Texas Payment and Performance Bond Requirements

Texas payment and performance bond requirements come from Chapter 2253 of the Texas Government Code, and they kick in based on the size of the public works contract and the type of governmental entity awarding it. Performance bonds are required on any public work contract over $100,000. Payment bonds are required over $25,000 for state agencies, counties, school districts, and other non-municipal entities, and over $50,000 for municipalities and joint boards created under the Transportation Code. Both bonds must be written in the full amount of the contract and executed by a corporate surety.¹

The municipality distinction catches people off guard. A subcontractor working on a $35,000 city water project might assume a payment bond is in place, only to find that the threshold for a municipality is $50,000, not $25,000.

What Each Bond Does and Who It Protects

The two bonds do different jobs.

A performance bond guarantees the governmental entity that the contractor will complete the project according to the plans, specifications, and contract documents. It exists solely to protect the entity that awarded the contract.¹ Subcontractors and suppliers cannot claim under it.

A payment bond protects subcontractors and suppliers from nonpayment. Because mechanics’ liens cannot attach to government property, the payment bond is the substitute remedy for anyone furnishing labor or material to a public project. To qualify as a beneficiary, you need a direct contractual relationship with either the prime contractor or a subcontractor and you must have supplied labor or material for the public work.¹ A supplier three tiers down, with no contractual link to the prime or a first-tier sub, may fall outside the bond’s protection.

The bond itself must prominently display the surety company’s name, mailing address, physical address, and telephone number, or provide the Texas Department of Insurance toll-free number where that information can be obtained. The governmental entity cannot force a contractor to use any specific surety company, agent, or broker.¹

How to Make a Payment Bond Claim

This is where most claims are won or lost. The Texas deadline is not a flat 90 days. Notice of a payment bond claim must be sent by the 15th day of the third month after each month in which the claimed labor was performed or materials were delivered. In practice that is roughly 75 to 105 days depending on when in the month the work occurred, and miscounting by a day can end the claim.

The notice must be mailed to both the prime contractor and the surety. It must include a sworn statement of account affirming that the amount claimed is just and correct and that all known offsets, payments, and credits have been applied. The sworn statement must also disclose any retainage applicable to the account that has not yet become due under the terms of the subcontract.²

The statute says the notice must be “mailed” without specifying a method. Certified mail with return receipt is the standard approach because it creates a paper trail proving when and to whom the notice went. If timeliness is later disputed, that receipt is invaluable.

Getting a Copy of the Bond First

Before sending notice, you need to know who the surety is and what the bond says. Texas law requires the governmental entity to furnish a certified copy of the payment bond, any attachments, and the underlying public work contract to anyone who submits an affidavit stating that they supplied labor or materials and have not been paid, that they contracted for specially fabricated materials and have not been paid, or that they are being sued on the bond. The entity can charge a reasonable fee for the actual cost of preparing copies.³ The bond identifies the surety and gives you the address for notice.

Filing Suit After Notice

After proper notice is mailed, the claimant has to wait. If the claim is not paid before the 61st day after the date the notice was mailed, the beneficiary may sue the prime contractor, the surety, or both. The suit can seek the unpaid balance of the claim plus reasonable attorney fees.⁴

Chapter 2253 does not set its own shortened limitations period the way the federal Miller Act does, so the general Texas contract limitations period likely governs. Even so, filing promptly after the 61-day waiting period ends is the safer course. Sitting on a valid claim makes facts harder to prove and invites procedural problems.

Performance Bond Claims and Default

When a contractor abandons the project, becomes insolvent, or otherwise fails to meet its obligations, the project owner must formally declare the contractor in default and provide written notice to the surety. The surety then typically has three options: finance the existing contractor to complete the work, hire a replacement contractor, or compensate the project owner for damages up to the bond amount. That cap on liability is the “penal sum,” normally equal to the full contract price. If completion costs run past the contract price because of overruns or delays, the surety’s exposure is still limited to that penal sum unless the bond was written for a higher amount.

Performance bond disputes tend to be more complex than payment bond claims. They involve whether the work was actually deficient, whether the owner properly declared default, and whether the surety’s chosen remedy was adequate. Many performance bonds include provisions requiring mediation or arbitration before litigation.

An owner who declares default without proper notice to the surety risks having the surety dispute liability, which delays completion and drives up cost.

If the Entity Fails to Require a Bond

Governmental entities sometimes fail to require the payment bond the statute mandates. When that happens, the entity itself becomes liable to claimants in the same way a surety would have been. The entity steps into the surety’s shoes, and subcontractors and suppliers can recover directly from it.¹ That rule gives entities a strong incentive to enforce the bonding requirement rather than waive it as a convenience.

Bond Language That Conflicts With the Statute

Chapter 2253 has a useful safeguard. If a contractor furnishes a bond that attempts to comply with the statute but contains language that expands or restricts the rights the statute creates, the non-conforming language is disregarded and the bond is treated as though it complies. Sureties cannot narrow a claimant’s statutory rights by inserting extra conditions, and bonds cannot impose obligations on project owners beyond what the statute requires.

Federal Projects Are Governed by a Different Statute

If the project is federally funded, Chapter 2253 does not apply. The Miller Act, at 40 U.S.C. § 3131, requires both a performance bond and a payment bond on any federal construction contract exceeding $100,000.⁵ This $100,000 figure is specifically excluded from the periodic inflation adjustments that apply to other federal acquisition thresholds.⁶

The Miller Act payment bond must equal the total contract amount unless the contracting officer determines that is impractical and sets a different figure in writing. The performance bond amount is whatever the contracting officer considers adequate to protect the government.

Miller Act claim procedures differ from Texas rules. A supplier or subcontractor who has not been paid within 90 days of completing their last work can bring a civil action on the payment bond. Those without a direct contract with the general contractor must give written notice to the contractor within 90 days of furnishing their last labor or material, stating the amount claimed and identifying the party for whom the work was performed. Suit must be filed no later than one year after the last labor or material was supplied.⁷ Contractors working on both state and federal projects need to track which statute governs each job.

Bond Costs and Underwriting

Bonds are not free, and the contractor pays. Premiums for performance and payment bonds typically run between 0.5% and 4% of the contract amount for well-qualified contractors, and higher for those with limited experience or weak financials. On a $1 million public works contract, that is roughly $5,000 to $40,000 in premium.

Sureties evaluate contractors on three broad criteria:

Character. The contractor’s reputation, integrity, and track record. A history of completed projects with no bond claims carries real weight.
Capacity. Whether the contractor has the experience, personnel, and equipment for the specific project. A paving company bidding on a complex bridge job will face harder scrutiny.
Capital. Financial strength, including assets, liquidity, and profitability. Sureties want to see the contractor can absorb cost overruns without going under.

Contractors new to public work often underestimate how long underwriting takes. Building a relationship with a surety before you need a bond for a specific bid is a real advantage over scrambling at the last minute.

1
State of Texas. Texas Government Code 2253.021 – Performance and Payment Bonds Required
2
State of Texas. Texas Government Code 2253.041 – Notice Required for Claim for Payment
3
State of Texas. Texas Government Code 2253.026 – Copy of Payment Bond and Contract
4
State of Texas. Texas Government Code 2253.073 – Suit on Payment Bond
5
Office of the Law Revision Counsel. 40 USC 3131 – Bonds of Contractors of Public Buildings or Works
6
Federal Register. Inflation Adjustment of Acquisition-Related Thresholds
7
Office of the Law Revision Counsel. 40 USC 3133 – Right of Action and Venue