Similar to federal projects governed by the Miller Act (40 U.S.C. § 3131 et seq.), the State of Texas has a similar statute designed to protect subcontractors furnishing labor and materials on publicly owned projects. In this blog, we’ll give you a high-level view of the perfection of bond claims for Texas public projects.
Mechanic’s liens vs. bond claims
Although mechanic’s liens are the primary weapon of choice for unpaid subcontractors, mechanic’s liens are not available for higher valued public projects in the State of Texas. Instead, subcontractors attempting to recover for nonpayment on a publicly owned construction project must follow the guidelines provided in Chapter 2253 of the Texas Government Code—Texas’s very own “Little Miller Act.”
What is a bond claim?
Chapter 2253 requires payment bonds for public projects in Texas. The general contractor for prime contracts over $25,000 ($50,000 for municipalities) must acquire a payment bond for the benefit of subcontractors and material suppliers that furnish labor and/or materials to the project. The bond is issued by a surety agreed to by the public entity and the general contractor (principal). Once the surety issues the bond, it becomes obligated to pay the principal’s subcontractors and material suppliers in the event the principal fails to do so. If the surety also fails to pay the subcontractors and materials suppliers who have submitted a claim to the surety (claimants), the claimants should file a claim against the bond itself or an “Action on the Bond.”
Needless to say, a subcontractor or material supplier wanting to furnish labor and/or materials to a public project should obtain a copy of the bond before starting work. If a general contractor fails to pay for labor and/or materials furnished and the claimant discovers that the public entity failed to obtain a bond, the claimant will be able to pursue the public entity directly.
What’s the bond claim process?
Before a claimant can assert a claim or action on the bond, it must perfect its bond claim. Chapter 2253 outlines the statutory requirements for the perfection of bond claims, which are very similar to the requirements for perfecting a mechanic’s lien claim delineated by Chapter 53 of the Texas Property Code. The notice requirements for perfecting bonds and liens are notoriously complicated. It is recommended that a bond claimant consult with an experienced attorney once it determines that a bond claim may be necessary to secure payment. Once properly perfected, an action on the bond becomes a great opportunity to leverage a beneficial settlement.
This blog is part of our 2020 Mastering the Subcontract series. Come back each week as we deep dive and pull apart everything you need to know about a subcontract.