Minnesota Bid Bonds

Minnesota Bid Bonds

Surety Bond Professionals is a family owned and operated bonding agency with over 75 years of experience. With access to a broad range of surety markets, our expert agents are ready to assist with all of your bid bond needs.

What Are Minnesota Bid Bonds?

A Minnesota bid bond is a guarantee from a contractor bidding on a construction job that:

  • the bid amount is accurate,
  • the contractor can and will purchase any performance and payment bonds required for the job, and
  • the contractor will accept the job if chosen as the winning bidder.

If a contractor violates the terms of a bid bond, causing the project owner financial harm, the bond provides a way for the project owner to recover monetary damages.

Another benefit of requiring bid bonds is that they have been shown to help prevent frivolous bids.

Who Needs Them?

Minnesota does not routinely require bid bonds, but some public works project owners may require them as a condition for bidding on certain government-funded construction jobs. And private entities putting large construction projects out for competitive bidding increasingly require bid bonds.

The typical bid bond amount is 5 to 10% of the total bid price.

How Do Minnesota Bid Bonds Work?

In the jargon of surety bonds, the three parties to a Minnesota bid bond are known as:

  • the obligee – the project owner requiring the bond,
  • the principal – the contractor purchasing the bond, and
  • the surety – the party guaranteeing the bond.

Although the legal obligation to pay a valid claim belongs exclusively to the principal, the surety has guaranteed that it will be paid. Consequently, the surety will pay the claimant directly, drawing against a line of credit established for the principal when the bond was purchased. The principal’s obligation then shifts to an obligation to repay the debt now owed to the surety. The surety can take legal action to recover the debt from a principal who fails to repay it according to the surety’s terms.

How Much Do They Cost?

In Minnesota, the obligee, who is the project owner, plays a pivotal role in determining the required bond amount for bid bonds. This typically amounts to 5% or 10% of the total bid for the project. At Surety Bond Professionals, we provide bid bonds at no cost to contractors. These bonds are issued with the understanding that if the contract is awarded to the contractor, they will proceed to secure Performance and Payment (P&P) bonds through our surety to move forward with the project.

The underwriting process for Minnesota varies depending on the size and complexity of the project. For smaller contracts and enterprises, the primary consideration is the contractor's personal credit history. However, for larger and more intricate projects, our underwriters conduct a more thorough evaluation. This evaluation encompasses factors like:

  • the project's location, 
  • the contractor's financial stability, 
  • and their overall creditworthiness.

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