Minnesota Bid Bonds

  • Home
  • Minnesota Bid Bonds

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 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?

The premium cost of a Minnesota bid bond is the product of multiplying the required bid bond amount by the premium rate. The surety sets the premium rate through an underwriting assessment of the risk to the surety.

The primary risk is not being repaid for claims paid on the principal’s behalf. That risk is measured based on the principal’s personal credit score.

There is an inverse relationship between credit score and risk. A high score means low risk and a low score means higher risk. The premium rate will reflect the risk level—low risk results in a low premium rate, and higher risk demands a higher premium rate.

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

Call Us Today

Our surety bond professionals will help you grow your revenue by maximizing your surety capacity. Call us today!