South Dakota statutes require bid bonds for 'public improvements' and certified checks for county building construction. They do not address materials, supplies, and equipment purchases. Can counties still require bid bonds or certified/cashier's checks for those general purchases, and if so, in what amounts and what forms?
Plain-English summary
South Dakota's public bidding statutes had explicit bonding requirements in two places: SDCL 5-18-6 required bid bonds or deposits for "public improvements," and SDCL 7-25-9 required certified checks from bidders on county building construction. Neither statute addressed counties' purchases of materials, supplies, and equipment that did not fit those categories. Some counties had nevertheless been requiring certified checks or cashier's checks (5-10% of bid amounts) for those general purchases, and vendors had complained. The complaints were both substantive (the requirement increased their costs, which they had to pass through in higher prices) and operational (banks were getting tired of issuing the certified checks).
Hughes County had not been requiring those bonds and was paying higher prices because vendors had to factor in the costs of providing certified checks to counties that did require them. Mr. Schroyer asked AG Mark Meierhenry whether counties had the authority to require these bonds at all, and if so, in what amounts and forms.
Meierhenry's answer was yes on all three questions, but with a wider-than-statutory rationale. Although no statute expressly authorized counties to require bid bonds for ordinary purchases, the doctrine of implied or incidental powers (anchored in Custer City v. Robinson, S.D. 1961) allowed counties to adopt reasonable bonding requirements as a complement to their express purchasing authority. McQuillin's Municipal Corporations treatise supported the implied-powers reading despite the general principle that municipalities have only the powers expressly granted.
On amounts and forms, Meierhenry deferred to county discretion. He suggested counties follow the limits and procedures used in the express-statutory bonding areas (5-18-6 for public improvements, 7-25-9 for construction) unless particular circumstances suggested a different amount was appropriate. Bonds, cashier's checks, and certified checks were all acceptable forms; counties could pick.
The implication for vendors was that the cost-shifting Mr. Schroyer described would continue: counties that chose to impose bonding requirements could do so, and the costs would flow through to all county customers via vendor pricing.
Currency note
This opinion was issued during AG Mark Meierhenry's tenure in the early 1980s. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. SDCL chapters 5-18 and 7-25 have been amended; modern county purchasing should be analyzed under current statutes and any administrative guidance from the SD Bureau of Administration.
What the opinion meant at the time
For Hughes County, the answer was permission-not-mandate: the county could require bid bonds for ordinary materials purchases if it chose, but did not have to. The county could continue its current practice of not requiring such bonds.
For other counties that had been requiring bonds, the opinion confirmed their existing practice was lawful, removing any cloud over those programs.
For vendors, the opinion did not provide the relief they had been seeking. The cost-shifting they complained about would continue, since each county had discretion.
For surety bond issuers and banks issuing certified checks, the opinion was a small win: the demand for their products continued, even if administratively inconvenient.
Common questions
Q: What is the difference between a bid bond and a performance bond?
A: A bid bond guarantees that the winning bidder will sign the contract (the bid bond pays out if they refuse). A performance bond guarantees that the contractor will complete the work per specifications. Counties might require either or both depending on the contract type.
Q: Can counties be challenged for requiring bonds that drive up prices?
A: The opinion did not address that. A vendor or taxpayer might argue the bond requirement was unreasonable or wasteful, but the implied-powers doctrine generally gives counties wide discretion. Successful challenges would probably require showing the bond served no genuine purpose.
Q: What about uniformity across counties?
A: The opinion did not require it. Each county could set its own bonding policy. The vendor cost-shifting complaint reflected exactly the non-uniformity Hughes County faced.
Q: How does this interact with state procurement standardization efforts?
A: The state has standardized its own purchasing procedures, but counties retain significant autonomy. The Bureau of Administration's authority is largely over state-level purchasing, not county-level.
Q: Could a county require bonds for very small purchases (under, say, $1,000)?
A: The opinion did not set a floor. Bond requirements for tiny purchases would probably be viewed as unreasonable and could face challenge. Counties typically set thresholds (e.g., bonds required only for bids over $25,000).
Background and statutory framework
South Dakota counties operate under express statutory authority plus the implied or incidental powers needed to carry out express powers. Custer City v. Robinson (1961) is the leading case affirming implied powers in the municipal corporation context; the same reasoning applies to counties.
The public bidding regime in SDCL ch. 5-18 imposed competitive-bid procedures for most county purchases. SDCL 5-18-6 added the bid bond requirement specifically for "public improvements." SDCL 7-25-9 added the certified check requirement specifically for county building construction. The statutory carve-outs left a gap: what about ordinary materials, supplies, and equipment purchases?
