Perfecting Bond Claims on Public Projects in Texas: Porter Hedges

Perfecting Bond Claims on Public Projects in Texas

12.10.2019

Unlike with private commercial projects, liens cannot be filed against public projects in Texas. This means that unpaid subcontractors and suppliers do not have the same protections on public projects as those on private projects. On a private project, a subcontractor or supplier would ordinarily file a lien against the project to secure payment. However, to secure payment on a public project, a subcontractor or supplier must perfect a bond claim under Chapter 2253 of the Texas Government Code. ^[1] To perfect a bond claim for unpaid labor or material under Chapter 2253, a subcontractor or supplier must send notice to the prime contractor and surety for each month in which the labor or material was furnished. This blog provides a brief overview of the basic notice requirements for perfecting a claim for unpaid labor or material, including when and to whom to send the notice, what the notice should contain, and how and where to send the notice.

When and to whom should the notice be sent?

Section 2253.041, which sets forth the notice requirement for claims for unpaid labor or material that all payment bond beneficiaries ^[2] must comply with, provides:

(a.) . . . [A] payment bond beneficiary must mail to the prime contractor and the surety written notice of the claim.

(b.) The notice must be mailed on or before the 15th day of the third month after each month in which any of the claimed labor was performed or any of the claimed material was delivered.^[3]

In other words, first-tier (and lower) subcontractors and suppliers must send a “third-month notice” to the prime contractor and surety for each month in which the unpaid labor or material was furnished. ^[4]

Section 2253.047, which sets forth additional notice requirements for payment bond beneficiaries without a direct contractual relationship with the prime contractor, provides:

(c.) The payment bond beneficiary must mail to the prime contractor written notice of a claim for any unpaid public work labor performed or public work material delivered. The notice must be mailed on or before the 15th day of the second month after each month in which the labor was performed or the material was delivered. ^[5]

In other words, in addition to sending a third-month notice to the prime contractor and surety, second-tier (and lower) subcontractors and suppliers must also send a “second-month notice” to the prime contractor after each month in which the unpaid labor or material was furnished. ^[6]

What should the notice contain?

A third-month notice sent by first-tier (and lower) subcontractors and suppliers for unpaid labor or material must contain a sworn statement of account. ^[7]The sworn statement of account must state in substance that:

(1.) the amount claimed is just and correct; and
(2.) all just and lawful offsets, payments, and credits known to the affiant have been allowed. ^[8]

The sworn statement of account must also include “the amount of any retainage applicable to the account that has not become due” under the terms of the contract. ^[9]

A second-month notice sent by second-tier (and lower) subcontractors and suppliers for unpaid labor or material is not required to contain a sworn statement of account—“[a] copy of the statement sent to a subcontractor is sufficient as notice under this subsection [2253.047(c)].” ^[10]However, it remains best practice to include a sworn statement of account with each notice.

Note that additional information may be required in a notice under certain circumstances not discussed in this blog. ^[11]

How and where should the notice be sent?

All subcontractors and suppliers must send their notices by certified or registered mail. ^[12]

Notices to the prime contractor must be sent to the prime contractor’s: (1) residence or (2) last known address. ^[13]

Notices to the surety must be sent to the surety:

(1.) at the address stated on the bond or on an attachment to the bond;
(2.) at the address on file with the Texas Department of Insurance; or
(3.) at any other address allowed by law. ^[14]

^[1]	^{Texas Government Code Section 2253.021 requires that a prime contractor furnish a payment bond when its contract with the governmental entity is “in excess of $25,000, and the governmental entity is not a municipality or a joint board created under Subchapter D, Chapter 22, Transportation Code; or . . . in excess of $50,000, and the governmental entity is a municipality or a joint board created under Subchapter D, Chapter 22, Transportation Code.” Tex. Gov’t Code § 2253.021(a)(2).}
^[2]	^{“‘Payment bond beneficiary’ means a person for whose protection and use this chapter requires a payment bond.” Id. § 2253.001(2). A payment bond is “for the protection and use of payment bond beneficiaries who have a direct contractual relationship with the prime contractor or a subcontractor to supply public work labor or material.” Id. § 2253.021(c)(1).}
^[3]	^{Id. § 2253.041(a), (b).}
^[4]	^{Note that the notice requirements for claims for retainage only, which are not discussed in this blog, are set forth in Section 2253.046.}
^[5]	^{Id. § 2253.047(c).}
^[6]	^{Note that in addition to the second-month notice requirement set forth in Section 2253.047, additional notices may be required of second-tier (or lower) subcontractors and suppliers. See id. § 2253.047(b) (additional notice regarding retainage), 2253.047(d) (additional notice regarding specially fabricated material).}
^[7]	^{Id. § 2253.041(c).}
^[8]	^Id.
^[9]	^{Id. § 2253.041(d).}
^[10]	^{Id. § 2253.047(c).}
^[11]	^{See, e.g., id. §§ 2253.043 (additional requirements where written contract does not exist), 2253.044 (additional requirements where claim is for lump-sum payment for multiple items), 2253.045 (additional requirements where contract is a written unit price agreement); see also § 2253.046(b) (notice requirements for retainage only claim).}
^[12]	^{Id. § 2253.048(a).}
^[13]	^{Id. § 2253.048(b).}
^[14]	^{Id. § 2253.048(c).}

TAGS: Prime Contract, Subcontractor

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