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Office of the Revisor of Statutes

Key: (1) language to be deleted (2) new language

                            CHAPTER 419-S.F.No. 1692 
                  An act relating to contracts; creating the public 
                  contractors' performance and payment bond act by 
                  amending existing provisions; amending Minnesota 
                  Statutes 1992, sections 574.26; 574.261; 574.262, 
                  subdivision 1; 574.263, subdivision 3, and by adding a 
                  subdivision; 574.264; 574.27; 574.28; 574.29; 574.30; 
                  574.31; and 574.32. 
        BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
           Section 1.  Minnesota Statutes 1992, section 574.26, is 
        amended to read: 
           574.26 [CONTRACTORS' BONDS FOR PUBLIC WORK.] 
           Subdivision 1.  [CITATION.] (a) Sections 574.26 to 574.32 
        are the "public contractors' performance and payment bond act," 
        within those sections referred to as "the act." 
           (b) For the purposes of the act, (1) "public body" means 
        the state, municipal corporation, school district, or other 
        public board or body; and (2) "labor and materials" means work, 
        skill, tools, machinery, materials, insurance premiums, 
        equipment or supplies, or taxes incurred under section 290.02 or 
        chapter 297A; and (3) "contract" means a contract with a public 
        body for the doing of public work. 
           Subd. 2.  [TERMS.] Except as provided in sections 574.263 
        and 574.264 or if the amount of the contract is $10,000 or less, 
        a contract with the state, or with any municipal corporation or 
        other public board or body thereof, a public body for the doing 
        of any public work, is not valid unless the contractor shall 
        give gives (1) a performance bond to the state or other public 
        body contracted with whom the contractor entered into the 
        contract, for the use and benefit of the obligee, the state and 
        public body to complete the contract according to its terms, and 
        conditioned on saving the public body harmless from all costs 
        and charges that may accrue on account of completing the 
        specified work, and (2) a payment bond for the use and benefit 
        of all persons doing work or furnishing skill, tools, machinery, 
        or materials or insurance premiums or equipment or supplies for 
        any camp maintained for the feeding or keeping of workers and 
        animals labor and materials engaged under, or for the purpose 
        of, such to perform the contract, conditioned for the payment, 
        as they become due, of all just claims for such work, tools, 
        machinery, skill, materials, insurance premiums, equipment, 
        taxes incurred under section 290.92 or chapter 297A, and 
        supplies for the completion of the contract in accordance with 
        its terms, for saving the obligee harmless from all costs and 
        charges that may accrue on account of the doing of the work 
        specified, and for the enforcing of the terms of the bond the 
        labor and materials.  Reasonable attorneys' fees, costs, and 
        disbursements may be awarded in an action to enforce claims 
        under the act if the action is brought on the bond, including 
        reasonable attorney's fees, in any case where such action is 
        successfully maintained and for the compliance with the laws 
        appertaining thereto or successfully appealed. 
           Subd. 3.  [PENALTY.] The penalty of such bond shall be each 
        bond must not be less than the contract price, and if after the 
        giving of the bond the contract price should for any reason 
        be is increased, for any reason, the obligee public body may 
        require an additional bond bonds, the penalty penalties of 
        which shall be not less than the amount of such the increase, 
        and if such the additional bond be bonds are not furnished 
        within ten days after such demand, the work on the contract 
        shall cease until such the additional bond shall have been bonds 
        are furnished.  In contracts made by the commissioner of 
        administration or the department of transportation of the state, 
        the penalty of the bond shall be in such amount as the 
        commissioner of administration or the commissioner of 
        transportation, respectively, may fix the amount of the bond 
        penalty, but at not less than three-quarters of the contract 
        price. 
           Sec. 2.  Minnesota Statutes 1992, section 574.261, is 
        amended to read: 
           574.261 [SECURITY IN LIEU PLACE OF BOND.] 
           Subdivision 1.  [CERTIFIED OR CASHIER'S CHECK.] With the 
        approval of the commissioner of administration and where if the 
        amount of the contract is not in excess of more than $5,000 a 
        person may make a contract with the state for the doing of any 
        to do public work and in lieu place of giving the bond bonds 
        required by section 574.26, submit to the commissioner of 
        administration for deposit with the state treasurer (1) a 
        certified check or cashier's check in the same amount as would 
        be is required for a performance bond as security for protection 
        of to protect the state, including its tax revenues, and (2) a 
        certified or cashier's check in the same amount as is required 
        for a payment bond for all persons doing work or furnishing 
        skills, tools, machinery, or labor and materials under or for 
        the purpose of executing such to perform the contract.  Such 
        deposit shall be The deposits are security for the payment, as 
        they become due, of all just claims for work, skills, tools, 
        machinery, and labor and materials; and for the performance and 
        completion of the contract in accordance with according to its 
        terms; and as security for all costs and charges that may accrue 
        for the doing of the work specified and compliance with the laws 
        relating thereto.  