Meierhenry filled the gap with implied powers reasoning. The county's express purchasing authority included the discretion to impose reasonable conditions on bidders, including bonding. Express statutory authorization was not the only basis; implied authority supplied the same result.
McQuillin's Municipal Corporations (cited at section 10.12) recognized the same pattern: municipalities have the powers reasonably implied by their express grants, even when the general rule is one of express-only authority. Meierhenry adopted that framework for SD counties.
The vendor cost-shifting complaint reflected the real-world consequence: when some counties required bonds and others did not, vendors had to price for the worst case, and all customers paid more. The structural fix would have required either standardization (uniform statewide rules) or elimination (no county requiring bonds). Meierhenry's opinion did neither; it preserved county discretion.
Citations and references
Statutes:
- SDCL ch. 5-18 (public contracts)
- SDCL 5-18-6 (bid bond for public improvements)
- SDCL ch. 7-25 (county building construction)
- SDCL 7-25-9 (certified checks for construction bidders)
Cases:
- Custer City v. Robinson, 79 S.D. 91, 108 N.W.2d 211 (1961) (implied powers)
Treatise:
- 2 McQuillin, Municipal Corporations § 10.12 (implied powers of municipalities)
Source
Original opinion text
Bonding For Purchases Under Chapter 5-18
Dear Mr. Schroyer:
You have requested an official opinion from this office based on the following facts:
FACTS:
Under the provisions of Chapter 5-18 relating to public contracts to be awarded upon competitive bids (which includes counties in the definition of public corporations covered by the law) the law requires that a deposit or bond is required for "public improvements." This bond is one of the costs which is payable from taxes or funds under the control of a public corporation. SDCL 5-18-6. When dealing with the construction of county buildings under the provisions of Chapter 7-25 the law requires certified checks to be posted by bidders on construction projects. SDCL 7-25-9. It is my understanding that many counties including Hughes County have not interpreted those provisions to require the filing of a bid bond or deposit for general purchases of materials, supplies or equipment since these items do not fall within the definitions of those expenditures included under the provisions of SDCL 5-18-6 and SDCL 7-25-9. Apparently a number of counties have taken the position of requiring certified or cashier's checks in amounts ranging from five to ten percent to be deposited at the time of the submission of a bid for one-time and annual contracts involving the purchase of materials, supplies and equipment. Many of the suppliers have complained about this procedure, particularly in those counties that require a certified check, as banks apparently do not wish to continue issuing such checks due to the bookkeeping problems they encounter. Counties which require such bid bonds or deposits necessarily increase the costs of materials supplied by the various suppliers because of the fact that the costs of tying up the money in certified and cashier's checks or the purchase of bid bonds must necessarily be passed on to the customers. Consequently, counties such as Hughes County that have not generally required such bid requirements end up paying a higher price for materials and supplies occasioned by other counties' requirements of such bid deposits or bonds.
Based upon the above factual situation, you have asked the following questions:
QUESTIONS:
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Do counties have the authority to require the deposit of cashier's or certified checks or bid bonds for contracts let for the purchase of materials, supplies and equipment?
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If you answer the question above affirmatively, in what amount may counties require such deposits or bonds to be submitted?
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If question number one is answered affirmatively, in what form may counties require such bid guarantees? Bonds, cashier's checks or certified checks?
IN RE QUESTION NO. 1:
Although present statute law in South Dakota does not appear to require counties to provide bid bonds or performance bonds for the purchase of materials, supplies and equipment not used for public improvements, I do believe that counties have the implied authority, if they so choose, to require such bidding or performance security. Incidental or implied powers are recognized in South Dakota, Custer City v. Robinson, 79 S.D. 91, 108 N.W.2d 211 (1961), and exist in spite of general statements from the courts apparently limiting the powers of municipalities and counties to those expressly granted. 2 McQuillin Municipal Corporations, 10.12.
IN RE QUESTION NO. 2:
If counties determine that such deposits or bonds are necessary and must be submitted, it would appear that generally, counties would be best advised to follow the limits and procedures used in other areas of purchasing. There may, however, be differences that are apparent which would make it appropriate that a greater or lesser amount of deposit or bonding be required.
IN RE QUESTION NO. 3:
If a county determines that such bid guarantees are required, it is my view that either bonds, cashier's checks or certified checks, or some combination thereof, would be appropriate forms of security. Once again, I believe the proceedures used by the county in other areas of public improvement bonding would generally be an appropriate precedent and guideline to follow in these additional bonding areas.
Respectfully submitted,
Mark V. Meierhenry
Attorney General
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