Payment Bond Claims on Texas Public Projects

Why is there no lien on a public project?

Because the property belongs to the public and cannot be sold to satisfy a private debt. Texas replaces the lien with a bond. Under Government Code § 2253.021, a governmental entity awarding a public work contract must require the prime contractor to post a payment bond when the contract exceeds $25,000 (or $50,000 when the entity is a municipality or certain airport boards), and a performance bond when the contract exceeds $100,000. The payment bond is in the amount of the contract and exists solely for the protection of the people who supply labor or material to the prime contractor or to a subcontractor.

Governmental entity is broad: the state, counties, cities, their departments and agencies, school districts and other authorities empowered to make public work contracts. If the owner is one of these, chapter 2253 applies and chapter 53 of the Property Code does not. Federal projects are different again and are covered below.

The bond protects two tiers: those with a direct contract with the prime contractor, and those with a direct contract with a subcontractor. A supplier to a sub-subcontractor is generally outside the bond. The first step on any public job is to get a copy of the bond; the governmental entity holds it, and the surety's name and address must appear on it or on an attachment.

What notice must be sent, and by when?

The claim is perfected by mail, and every deadline is a mailing date. The notices must be sent by certified or registered mail, to the prime contractor at its residence or last known business address and to the surety at the address on the bond or on file with the Texas Department of Insurance (§ 2253.048).

A lump-sum claim covering several items must describe the labor or material, name the party it was furnished to, give approximate dates, say whether the contract was written or oral, and state the contract amount and the amount claimed (§ 2253.044). A claimant on a written unit-price agreement may attach the unit list and a statement of completed and partially completed units instead (§ 2253.045).

Two limits apply to amounts. A subcontractor's claim, including earlier payments, may not exceed the share of the subcontract price that the work done bears to the whole, and a retainage claim is never valid above the retainage the contract specifies, and never above 10 percent of that contract (§ 2253.076).

Example

Suppose a mechanical subcontractor on a school district project in Collin County performs unpaid work in April and May and holds a subcontract with the prime contractor. It mails the sworn notice of claim for April to the prime contractor and the surety by July 15, and for May by August 15, or one combined notice by July 15. Because it contracts directly with the prime, no second-month notice is needed. If a duct supplier to that subcontractor is also unpaid for April, the supplier has a second-month notice to the prime due June 15 for April and the third-month notice to the prime and surety due July 15. Either claimant may sue on the bond once 60 days pass without payment after its notice, and each must file suit within one year of the date it mailed that notice.

When can I sue, and against whom?

A claimant may sue the prime contractor and the surety, jointly or severally, if the claim is not paid before the 61st day after the notice was mailed (§ 2253.073). The suit may seek the unpaid balance and reasonable attorney's fees, and a court may award costs and equitable attorney's fees in any proceeding to enforce or contest a bond claim (§ 2253.074). Venue is a court in a county where any part of the public work is located (§ 2253.077).

The outside limit is short. A suit on a payment bond may not be brought after the first anniversary of the date the notice for the claim was mailed (§ 2253.078). The year runs from the notice, not from the last day of work and not from the project's completion, so a claimant who notices early has an earlier limitations date as well. The governmental entity is not a defendant; the claim is against the bond and its principal.

The bond claim does not displace the contract claim. The subcontractor still has its breach of contract action against the party that hired it, and, on public work, the prompt payment rules of Government Code chapter 2251 rather than Property Code chapter 28. A subcontractor's options when the general contractor was paid but did not pay covers the contract and trust-fund claims that travel alongside a bond claim.

What if the entity never required a bond?

Then the claimant has a problem the statute addresses only in part. Chapter 2253 gives claimants rights against the bond; if no bond was posted, there is nothing to claim against, and public property still cannot be liened. The claimant is left with its contract claim against the party that hired it and whatever other remedies the facts support. Checking for the bond at the start of the job, when a copy can be requested from the governmental entity, costs nothing and tells a subcontractor whether its protection exists.

How is a federal project different?

Federal construction follows the Miller Act, 40 U.S.C. §§ 3131 to 3134, not Texas law. A contractor on a federal contract of more than $100,000 for construction, alteration or repair of a public building or public work must furnish a performance bond and a payment bond, the payment bond ordinarily in the full contract amount (§ 3131). Anyone who furnished labor or material under the contract and has not been paid in full within 90 days after the last of it may sue on the bond (§ 3133(b)(1)).

A claimant with a contract with a subcontractor but none with the prime contractor must first give the prime written notice within 90 days after the claimant's last labor or material, stating the amount claimed and the party to whom the material or labor was furnished, served by a method that produces third-party verification of delivery (§ 3133(b)(2)). Suit must be filed in the United States district court for a district where the contract was performed, in the name of the United States for the claimant's use, and no later than one year after the day the claimant last performed labor or supplied material (§ 3133(b)(3), (4)). A waiver of Miller Act rights is void unless in writing, signed by the claimant and executed after the claimant has furnished labor or material (§ 3133(c)).

Common mistakes on bond claims

• Sending the notice only to the prime contractor and forgetting the surety, or sending it by regular mail or email.
• Counting the third month from the invoice date instead of from the month the work was performed.
• Omitting the sworn statement of account, or signing one that overstates the claim or ignores known credits.
• Second-tier claimants skipping the second-month notice because they sent the third-month notice.
• Waiting for the project to finish before suing and passing the one-year anniversary of the notice.
• Signing an unconditional waiver for a draw that never clears; lien waivers in Texas explains why the statutory forms also cover payment bond claims.

The private-project equivalents of these dates are in Texas mechanic's lien deadlines. Tina Wysk represents subcontractors, suppliers, prime contractors and sureties in payment bond disputes on Texas public and federal projects.