Payment Bonds for Texas Contractors
A payment bond can provide financial protection for qualifying subcontractors, laborers and suppliers if a bonded contractor fails to meet covered payment obligations under the contract.
Lavon Insurance helps Texas contractors apply for contract surety bonds for public, commercial and qualifying private projects.
What Is a Payment Bond?
Payment bonds are commonly used in construction contracts to provide financial protection relating to payment for labor and materials.
A contractor may be required to provide a payment bond before beginning work on a construction project.
Subject to the bond terms and applicable requirements, the bond can provide a source of recovery for qualifying subcontractors, laborers and suppliers when covered payment obligations are not satisfied.
The specific rights, deadlines and claim requirements depend on the bond, contract and applicable law.
Who May Benefit From a Payment Bond?
Payment bonds are designed around payment obligations connected with a bonded project.
Subcontractors
Qualifying subcontractors may have payment-bond rights for covered amounts owed for work performed on the project.
Laborers
Certain labor-related amounts may be protected under the bond when the applicable requirements are satisfied.
Material Suppliers
Qualifying suppliers may have rights under the bond for covered materials furnished for the bonded project.
The Three Parties to a Payment Bond
Principal
The contractor responsible for the bonded contractual obligations.
Obligee
The governmental entity, project owner or other party requiring the bond.
Surety
The surety company that issues the bond according to its terms and underwriting requirements.
Why Payment Bonds Matter
Supports Subcontractor Confidence
Payment bonding can provide subcontractors and suppliers with an additional source of financial protection tied to the project.
Protects the Supply Chain
Construction projects often depend on multiple suppliers, trades and subcontractors being paid as work progresses.
Meets Contract Requirements
Public entities and private project owners may require payment bonds as part of the construction contract.
Payment Bonds on Texas Public Works Projects
Texas Government Code Chapter 2253 requires payment bonds on certain public works contracts. The applicable threshold depends in part on the type of governmental entity.
Contractors working on government projects should review the solicitation, contract documents and applicable statutory requirements before beginning work.
Public-project payment bond claims can also involve specific notice and timing requirements, so parties with potential claims should consult the bond and applicable legal requirements.
Payment Bonds and Performance Bonds Often Work Together
Many construction contracts require both because they address different risks.
Bid Bond
Generally associated with the bidding stage and the contractor’s obligations if awarded the project.
Performance Bond
Generally provides financial assurance relating to covered performance obligations under the bonded contract.
Payment Bond
Generally provides protection relating to covered payment obligations to qualifying subcontractors, laborers and suppliers.
How to Apply for Performance & Payment Bonds
Review Your Contract
Identify the project, obligee, contract amount and required performance and payment bond amounts.
Submit the Combined Application
Complete the Performance & Payment Application with the requested contractor and project information.
Underwriting
The surety evaluates the contractor, project and financial information required for approval.
Bonds Are Issued
Once approved and issued, provide the required bonds to the obligee according to the contract requirements.
Information You May Need
- Legal business name and contact information
- Project owner or obligee
- Project name and location
- Contract amount
- Required performance bond amount
- Required payment bond amount
- Contract or award documents
- Required bond forms
- Project scope of work
- Contractor experience
- Current work in progress
- Financial information when required
Contract Surety Bond Assistance for Texas Contractors
Lavon Insurance helps contractors and businesses apply for performance, payment, bid and other surety bonds throughout Texas.
Online Application
Start your combined performance and payment bond application online.
Personal Assistance
Contact Lavon Insurance if you need help identifying the bonding requirements in your contract.
Contractor Bonding
We can assist with contract surety needs for qualifying public, commercial and private construction projects.
Payment Bond FAQs
What is a payment bond?
Who does a payment bond protect?
Is a payment bond the same as a performance bond?
Do I need separate applications for performance and payment bonds?
Does every construction project require a payment bond?
How much does a payment bond cost?
Can I apply for a payment bond online?
Apply for Performance & Payment Bonds
If your construction contract requires performance and payment bonds, use our combined online application to begin the underwriting process.
Bond availability, approval, rates, limits and underwriting requirements vary by surety company, contractor and project. Bonds are not issued until approved by the surety.