Important Colorado Construction and Surety Bond Regulations
There are many issues that should be important to contractors in Colorado needing contract surety bonds. This guide helps contractors navigate some of the biggest risks while bonding construction projects in Colorado.
Colorado Performance Bond Requirements – Construction
When a construction contract on public lands or using public money exceeds $50,000, a performance bond is required. When a construction contract exceeds $500,000,000, a performance bond, the performance bond must be at least 50% of the maximum amount payable under the terms of the contract in any calendar year in which the contract is performed.
The performance bond must be conditioned on the faithful performance of the contractor.
Alternatives to a Colorado Performance Bond or Payment Bond
The state may accept a certified cashiers check or money order designated for the benefit of the state, in lieu of a performance bond.
Colorado Bid Bond Requirements
When a procurement agent for Colorado estimates that the price of a construction contract will exceed $50,000, a bid bond is required. However, nothing precludes the Public Agency or procurement agent from asking for a bid bond on projects below this amount.
Minimum Amount of a Colorado Bid Bond
The bid bond percentage required will be in an amount not less than 5% of the bid amount.
Colorado Bid Bond Irrevocable Period
Colorado statute provides that after the bids are opened, they shall be irrevocable for the period specified in the invitation for bids, except as provided in section 24-103-202 (6) which says:
“(6) Withdrawal of inadvertently erroneous bids before the award may be permitted pursuant to rules if the bidder submits proof of evidentiary value which clearly and convincingly demonstrates that an error was made. Except as otherwise provided by rules, all decisions to permit the withdrawal of bids based on such bid mistakes shall be supported by a written determination made by the chief procurement officer or the procurement official.”
Colorado Payment Bond Requirements
When a contract on public lands or using public money exceeds $50,000, a payment bond is required.
“conditioned that such contractor shall at all times promptly make payments of all amounts lawfully due to all persons supplying or furnishing such person or such person’s subcontractors with labor, laborers, materials, rental machinery, tools, or equipment used or performed in the prosecution of the work provided for in such contract and that such contractor will indemnify and save harmless the county, municipality, or school district to the extent of any payments in connection with the carrying out of any such contract which the county or counties, municipality or municipalities, and school district or school districts may be required to make under the law. “
Claims Against a Colorado Payment Bond
Claims against a Colorado Payment Bond for Public Work can be brought anytime.
C.R.S. 38-26-107(1) says that “(1)Any person, as defined in section 2-4-401(8), C.R.S., that has furnished labor, materials, sustenance, or other supplies used or consumed by a contractor or his or her subcontractor in or about the performance of the work contracted to be done or that supplies laborers, rental machinery, tools, or equipment to the extent used in the prosecution of the work whose claim therefor has not been paid by the contractor or the subcontractor may, at any time up to and including the time of final settlement for the work contracted to be done, file with the board, officer, person, or other contracting body by whom the contract was awarded a verified statement of the amount due and unpaid on account of the claim.”
However, Senate Bill 19-138 which was signed on 4-16-19 says that claims against the Colorado Payment Bond must be brought within 6 months after project completion.
“Such action for laborers, materials, rental machinery, tools, or equipment furnished or labor rendered shaft MUST be brought within six months after the completion of the work.”
Homestead Indemnity in Colorado
Surety Bonds are written on the Principle of Indemnity and in many circumstances both the corporate entity and the shareholders agree to indemnify the surety bond company against loss. Colorado provides a limited Homestead Exemption that would apply to surety bond companies under Colorado Statute § 38-41-201. This exemption is as follows:
(a) The sum of two hundred fifty thousand dollars if the homestead is occupied as a home by an owner or an owner’s family; or
(b) The sum of three hundred fifty thousand dollars if the homestead is occupied as a home by an owner who is elderly or disabled, an owner’s spouse who is elderly or disabled, or an owner’s dependent who is elderly or disabled.
The proceeds from a homestead exemption or, if a homestead property is sold by the owner, the proceeds from the sale are exempt from execution or attachment for a period of 3 years if the person entitled to the exemption keeps the exempted proceeds separate and apart from other money. The exemption also applies to proceeds from insurance covering destruction of homestead property, which proceeds are held for use in restoring or replacing the homestead property.
Public Private Partnerships In Colorado
Public Private Partnerships or P3s are a contractual agreement between one or more government entities and one or more private stakeholders to provide a public project and/or service.
Are Public Private Partnerships Allowed in Colorado?
Yes. Colorado has allowed P3s for the Department of Transportation in the past. In 2022, Senate Bill SB22-130 was enacted to increase the allowance of P3s in the State and allow P3s to be utilized for other public projects. The Bill reads:
“A state public entity is authorized to initiate solicitations, review any private partner-initiated proposals, execute public-private partnership agreements, or execute public-private agreements to develop or operate a public project subject to the requirements of the act. Any public-private agreement entered into pursuant to the act must comply with applicable state laws and processes developed by the executive director. Nothing in the act prohibits, limits, or otherwise modifies the specific statutory authority of state public entities to enter into a public-private partnership, a public-private agreement, or other agreement or to use a statutory mechanism as authorized by any other provision of law. Public-private partnerships authorized by the act are exempt from the state “Procurement Code”.”
