Payment Bond
A surety bond, furnished by the prime or original contractor, that guarantees payment to the subcontractors and suppliers on a construction project. Texas requires one on public work contracts over $25,000 ($50,000 for municipalities) under Government Code Chapter 2253. On a private project, a valid bond filed under Property Code §§ 53.201-53.203 bars suit against the owner and the owner's property.
A Texas governmental entity must require a payment bond equal to the contract amount, from a corporate surety, on a public work contract over $25,000 ($50,000 for a municipality), under Tex. Gov't Code § 2253.021. Unpaid claimants must mail notice by the 15th day of the third month after each unpaid month (§ 2253.041).
A payment bond is a three-party promise. The contractor is the principal, a surety company guarantees the obligation, and the people the bond protects are subcontractors and suppliers further down the chain. When the contractor does not pay them, they collect from the surety.
Texas has two statutory versions. On public work, Government Code Chapter 2253 makes the bond mandatory above set contract amounts and gives unpaid claimants a direct suit against the surety. On private projects, Property Code §§ 53.201-53.211 offer the bond as an option that moves mechanic's lien claims off the owner's property and onto the surety. Federal construction contracts fall under the Miller Act instead (40 U.S.C. § 3131).
- Public threshold
- Over $25,000; over $50,000 for municipalities (Tex. Gov't Code § 2253.021(a)(2))
- Bond amount
- The amount of the contract (§ 2253.021(c)(2))
- Claim notice
- 15th day of the 3rd month after each unpaid month, by certified or registered mail (§§ 2253.041, 2253.048)
- Suit window
- After 60 days unpaid, and within one year after the notice was mailed (§§ 2253.073, 2253.078(b))
- Private projects
- Optional bond, recorded with the contract (Tex. Prop. Code §§ 53.201-53.203)
Who a public work payment bond protects
The bond runs "solely for the protection and use of" claimants who have a direct contract with the prime contractor or with a subcontractor to supply labor or material for the public work (§ 2253.021(c)). The statute defines "subcontractor" broadly enough to include suppliers to the prime contractor or to another subcontractor (§ 2253.001(9)).
A bond that tries to narrow those rights does not succeed. Any term in a bond furnished to comply with Chapter 2253 that expands or restricts the statutory rights is disregarded, and the statute is read into the bond (§ 2253.023). If the governmental entity never obtains the required bond, the entity itself carries the liability a surety would have had (§ 2253.027).
Notice deadlines on Texas public work
For each month of unpaid labor or material, the claimant must mail written notice to the prime contractor and the surety by the 15th day of the third month after that month, with a sworn statement of account (§ 2253.041).
A claimant with no direct contract with the prime contractor has an earlier deadline as well. It must notify the prime contractor of the unpaid amount by the 15th day of the second month after each month of work (§ 2253.047(c)). Retainage claims follow a separate clock: notice to the prime contractor and surety within 90 days after final completion of the public work contract, unless the retainage was already part of an earlier claim (§ 2253.046). Every mailed notice goes by certified or registered mail (§ 2253.048).
Suing on the bond
A claimant whose claim is still unpaid on the 61st day after mailing notice may sue the contractor, the surety or both, for the unpaid balance and reasonable attorney's fees (§ 2253.073). Suit belongs in a county where any part of the public work is located (§ 2253.077). The outside deadline is the first anniversary of the date the notice was mailed (§ 2253.078(b)).
On small public contracts below the bond thresholds, Chapter 53 gives a different remedy: a lien on the money due the contractor, preserved by sworn notice to the paying officials and the contractor by the 15th day of the second month after the work (Tex. Prop. Code §§ 53.231-53.234).
Payment bonds on private projects
An original contractor with a written contract may furnish a bond under § 53.201 at any time. It must be in a penal sum at least equal to the original contract amount, carry the owner's written approval and be filed with the contract in the county records (§§ 53.202-53.203). Once a valid bond is filed, claimants may not sue the owner or the owner's property, and the owner is relieved of the statutory withholding and 10 percent reserve duties (§ 53.201(b)).
Claimants then perfect against the bond by sending the usual Chapter 53 notices to the original contractor and the surety (§ 53.206). Suit may follow 60 days after perfection. It must be filed within one year if the bond was recorded when the lien was filed, or two years if it was not (§ 53.208).
Who pays for a payment bond in Texas?
The contractor obtains it. Chapter 2253 requires the prime contractor to execute the bond to the governmental entity before work begins (§ 2253.021(a)), and the entity may not require it from any particular surety, agent or broker (§ 2253.021(g)). On private work, the original contractor furnishes the bond as principal (Tex. Prop. Code § 53.202). Neither statute sets the premium. Whether its cost is passed through in the contract price is left to the bid and the contract.
What is the difference between a performance bond and a payment bond?
They protect different people. On Texas public work, a performance bond protects only the governmental entity, guarantees that the work will be done according to the plans and contract documents, and is required on contracts over $100,000 (§ 2253.021(a)(1), (b)). A payment bond protects subcontractors and suppliers. A surety that completes the work under a performance bond gets first claim to the remaining contract proceeds, but that priority does not excuse it from paying claims on the payment bond (§ 2253.071(c)).
What can a contractor do if not paid in Texas?
The remedy depends on the project. On private work, a subcontractor or supplier can perfect a mechanic's lien under Property Code Chapter 53, or claim on the bond if the original contractor filed one under § 53.201. On Texas public work, the claim runs against the Chapter 2253 payment bond. On federal projects, a second-tier claimant must notify the prime contractor within 90 days after its last work and sue in federal court within one year after its last labor or material (40 U.S.C. § 3133(b)(2), (4)).
A person providing labor or material on a public job can ask the prime contractor in writing for a copy of the payment bond and the surety's name, which must be provided within 10 days (§ 2253.024). On private work, owners and original contractors owe the same information about any bond within 10 days under Tex. Prop. Code § 53.159. For an owner, a recorded Subchapter I bond lets buyers, lenders and title insurers rely on the record as if every claimant under the original contract had filed a complete release (§ 53.204). Waivers of private-project bond claims generally must substantially follow the statutory forms in § 53.284, the same forms used for lien releases.