When public entities enter into contracts greater than $100,000, they must obtain a performance bond and a payment bond from the contractor. This requirement, with a few exceptions, applies to contracts for “the doing of any public work.”
The performance bond helps ensure that the work will be completed according to the terms of the contract. The payment bond helps ensure that subcontractors, and people who provide labor and materials, are paid.
The bonds must be equal to or greater than the contract price. If the contract price increases after the bonds are provided, the public entity should consider obtaining additional bonds.
The statutes requiring these bonds are contained in the Public Contractors’ Performance and Payment Bond Act found in Minnesota Statutes sections 574.26 to 574.32. For additional information on contractors’ bonds, see our Statement of Position, Contract Change-Orders and Contractor’s Bonds, found at:
Date this Avoiding Pitfall was most recently published: 07/31/2015