind of construction or remodeling work.
What Are the Steps in the Licensing Process?
The licensing process varies depending on the contractor’s specialty. There are different requirements for different trades. Typically, candidates for licensure must pass an exam to prove proficiency in their specific trade. They must also provide information about their business and, in many cases, purchase a contractor license bond.
Why is a Contractor License Bond Required?
A contractor license bond serves as a contractor’s pledge to abide by all applicable state or local laws or ordinances governing the particular type of construction services the contractor provides. The bond is a legally binding contract involving three parties referred to as the “obligee” (the state or local licensing body), the “principal” (the contractor), and the “surety” (the bond’s guarantor).
If the principal violates the terms of the surety bond agreement, the obligee or other injured party can file a claim against the bond to recover financial damages.
How Are Contractor License Bond Claims Paid?
The surety bond agreement legally obligates the principal to pay any claim that the surety deems valid. However, as the bond’s guarantor, the surety typically will pay a claim initially and then collect repayment from the principal. If the principal does not repay that debt to the surety, the surety can take legal action to recover the amount paid to the claimant on behalf of the principal.
How Much Does a Minnesota Contractor License Bond Cost?
The annual premium for any Minnesota contractor license bond is the product of multiplying the required bond amount by the premium rate. The state of Minnesota has established the required bond amount for each type of contractor license bond. Local licensing authorities have done the same for the bonds required for contractor licenses issued within their jurisdiction. The premium rate for a contractor license bond is set by the bond’s surety on a case-by-case basis.
The surety’s main concern in setting the premium rate is the risk of not being repaid by the principal for claims paid on the principal’s behalf. The underwriters assess that risk based in large part on the principal’s personal credit score. The higher the credit score, the lower the risk of non-repayment, and the lower the premium rate.
A creditworthy principal typically will pay a premium rate in the standard market rate range of 1% to 2%. For a credit-challenged principal, the premium rate could be as high as 3%.
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