           Subd. 1a.  [LETTERS OF CREDIT.] Whenever this act or other 
        law or home rule charter requires a performance bond from a 
        contractor doing a public work project of under $50,000 for a 
        public body, the public body may permit the contractor to 
        provide, in place of the performance bond, an irrevocable bank 
        letter of credit in the same amount as required for the bond and 
        subject to the same conditions as the bond. 
           Subd. 2.  [CLAIMS.] A person entitled to the protection of 
        such the deposit in place of a payment bond and wishing to take 
        advantage of its benefits shall, at the time of commencing any 
        action against either the contractor or any subcontractor 
        engaged in such work no later than 120 days after the person's 
        last contribution of labor and materials was furnished to the 
        public work that is the subject of the contract, notify in 
        writing the commissioner of administration and the state 
        treasurer of the commencement of such suit person's claim, 
        giving the names of the parties involved and the amount and 
        nature of the claim.  No If an action is commenced to obtain the 
        benefit of the deposit in place of a payment bond, a judgment 
        shall must not be entered within 30 days after the giving of 
        such the notice of the claim and the state and or any person 
        entitled to the protection of such the deposit may be admitted 
        on its motion as a party to the action and the court shall 
        determine the rights of all parties in the premises.  In such 
        suit in which the state treasurer is a party, the court may 
        order the treasurer to make payment among the parties to the 
        suit entitled thereto to payment.  If the amount of the deposit 
        is insufficient to pay the claims in full, the court may direct 
        that they be paid on a pro rata prorated basis.  The deposit in 
        place of a payment bond made with the treasurer pursuant to the 
        terms of under this section shall be held by the treasurer 
        for 90 120 days after the contract with the state has been 
        completed last item of labor and materials was furnished to the 
        public work that is the subject of the contract.  If no suit a 
        claim is commenced not filed within said period of 90 days the 
        120-day period, the deposit shall be returned to the person 
        making it.  If suit a claim is commenced filed within said 90 
        day the 120-day period, the deposit shall be disbursed by the 
        state treasurer pursuant to the under an order of the 
        court. Such moneys as are deposited with the state treasurer 
        pursuant to the terms of this section are hereby annually 
        appropriated to the state treasurer for the purpose of carrying 
        out the terms and provisions hereof.  
           Subd. 3.  [APPROPRIATION.] Money deposited with the state 
        treasurer under this section is annually appropriated to the 
        state treasurer to carry out this section. 
           Sec. 3.  Minnesota Statutes 1992, section 574.262, 
        subdivision 1, is amended to read: 
           Subdivision 1.  [BONDS.] To carry out the programs, 
        established elsewhere by law, for awarding certain portions of 
        state construction and procurement contracts and subcontracts to 
        small businesses and small businesses owned by economically and 
        socially disadvantaged persons, the commissioners of 
        administration and transportation may, when deemed appropriate, 
        arrange, through competitive bidding or negotiation, to 
        partially indemnify bonding companies which provide bid and, 
        performance, and payment bonds covering all or any part of the 
        construction and procurement contracts or subcontracts which are 
        designated for award to small businesses and small businesses 
        owned by economically and socially disadvantaged persons.  The 
        amount of the indemnity for all the bonds on each contract shall 
        not exceed $100,000.  Bonds which are subject to indemnity shall 
        be provided to contractors at a cost which shall not exceed the 
        cost of bid and, performance, and payment bonds if purchased in 
        the usual manner by other businesses for similar contract work 
        or procurement. 
           Sec. 4.  Minnesota Statutes 1992, section 574.263, 
        subdivision 3, is amended to read: 
           Subd. 3.  [BID DEPOSIT IN PLACE OF PERFORMANCE BOND.] 
           For a contract made by the commissioner for a forestry 
        development project, the commissioner may require a bid deposit 
        in lieu place of a performance bond for charges that may accrue 
        because of doing the specified work and to enforce the terms of 
        the contract, including reasonable attorney's fees if an action 
        is successful.  The commissioner may set the amount of the bid 
        deposit, but it may not be less than five percent of the 
        contract price. 
