Office of the Revisor of Statutes
Minnesota Session Laws - 1994, Regular Session
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.
Official Publication of the State of Minnesota
Revisor of Statutes