We Wrote the Book on Texas Construction Law — Literally.
At Lovein Ribman, construction law is not just a practice area—it is the foundation of our firm. For nearly two decades, we have represented the full spectrum of the construction industry in every type of dispute and transaction across commercial, residential, industrial, and public works projects throughout Texas. Our leadership in this field is well established. Managing Partner Robert M. Lovein and Senior Partner Elana M. Ribman are the co-authors of Texas Construction Law and Practice, published by LexisNexis and Matthew Bender, which is relied upon by attorneys, judges, arbitrators, and construction professionals for guidance on preparing, filing and foreclosing statutory and constitutional mechanic’s liens and bond claims; litigating residential and commercial construction defect claims; construction contract drafting and disputes; and understanding common construction statutes. The firm’s Construction Law Department is led by two of the only 151 attorneys in Texas who are Board Certified in Construction Law: Robert M. Lovein and Haven J. Massey. Year after year, Best Lawyers—the legal industry’s leading peer-reviewed publication—has recognized Lovein Ribman as one of the top construction law and litigation firms in Texas. This distinction, combined with our extensive construction litigation and transactional experience, sets us apart as one of the most qualified construction law teams in the state.
We have assisted thousands of property owners, contractors, subcontractors, and suppliers with prosecuting and defending claims against private and public performance and payment bonds. If you are a property owner who needs to assert a claim against a performance bond or a subcontractor/supplier/laborer who needs to assert a private or public payment bond claim, contact us for a no obligation consultation by calling (888) 368-2483 or by submitting the Contact Form. Read below to learn more about the private and public bond claim process and the statutory deadlines or click here for a detailed summary of how to assert a private or public payment bond claim.
Private Project Performance and Payment Bond Claims
On large scale privately owned projects, it is not uncommon for the property owner to require the prime contractor to purchase a Performance and Payment Bond from a surety. The Performance Bond is intended to guaranty the prime contractor’s performance. When the prime contractor is unable to fulfill its contractual obligations because of delayed performance, severe construction defects, an inability to complete the work, or bankruptcy, then the property owner can assert a claim against the performance bond and demand that the surety fulfill the contractor’s performance. Private performance bonds are contractual agreements and are not governed by any Texas statute. As such, the property owner must carefully examine the performance bond to determine the proper steps for asserting a claim against the bond, which typically include: (1) providing notice of default to the prime contractor; (2) termination of the prime contractor for cause, and (3) tender of the remaining contract balance to the surety. In response to a proper demand, the surety may satisfy its obligations under the bond by providing additional financing so the contractor can complete the work, retaining a replacement contractor to complete the work, or allowing the property owner to retain a replacement contractor and pay for cost overruns. A property owner should seek the advice of a construction lawyer before terminating its contractor and asserting a claim against the performance bond to ensure the proper steps are taken to invoke the performance bond.
Private payment bonds are governed by Texas Property Code, Chapter 53 and are intended to guaranty payment of any unpaid subcontractors/suppliers and protect the property owner’s property from subcontractor/supplier mechanic’s liens. Pursuant to Chapter 53, Subchapter I, the payment bond must: (1) be in the penal sum of the prime contract amount, (2) be in favor or the property owner, (3) be endorsed by the surety, property owner, and prime contractor, (4) be conditioned upon prompt payment of all claims, and (5) contain the surety contact information. A valid payment bond must be recorded in the real property records, along with the prime contract, in order to bar any mechanic’s lien filed against the property. An unpaid subcontractor/supplier can assert a claim against the private payment bond by timely serving all pre-lien notices and recording a lien affidavit against the property or by timely delivering a Chapter 53, Section 53.056 (unpaid progress payments) or 53.057 (contractual retainage) Notice of Claim to the surety and original contractor.
A claimant who has perfected a claim against the payment bond may file suit on the bond if the claim remains unpaid for sixty days after the claim has been perfected. The suit must be filed in the county where the property being improved is located. The claimant may sue the principal and surety, jointly or severally, to recover the claim amount and court costs. Additionally, Section 53.156 authorizes the court to award costs and reasonable attorney’s fees, as are equitable and just in any proceeding to enforce a statutory bond claim or to declare any claim invalid or unenforceable in whole or in part. If there are multiple valid claims that exceed the penal sum of the bond, then each claimant is entitled to a pro rata share of the penal sum. A surety’s liability is generally limited to the penal sum of the bond. The statute of limitations to file suit on a bond claim varies depending on the timing of when the bond was recorded with the county clerk’s office. If the bond is on record at the time the claimant files a lien affidavit, the claimant must file suit on the bond within one year following perfection of its claim. However, if the bond is filed after the claimant has filed a lien affidavit, then the claimant must file suit on the bond within two years following perfection of its claim. A party’s failure to produce a copy of a statutory bond when requested will not toll a claimant’s statute of limitations to sue on the bond.