           Sec. 5.  Minnesota Statutes 1992, section 574.263, is 
        amended by adding a subdivision to read: 
           Subd. 4.  [PAYMENT BOND.] A contract with the state for a 
        forestry development project may require a payment bond at the 
        discretion of the commissioner of natural resources.  If the 
        commissioner determines that a payment bond is required, the 
        commissioner also has the discretion to decide whether the bond 
        may be in the form of securities in place of a bond as provided 
        in section 574.264.  If so, the securities cannot have less 
        value than five percent of the contract price. 
           Sec. 6.  Minnesota Statutes 1992, section 574.264, is 
        amended to read: 
           574.264 [SECURITY IN LIEU PLACE OF BOND.] 
           Subdivision 1.  [FOREST DEVELOPMENT PROJECTS.] In place of 
        a performance or payment bond or bid deposit for a state 
        contract for a forestry development project less than $50,000, 
        the person required to file the bond or bid deposit may deposit 
        in a local designated state depository or with the state 
        treasurer a certified check, a cashier's check, a postal, bank, 
        or express money order, assignable bonds or notes of the United 
        States, or an assignment of a bank savings account or investment 
        certificate or an irrevocable bank letter of credit, in the same 
        amount that would be required for a the bond or bid deposit.  If 
        securities listed in this section are deposited, their value 
        shall not be less than the amount required for the bond or bid 
        deposit and the person required to file the performance bond or 
        bid deposit shall submit an agreement authorizing the 
        commissioner to sell or otherwise take possession of the 
        securities in the event of default under the contract or 
        nonpayment of any persons furnishing labor and materials under, 
        or to perform, the contract.  The security deposits are for the 
        protection of the state and for the performance and completion 
        of the contract in accordance with its terms and as security for 
        all costs and charges that may accrue for the doing of the work 
        specified and compliance with the laws relating to it. 
           Subd. 2.  [CLAIMS AGAINST SECURITIES IN PLACE OF BID 
        DEPOSITS.] The bid deposit is Securities in place of payment 
        bonds are subject to claims as provided for other deposits in 
        section 574.261, subdivision 2. 
           Sec. 7.  Minnesota Statutes 1992, section 574.27, is 
        amended to read: 
           574.27 [BIDDERS TO HAVE RIGHT OF ACTION IN CERTAIN CASES.] 
           A public body may require that a bidder provide a bid bond 
        or other security as a proposal guaranty that the bidder will 
        enter into a contract if its bid is accepted.  Any bidder upon 
        any public work or public improvement of any kind in this state 
        where bids therefor are received and where, in connection with 
        such bids, a deposit of money, or a certified check, or bid bond 
        or other security is required to must be given for the 
        performance of provided with the bid if accepted, the political 
        subdivision of the state public body causing such public work or 
        other public improvement to be made or done shall be liable to 
        such bidder for a return of the money, certified check, or other 
        thing of value so deposited in the event of the nonacceptance of 
        if the bidder's bid on such public work or improvement is not 
        accepted, or, in the event of the acceptance of if the bidder's 
        bid, during the interval between such acceptance and the 
        entering into of a contract for such work and the giving of 
        security in connection therewith by the bidder, and is accepted 
        before the bid expires, after the bidder enters into a contract 
        for the work and provides acceptable security in connection with 
        it.  This liability shall exist exists even though the failure 
        to return such the money, certified check, or other thing of 
        value be occasioned by is due to the defalcation or unlawful 
        conversion thereof of the thing of value by the officer of such 
        political subdivision clothed the public body charged with the 
        custody thereof of it.  
           Sec. 8.  Minnesota Statutes 1992, section 574.28, is 
        amended to read: 
           574.28 [APPROVAL AND FILING OF BOND.] 
           Such bond shall be approved by, and filed Before beginning 
        work on the contract for the public work, the contractor on 
        whose behalf the payment and performance bonds were issued must 
        file both bonds with, the treasurer, board, or officer having 
        financial management of the obligee named therein unless the 
        contract be for work upon a state trunk highway, or erection, 
        improvement, or repair of buildings for a state institution, in 
        which case it shall be approved and filed with the board or 
        officer having the financial management thereof in the 
        bonds.  If such bond be not taken, the corporation or body for 
        which work is done under the contract shall be liable to all 
        persons furnishing labor, skill, or material to the contractor 
        thereunder for any loss resulting to them from such failure.  No 
        The payment and performance bonds must list the address of the 
        contractor on whose behalf the bonds were issued and of the 
        surety providing the bonds.  The payment and performance bonds, 
        if acceptable in form and content, must be approved by the board 
        or officer having financial management of the obligee, or by the 
        obligee's treasurer.  An assignment, modification, or change of 
        the contract, or change in the work covered thereby by the 
        contract, nor any or an extension of time for completion of to 
        complete the contract, shall does not release the sureties on 
        the bond bonds. 
