What is a Minnesota Contract Bond?
The State of Minnesota requires individuals or business entities to furnish this type of bond to ensure faithful completion of a contract in a manner that is approved by the obligee or the owner of the construction project. It is also needed to protect the obligee or compensate the obligee if needed.
This type of bond is also known as a Construction Bond.
Both private and government construction projects require a surety bond. In the case of government construction projects, the federal Miller Act requires that a bond is secured for projects exceeding $100,000.
The 3 important parties of a contract bond are listed below:
Principal – The contractor who will be obtaining the bond from the surety bond company
Obligee – The owner of the construction project to whom the bond is obtained
Surety – The surety bond company who will shoulder the payment to the obligee in case the principal does not fulfill their obligation/s
Types of Contract Bonds
A Contract Bond is further subdivided into different types. The primary contract bonds used in a construction project are as follows:
The surety guarantees the obligee that the principal will fulfill his contractual duties. If the principal fails to do so, the surety will pay the obligee the performance cost’s excess amount.
The surety will assure the obligee that the principal’s construction workers, suppliers, and subcontractors will be paid. In most states, payment bond is referred to as the Little Miller Act.
This is a type of surety bond wherein the surety guarantees the obligee or the construction project owner that the principal will execute the contract awarded to him. In the case of non-compliance or if the principal abandons the project, the surety assures the construction project owner that he will be paid for the difference between the principal’s bid and the lowest amount the contract may be awarded.
Other Types of Contract Bonds
An assurance that the subcontractor will fulfill his contractual obligations to either the prime contractor, the obligee, or both.
A warranty that will cover any defective materials used in the project or substandard workmanship for one year after the project’s completion.
A guarantee that the necessary supplies needed for the construction project will be delivered on time.
What is the Minnesota Contract Bond amount?
Both the amount of the bond and the conditions will depend on the full amount of the contract and the type of bond.
The Bid Bond amount is usually 5% up to 10% of the full contract amount.
Performance bond amount, on the other hand, starts at 2.5%, while a Payment Bond’s minimum amount is 3% of the contract amount.
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How can I obtain a Minnesota Contract Bond?
Firstly, determine the kind of bond that your client requires. Once you have established that, you must submit a bond application.
The second step would be the underwriting process. An underwriter will evaluate pertinent information such as your construction company history, your credit score, and your financial history.
Once completed and satisfied, we will execute the bond and send it to you right away.
Are you ready to get bonded? Apply for this bond today!