Public Project Performance and Payment Bond Claims
Public work projects represent a significant portion of the overall construction activity in Texas. Governmental entities, including the state, counties, municipalities, and authorized quasi-governmental authorities, regularly retain contractors to construct or repair state highways, public office buildings, prisons, county courthouses, jails, public hospitals, schools (ISDs), libraries, and parks. Like privately-owned projects, performance and payment disputes commonly occur on public projects. However, governmental entities and public projects are shielded from mechanic’s lien claims and foreclosure actions under the doctrines of sovereign and governmental immunity. As a result, unlike privately-owned projects, unpaid contractors at every tier do not have the right to file or foreclose a mechanic’s lien against a public property.
Pursuant to Section 2253.021(a), a governmental entity that enters into a public work contract with a prime contractor shall require the contractor to obtain a performance bond if the contract amount exceeds $100,000.00. A public performance bond must: (1) be solely for the protection of the state or governmental entity awarding the public work contract; (2) be in the amount of the prime contract; and (3) be conditioned on the faithful performance of the work in accordance with the plans, specifications, and contract documents.
On public projects where the prime contract is over $25,000.00 (or $50,000.00 when the prime contract is with a municipality or a joint airport board), Texas Government Code Section 2253 provides that the governmental entity must require the prime contractor to obtain a payment bond for the protection of unpaid subcontractors furnishing labor or materials under a public work contract. As a substitute to a mechanic’s lien, unpaid subcontractors, material suppliers, and laborers have the right to assert a claim against the prime contractor’s payment bond. The process is typically referred to as asserting a “payment bond claim” or a “claim against the bond.” A payment bond creates a new and additional source of funds to potentially recover payment of the debt. For example, in the event of nonpayment, your first line of recovery would typically be a breach of contract claim against the party who hired you. However, when you properly initiate a payment bond claim, you can now look to the surety to pay the debt if the contractor who hired you does not. The payment bond claim process is also an excellent opportunity to gain leverage in negotiating a settlement. For example, upon receipt of your payment bond claim, the surety will immediately notify the prime contractor and begin investigating the claim. If the contractor cannot raise a legitimate defense to the claim, then the surety will typically pressure the contractor to pay the claim or pay it itself and look to the contractor for reimbursement. When a payment bond claim is prepared in the form of payment demand, the process can be used to educate all of the involved parties of your legal rights and the steps that you intend to take to enforce payment in the event the claim is not immediately paid.
To perfect a claim for unpaid public work labor or materials, claimants are required to send a notice of claim, accompanied by a sworn statement of account, to the surety and the prime contractor. To prepare the bond claim documents, your attorney will need the surety’s name and address, and the bond number which can be obtained from the governmental entitiy or the prime contractor. The notice documents must be sent on or before the 15th day of the third month after each month in which any of the labor was performed or materials were delivered. The specific contents of the notice vary depending on whether the labor or materials were provided under a written or verbal agreement and the nature of payment. To perfect a claim for unpaid retainage, claimants are generally required to send a separate notice of claim to the surety and prime contractor within 90 days from completion of the public work contract. Claimants who do not have a direct contract with the prime contractor are required to send additional notices prior to delivering the notices referenced above to perfect a claim for unpaid labor or materials, specially fabricated materials, and retainage. Courts typically require strict compliance with all Chapter 2553 notice deadlines. Unlike the deadlines imposed by Chapter 53 of the Texas Property Code, the Chapter 2553 notices deadlines are not extended if the they fall on a Saturday, Sunday, or legal holiday.
First-Tier Subcontractors/Suppliers (those hired by the prime contractor): If you were hired by the project prime contractor, then you must serve the surety and the prime contractor with the Third Month Notice of Claim and Sworn Statement of Account by no later than the 15th day of the third month, after each and every month that you provide labor and/or materials to the project and have not been paid.
Second-Tier Subcontractors/Suppliers (those hired by a subcontractor): If you were hired by a subcontractor, then you must serve two notices (unless combined into one) to make a claim against the payment bond. First, you must serve the Second Month Notice of Claim on the prime contractor (only) by the 15th day of the second month, for each and every month that you provide labor and materials to the project and have not been paid. Additionally, like a First-Tier Subcontractor, you must also serve the Third Month Notice of Claim and Sworn Statement of Account on the surety and the prime contractor by the 15th day of the third month, for each and every month that you provide labor and/or materials to the Project and have not been paid.
Claimants who accept an order for specially fabricated materials from anyone other than the prime contractor are required to notify the prime contractor in writing that “the order has been received and accepted” to preserve a claim against the bond for unpaid specially fabricated materials. The notice must be sent on or before the 15th day of the second month after receipt and acceptance of the order.
Claimants hired by a subcontractor whose subcontract permits withholding retainage from progress payments, must notify the prime contractor of the retainage agreement in order to preserve a claim for unpaid retainage. The notice must be sent to the prime contractor on or before the 15th day of the second month from when the claimant first delivers materials or provides labor to the project. The notice should indicate that it is being sent to comply with Section 2253.047(b) and must: (1) state that the claimant’s subcontract provides for withholding retainage; and (2) generally indicate the nature of the retainage, such as the percentage to be withheld from progress payments.
You can file a lawsuit against the surety and the prime contractor to enforce the payment bond claim any time after the passage of 61 days from the date that you mailed notice of your claim and up to one year from the date that you timely made the claim. If the Lawsuit is not filed within the one year time period, it is forever waived.
