Payment Bonds for Texas Contractors
A payment bond guarantees that subcontractors, laborers and suppliers on a bonded project will be paid if the contractor doesn’t pay them. Lavon Insurance helps Texas contractors get payment and performance bonds for public, commercial and private projects.
What Is a Payment Bond?
A payment bond is a surety bond the contractor provides before work begins. If the contractor fails to pay for labor or materials on the project, qualifying subcontractors, laborers and suppliers can make a claim against the bond instead of filing a lien.
Principal
The contractor that must pay subcontractors, laborers and suppliers.
Obligee
The government entity or project owner that requires the bond.
Surety
The surety company that issues the bond and pays valid claims.
Subcontractors and suppliers generally can’t file a mechanic’s lien against public property. On public projects, the payment bond takes the place of lien rights.
Who Does a Payment Bond Protect?
Subcontractors
Qualifying subcontractors can claim covered amounts owed for work performed on the project.
Laborers
Unpaid labor on the bonded project can be protected when notice requirements are met.
Material Suppliers
Qualifying suppliers can claim covered materials furnished for the bonded project.
When Is a Payment Bond Required?
Statutes require payment bonds on public projects above certain contract amounts. Private owners and lenders can require them on any project.
| Project Type | Payment Bond Required When | Law |
|---|---|---|
| Texas public works | Contract exceeds $25,000, in the full contract amount | Gov’t Code §2253.021 |
| Texas cities & certain joint boards | Contract exceeds $50,000, in the full contract amount | Gov’t Code §2253.021 |
| Federal construction | Contract exceeds $150,000 | Miller Act, FAR 28.102-1 |
| Private projects | When the owner, lender or general contractor requires it | Contract terms |
Texas Public Project Payment Bond Claim Deadlines
On Texas public works projects, payment bond claims have strict notice deadlines under Government Code Chapter 2253. Missing a deadline can forfeit your claim.
This is a general summary. Additional notices can apply depending on your tier and the type of claim. Consult a Texas construction attorney about a specific claim.
- Notice of claim: mail by the 15th day of the third month after each month the labor was performed or material was delivered (§2253.041)
- Example: work performed in January requires notice by April 15
- Lawsuit: file suit on the bond within one year after the notice is mailed (§2253.078)
How Much Does a Payment Bond Cost?
Payment and performance bonds are usually written together, and the premium is typically charged once for both. Premiums are usually a percentage of the contract price, commonly around 1% to 3% for qualified contractors, with lower rates on larger contracts.
Your actual rate is set by the surety after reviewing your experience, finances, credit and the project.
- Contract size and bond amount
- Years in business and similar completed projects
- Business and personal financial statements
- Personal and business credit
- Current backlog and work in progress
- Project type, duration and contract terms
Payment Bonds and Performance Bonds Work Together
Most bonded construction contracts require both, because they protect against different risks.
Bid Bond
Guarantees you’ll sign the contract and provide the required bonds if your bid wins.
Learn About Bid Bonds →Performance Bond
Guarantees the owner that the work will be completed according to the contract.
Learn About Performance Bonds →Payment Bond
Guarantees that qualifying subcontractors, laborers and suppliers will be paid.
All Construction Bonds →Our online application is a combined Performance & Payment Bond Application. If your project requires both bonds, you only need to apply once.
How to Apply for Performance & Payment Bonds
Review Your Contract
Identify the obligee, contract amount, required bond amounts and bond forms.
Submit the Combined Application
Complete the Performance & Payment Application with your contractor and project information.
Underwriting
The surety reviews your experience, finances, work in progress and the project.
Bonds Are Issued
Once approved, deliver the signed bonds to the obligee as the contract requires.
Information You’ll Need
Having these documents ready speeds up underwriting. Larger contracts may also require CPA-prepared financial statements.
Need help reading the bond requirements in your contract? Call (972) 853-8884.
- Legal business name and contact information
- Project name, location and obligee
- Contract amount and required bond amounts
- Contract or award documents
- Required bond forms
- Scope of work
- Contractor experience and completed projects
- Current work in progress
- Financial information when required
Payment Bond FAQs
What is a payment bond?
A payment bond is a surety bond that guarantees qualifying subcontractors, laborers and suppliers on a bonded project will be paid if the contractor fails to pay them.
Who does a payment bond protect?
Qualifying subcontractors, laborers and material suppliers who furnish labor or materials to the bonded project, subject to the bond terms and notice requirements.
When does Texas require a payment bond?
Under Texas Government Code §2253.021, governmental entities must require a payment bond on public works contracts over $25,000, or over $50,000 for municipalities and certain joint boards. Federal projects over $150,000 require one under the Miller Act.
How much does a payment bond cost?
Payment and performance bonds are usually written together for one premium, commonly around 1% to 3% of the contract price for qualified contractors. Your rate depends on your experience, finances, credit and the project.
Is a payment bond the same as a performance bond?
No. A performance bond protects the project owner by guaranteeing the work is completed. A payment bond protects subcontractors and suppliers by guaranteeing they are paid. Many projects require both.
What is the deadline to make a payment bond claim in Texas?
On Texas public works projects, notice must generally be mailed by the 15th day of the third month after each month the labor was performed or material was delivered, and suit must be filed within one year after the notice is mailed.
Can subcontractors file a lien on a public project?
Generally no. Public property usually can’t be liened, so the payment bond is the main protection for unpaid subcontractors and suppliers on public projects.
Do I need separate applications for performance and payment bonds?
No. Lavon Insurance’s online application is a combined Performance & Payment Application for projects that require both bonds.
Does every construction project require a payment bond?
No. Requirements depend on the project owner, governmental entity, contract amount and contract terms. Private owners can require bonds even when no statute does.
Other Bonds & Insurance for Contractors
Lien Release Bonds
Remove a mechanic’s lien from a property while the dispute proceeds against the bond.
Learn About Lien Release Bonds →General Liability
Most bonded contracts also require proof of general liability insurance.
General Liability Insurance →Workers’ Compensation
Often required by public and commercial construction contracts.
Workers’ Compensation →Apply for Performance & Payment Bonds
If your construction contract requires performance and payment bonds, start our combined online application.
Bond availability, approval, rates, limits and underwriting requirements vary by surety company, contractor and project. Bonds are not issued until approved by the surety. Statutory summaries are general information, not legal advice.