On public projects you cannot file a lien against the property to secure nonpayment. However, there should be a payment bond in place that was obtained by either the owner or the general contractor to protect you when you have not been paid. The deadlines for making a claim against a payment bond are similar to those for perfecting a lien. In fact, you can satisfy the payment bond requirements by timely perfecting a lien claim. To learn more about how to make a payment bond claim read below.
Who May Furnish a Payment Bond and What is the Effect of a Valid Payment Bond
Anyone original contractor who has a written contract with the owner may furnish a payment bond prior to or during the construction of the project. A valid payment bond prevents the claimant from filing suit against the owner or his property for nonpayment for labor or materials supplied to the project.
What are the Requirements for a Valid Payment Bond
The bond must be: (1) in the penal sum of at least equal to the total of the original contract amount; (2) be in favor of the owner; (3) have the written approval of the owner on its face; (4) be executed by the original contractor and an authorized surety; (5) be conditioned on prompt payment for all labor, subcontracts, materials, specially fabricated materials, and normal and usual extras not exceeding 15% of the contract price; and (6) clearly display the identity of the surety or the toll free number of the Texas Department of Insurance. The bond and the contract between the original contractor and the owner must be filed with the county clerk of the county in which the project exists. The clerk is required to provide a copy of the bond and contract upon request and payment of a reasonable fee.
How Does a Valid Payment Bond Protect the Owner
A valid payment bond insulates the owner from personal liability and protects his real property from a mechanic’s lien. A valid payment bond also benefits claimants who have properly perfected their claim by timely providing the proper notices to the proper parties.
What Are the Notice Options for Perfecting a Claim Against a Payment Bond
A claimant has two options for perfecting a payment bond claim: (1) comply with the notice requirements for perfecting a lien pursuant to Texas Property Code Section 53.051, et. seq. for non-residential projects or Section 53.251, et. seq. for residential projects; or (2) by complying with the notice requirements of Texas Property Code Section 53.206, for perfecting a payment bond claim.
How Does a Claimant Perfect a Payment Bond Claim Using the Lien Perfecting Requirements
If the Claimant follows the requirements for perfecting a non-residential or a residential statutory lien, he will simultaneously perfect a claim against a payment bond if a valid bond exists. If the claimant is not absolutely positive as to whether a valid payment bond has been furnished by the original contractor, it is good practice to perfect the bond claim by following the requirements to perfect a lien claim. That way, if it later turns out that the bond was not obtained, it is later rendered to have been invalid, or if the surety becomes insolvent, the claimant will have protected its right to foreclose the lien and pursue its claim against the owner.
How Does a Claimant Perfect a Payment Bond Claim Under the Bond Claim Statute
The claimant must give all applicable notices to the original contractor that are required under the lien statutes and must serve the surety, instead of the owner, with all applicable notices under the lien statutes that are required to be given to the owner. In other words, the claimant is still required to timely comply with the notice requirements; however, the content of the notices are more lenient in substance and are directed to the surety instead of the owner. Some notable differences are the following: (1) the claimant is not required to provide the surety with notice of a contractual retainage agreement under 53.057 to protect a claim against retainage, unless the retainage to be withheld exceeds 10%; (2) the claimant is not required to provide the surety with notice that it has accepted an order for specially fabricated materials under 53.058; or (3) file a lien affidavit.
When and Where Must a Claim Against the Bond be Filed
A claimant may sue the principal and the surety on the bond either jointly or severally in the county where the work was performed if the claim remains unpaid for sixty (60) days after the bond claim has been perfected. The claimant may seek the amount of the claim and court costs. If the bond is recorded before a lien is filed, then the claimant must file his lawsuit against the bond within one year from the date it was perfected. If a lien is filed before a bond is filed, then the claimant has two years from the date of perfecting the claim to file suit against the bond.