           Sec. 9.  Minnesota Statutes 1992, section 574.29, is 
        amended to read: 
           574.29 [ACTION ON FAILURE TO GET PAYMENT BOND.] 
           Any person entitled to the protection of such bond may 
        maintain an action thereon for the amount due.  The person shall 
        notify the obligee named in the bond of the beginning of such 
        action, giving the names of the parties, describing the bond 
        sued upon, and stating the amount and nature of the claim.  No 
        judgment shall be entered in such action within 30 days after 
        the giving of such notice.  The obligee, or any other person 
        having a cause of action on such bond, may be admitted, on 
        motion, as a party to such action, and the court shall determine 
        the rights of all parties thereto.  If the amount realized on 
        the bond be insufficient to discharge all such claims in full, 
        such amount shall be distributed among the parties pro rata.  If 
        the state or other public body fails to get and approve a valid 
        payment bond or securities in place of a payment bond as 
        required by the act, the public body for which work is done 
        under the contract is liable to all persons furnishing labor and 
        materials under or to perform the contract for any loss 
        resulting to them from the failure.  The public body is not 
        liable if the bond does not list the proper address of the 
        contractor on whose behalf the bond was issued or of the surety 
        providing the bond. 
           Sec. 10.  Minnesota Statutes 1992, section 574.30, is 
        amended to read: 
           574.30 [INSOLVENT OR INSUFFICIENT SURETIES.] 
           When, in its the obligee's judgment, any of the sureties a 
        surety on such a bond have become required by the act is 
        insolvent, or for any cause are is no longer a proper or 
        sufficient sureties surety, the obligee may require the 
        contractor to furnish a new or additional bond within ten days; 
        and thereupon, if so ordered by such the obligee, all work on 
        such the contract shall must cease until such the new or 
        additional bond is bonds are furnished.  If such bond be the 
        bonds are not furnished within such time the ten days, the 
        obligee may, at its option, determine terminate the contract and 
        complete the same as the agent, and at the expense of such the 
        contractor and its sureties.  
           Sec. 11.  Minnesota Statutes 1992, section 574.31, is 
        amended to read: 
           574.31 [LIMIT OF TIME TO BRING ACTION.] 
           Subdivision 1.  [CLAIMS ON PERFORMANCE BONDS.] In the event 
        of a claim by the public body on a performance bond, no action 
        shall be maintained on any such bond unless within 90 days after 
        the completion of the contract and acceptance thereof by the 
        proper public authorities, the claimant shall file a written 
        notice later than permitted under the statute of limitations 
        applicable to the claim.  As a condition precedent to bringing 
        an action upon a performance bond, the public body must first 
        serve written notice of claim under the contractor's bond 
        personally or by certified mail upon the surety who issued the 
        bond and upon the contractor on whose behalf the bond was issued 
        specifying the nature and amount of the claim and the date 
        of furnishing the last item thereof, in the office of the 
        commissioner of commerce, in case the contract is for the 
        performance of work for the state or any department thereof, 
        and, in case the contract is let by any county, municipal 
        corporation, or other public board or body, then such notice 
        shall be filed in the office of the auditor of the county 
        letting the contract or the county in which such municipal 
        corporation, public board or body is situate, and if situate in 
        two or more counties, then such notice shall be filed in the 
        office of the auditor of each county; nor unless the action is 
        begun within one year after the filing of such notice.  The 
        county auditor shall enter the time of filing every such notice 
        in a book kept for that purpose, which shall be properly indexed 
        breach or default, and the performance requested of the surety. 