P3 Projects in Colorado Must Be Bonded
Senate Bill 19-138 signed into law requires that Public Private Partnerships in Colorado provide a Performance Bond and Payment Bond with a “good and valuable surety” and The bonds will be conditioned that the contractor will promptly make payments to subcontractors for labor and materials used on the project; and the contractor will indemnify the Public Entity. Contractors can learn more about bonding P3s here.
Colorado Contingent Payment Clauses
Contingent Payment Clauses aim to shift the risk of non-payment from the owner or developer to contractors and their subcontractors. There are two common types of Contingent Payment Clauses including Pay-When-Paid and Pay-If-Paid. Absent these clauses, Colorado courts generally recognize that a contractor needs to pay its subcontractors within a “reasonable” amount of time regardless of if the General Contractor is paid by the Owner.
Pay-When-Paid Clauses are allowed in Colorado. However, Pay-When-Paid Clauses in Colorado are recognized as a timing mechanism and do not absolve the General Contractor’s responsibility to pay subcontractors even if the General Contractor is not paid by the Project Owner.
Pay-If-Paid Clauses shift the burden of non-payment by the Project Owner to the General Contractor to the Subcontractor. They create a “condition precedent” for payment. Colorado will allow Pay-If-Paid clauses in contracts only if the relevant contract terms unequivocally state that the subcontractor will be paid only if the general contractor is first paid by the owner and set forth the fact that the subcontractor bears the risk of the owner’s nonpayment.
Release Of Mechanic’s Liens
Colorado does allow contractors and property owners the option of releasing a mechanics lien with a surety bond. The Release of Mechanic’s Lien Bond must meet the following requirements:
Be in the amount of 150% of the lien amount plus cost allowed to date
Be approved by a judge of the district court where the undertaking is filed
Be conditioned that, if the lien claimant shall be finally adjudged to be entitled to recover upon the claim upon which his lien is based, the principal or his sureties shall pay to such claimant the amount of his judgment, together with any interest, costs, and other sums which such claimant would be entitled to recover upon the foreclosure of the lien.
Colorado Code requires that retainage on public projects is capped at 5%. As long as the contractor is performing, the public entity is required to pay out 95% of the value of completed work. The public entity must pay all held retainage within 60 days of the satisfactory completion and acceptance of the project.
In 2021, Colorado signed into law Colo. Rev. Stat. § 24-91-103(1)(a). This changed the amount of retainage that can be held on private construction projects from 10% to 5% if the contract amount exceeds $150,000.
Exclusions to Colorado’s Private Retainage Law
The change does not apply to residential projects. It also does not apply to multifamily projects with less than 4 units.
Colorado Resident Agent Countersignatures
At one point in time, many states required a resident agent of the state to sign surety bonds and other insurance documents. Colorado, like all states, has removed all countersignature requirements.
Colorado Delay Damages
Delay Damages are those damages charged against a contractor as a result in part or wholly caused by the contractor.
Liquidated Damages in Colorado
Liquidated Damages are allowed in Colorado. To have an enforceable Liquidated Damages Provision, a contract must contain:
the parties intended to liquidate damages;
when the contract was made, the amount of liquidated damages was a reasonable estimate of what actual damages may have been; and
at the time of contract, it was difficult to ascertain the amount of actual damages that would result from a breach.
Proof of actual damages is not required to collect Liquidated Damages in Colorado. A party cannot collect both Actual Damages and Liquidated Damages though.
Colorado Design Build Construction Delivery
Design Build Contracts are becoming a popular construction delivery method. Under C.R.S. § 43-1-1401(2), Colorado specifically allows Design Build contracts on Department of Transportation projects. Further, this legislation allows the DOT to use a scoring process rather than low bidder to select Contractors for Design Build projects:
“(2) The general assembly intends that this part 14 authorize the department of transportation to enter design-build contracts and to use an adjusted score design-build selection and procurement process for particular transportation projects regardless of the minimum or maximum cost of such projects, based on the individual needs and merits of such projects, and subject to approval by the transportation commission. The general assembly also intends that the department’s use of an adjusted score design-build contract process shall not prohibit use of the low bid process currently used by the department pursuant to part 1 of article 92 of title 24 and part 14 of article 30 of title 24, C.R.S.”
C.R.S. § 24-93-108 further says that a Colorado Agency may award any type of contract that is best for the agency with the exception of Cost Plus Contracts. This wording allows and encourages Design Build projects on other Colorado Public Works projects.
Contractors can read more about bonding Design-Build projects here.
Understanding each of these provisions is vital for contractors doing business in Colorado. Colorado Contractors can contact us anytime for assistance with these and other issues. Many surety bonds can also be purchased instantly by visiting our Colorado Surety Bonds Page.