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Texas Construction Law Blog For Subcontractors & Suppliers

Private Payment Bonds: The Basics

Posted in Bonds

A general contractor on a privately owned project may provide the owner with a payment bond.  Although these payment bonds are not required under Texas law, many owners require general contractors to post payment bonds so the owner can avoid lien claims against the owner and the owner’s property.  You may perfect a claim against a private payment bond by giving the appropriate lien notices and by filing a lien affidavit just as you would to perfect a lien claim.

The notices should also be sent to the surety.  Before doing so, you should demand a copy of the bond so you can confirm it is the correct bond and you have the correct surety and bond information.  Private payment bonds are also required to be recorded in the county in which the project is located.  Nevertheless, you should always acquire a copy of the payment bond before you begin your work on the project or begin shipping materials to the project.

If the privately owned project is covered by a payment bond from the general contractor then you cannot sue the owner or foreclose your lien on the property.  This protection is why owners frequently seek a private bond. Instead, you must sue the surety for a claim on the bond.  In other words, the bond is your security for payment rather than a lien against the real property.  A private bond is nearly always as good as (and sometimes may even be better) than a lien because it obligates a surety to pay your claim.  The time limits for filing a claim on a private payment bond are different from those for filing suit to foreclose your lien.  You must wait to file suit until at least 60 days have passed from the date your claim is perfected.  The purpose of this waiting period is to give the surety time to investigate.  In addition, you must file suit within twelve months after your claim is perfected if the bond is filed of record at the time the lien affidavit is filed.  If the bond was not filed of record when you filed your lien affidavit, you must file suit within two years from the date your claim is perfected.

If a bond is furnished by someone other than a general contractor, a first tier subcontractor for example, then this is typically referred to as a common law bond and is not governed by the Texas Property Code.  Because these bonds and their terms are not subject to the usual statutory requirements, the precise wording of these bonds is very important.  You should not assume the terms and provisions will be the same as private payment bond issued by the general contractor.