           Subd. 2.  [CLAIMS ON PAYMENT BONDS.] (a) In the event of a 
        claim on a payment bond by a person furnishing labor and 
        materials, no action shall be maintained on the payment bond 
        unless, within 120 days after completion, delivery, or provision 
        by the person of its last item of labor and materials, for the 
        public work, the person serves written notice of claim under the 
        payment bond personally or by certified mail upon the surety 
        that issued the bond and the contractor on whose behalf the bond 
        was issued at their addresses as stated in the bond specifying 
        the nature and amount of the claim and the date the claimant 
        furnished its last item of labor and materials for the public 
        work.  For the purpose of this section, notice is sufficient if 
        served personally or via certified mail to the addresses of the 
        contractor and surety listed on the bond.  The form of notice is 
        sufficient if it is substantially as follows: 
               NOTICE OF CLAIM ON PAYMENT BOND FOR PUBLIC WORK
              TO:  ..................................................
                    (Surety that issued payment bond)
              and ...................................................
                (The contractor on whose behalf the bond was issued)
                 NOTICE IS HEREBY GIVEN that the undersigned claimant
              has a claim against the above named surety for labor and
              materials furnished by the undersigned for the public
              work described as follows:  ...........................
              .......................................................
                     (Description of the public work)
              The labor and materials were furnished under a
              contract or agreement with ............................
              .......................................................
              (Name and address of contractor or supplier requesting
                   labor and materials from the claimant)
              The nature of the labor and materials furnished is as
              follows:  ..............................................
              ........................................................
              The amount of the claim is:  ...........................
              The date the claimant last furnished labor and materials
              to this public work is the ... day of ..........., 19...
              Claimant seeks payment of the claim according to the
              law.
                                                  ....................
                                                  Claimant
                                                  ....................
                                                  Address
                                                  ....................
             STATE OF ...............
                                  ss.
             COUNTY OF ..............
                  .................... being duly sworn on oath says
             that ... is .............. of the claimant named above and
             has knowledge of the claim and that the claim is correct,
             and no part of the claim has been paid.
                                             ......................
             Signed and sworn to before me
             on .............., 19..,
             by .......................        (Notary Seal)
             ..........................
                       Notary Public
           (b) If the contractor providing the payment bond fails to 
        comply with the filing requirements of section 574.28 by failing 
        to state its address or the address of the surety providing the 
        bond, then a claimant under the bond need not provide the surety 
        or the contractor written notice of its claim under paragraph 
        (a).  
           (c) An action to enforce a claim against the surety under 
        the bond must be commenced within one year from the date of 
        completion, delivery, or provision by the claimant of its last 
        item of labor and materials for the public work stated in its 
        notice of claim.  If no notice of claim was required because the 
        contractor providing the bond failed to comply with the 
        requirements of section 574.28, then any action under the bond 
        must be commenced within one year from the actual date of 
        completion, delivery, or provision by the claimant of its last 
        item of labor and materials for the public work.  Any other 
        person having a cause of action on a payment bond may be 
        admitted, on motion, as a party to the action, and the court 
        shall determine the rights of all parties.  If the amount 
        realized on the bond is insufficient to discharge all the claims 
        in full, the amount must be prorated among the parties.  
           Sec. 12.  Minnesota Statutes 1992, section 574.32, is 
        amended to read: 
           574.32 [NOTICE APPLICATION OF PAYMENTS.] 
           The commissioner of commerce or the county auditor in whose 
        office the written notice is filed shall, upon receipt of such 
        written notice, mail one copy of the same, by certified mail, to 
        the principal contractor, at its last known address, and to each 
        of the sureties on the contractor's bond, at their last known 
        addresses, and the claimant shall, at the time of filing the 
        written notice, furnish the commissioner of commerce or the 
        county auditor in whose office the notice is filed, at least 
        three copies of the notice.  The commissioner of commerce or 
        county auditor with whom the notice is filed shall be entitled 
        to charge a fee of $15 for filing the notice and may also charge 
        a fee to cover the cost of mailing the copies as herein 
        provided.  The failure of the commissioner of commerce or the 
        county auditor with whom the notice is filed to mail these 
        copies as herein provided, shall in no way affect the validity 
        of the claim or the right of the claimant to maintain an action 
        thereon.  If a claimant on a payment bond had actual knowledge 
        or should have known that a payment it received was for labor 
        and materials supplied under, or to perform, public work under 
        which a payment bond was provided, then the claimant must prove 
        that it applied the payment to its account for that public 
        work.  Its claim must be reduced to the extent it cannot so 
        prove. 
           Sec. 13.  [EFFECTIVE DATE.] 
           Sections 1 to 12 are effective August 1, 1994, to apply to 
        contracts for public work awarded after July 31, 1994. 
           Presented to the governor April 11, 1994 
           Signed by the governor April 13, 1994, 1:17 p.m.