Payment Bond Claims on Private and State Govt Projects: The Basics - Texas Webinar

In this SunRay Construction Solutions webinar, Texas construction law attorney Rebecca A. Hicks explains how payment bond claims work on private, state and local government, federal, and public-private partnership projects. The blog focuses on how to identify bonded jobs, what a payment bond is, and the steps, notices, and deadlines required to perfect a claim under Texas and federal law.

Payment Bond Claims: Determining Whether a Project Is Bonded

The first step in any payment bond claim process is to understand the nature of the project. Knowing who owns the project and your position in the construction chain determines your rights and obligations.

Projects generally fall under four categories:

1. Private Projects

2. State or Local Government Projects

3. Federal Projects

4. Public-Private Partnerships (P3s)

But to determine the type of project, finding out the ownership of the project is most crucial.

Who’s the Owner?

Ownership determines which statute applies and whether a payment bond should exist. Projects generally fall into four categories: private, state or local government, federal, and public private partnerships. Until ownership is clear, no one can know which rights apply, what the deadlines are, or what steps are required. Identifying the owner is step one, followed by identifying the claimant’s position in the contracting chain, and confirming whether a payment bond exists.

Private Projects

Private projects are owned by individuals or private entities such as corporations or limited liability companies. Texas Property Code Chapter 53 governs these projects. Most private projects are protected through mechanics liens, not bonds. Private jobs can be bonded by contract, especially larger projects such as hospitals, but Texas law does not require bonding on private work. If a private project is bonded, the claimant can use the same statutory third month notice used for liens, with the surety added as an additional recipient.

State or Local Government Projects

State or local projects include work for school districts, municipal utility districts, counties, cities, and TxDOT. These projects are governed by Texas Government Code Chapter 2253. Government property cannot be liened, so payment protection is through a statutory payment bond. Claimants on these jobs assert bond claims rather than mechanics liens, and specific notice timing applies.

Federal Projects

Federal work includes construction on military bases, post offices, and other federal facilities. These projects are governed by the Miller Act, 40 U.S.C. 3131. A payment bond is required, and claimants pursue payment through a Miller Act bond claim rather than a lien. Federal procedures are similar in concept but have distinct notice and suit deadlines.

Public-Private Partnerships (P3s)

Public private partnerships combine public and private participation on large projects such as toll roads or civic facilities. Texas removes ambiguity by requiring payment bonds on P3 projects. As a result, claimants on P3 jobs should expect bond protection and prepare to assert a bond claim rather than a lien.

What Is a Payment Bond?

A payment bond is a surety policy obtained by the general contractor to guarantee payment to subcontractors and suppliers if the general contractor fails to pay. Government projects will have a payment bond. Private projects may or may not be bonded, depending on the owner contractor agreement. The larger the private job, the more likely it is to be bonded. Because there is no automatic requirement on private jobs, participants should always ask whether a payment bond exists and obtain a copy.

Performance Bonds vs. Payment Bonds

Performance Bond – Guarantees the project is completed per contract. (Protects the owner.)

Payment Bond – Guarantees subs and suppliers are paid. (Protects everyone down the chain.)

When a project is bonded, two types of bonds often exist:

• Performance Bond: Ensures that the project will be completed according to the contract. It benefits the project owner.

• Payment Bond: Ensures that subcontractors and suppliers get paid. It benefits the participants down the construction chain.

Claimants must pay close attention when requesting copies of bonds because both documents are usually sent together. Only the payment bond is relevant for payment protection purposes.

Definition and “Gotcha” Bonds

A payment bond guarantees payment down the chain if the general contractor defaults. Projects often have a second bond, the performance bond, which guarantees completion of the project for the owner. Performance bonds do not protect payment rights for subs and suppliers. When requesting copies, both bonds often arrive together, sometimes with different bond numbers and even different sureties. Claimants must verify that they are using the payment bond information when preparing notices and claims.

Subcontractor Bonds

General contractors sometimes require first tier subcontractors to furnish their own payment bonds that protect lower tier parties. Subcontractor bonds in Texas are governed by contract, not statute. The terms of the bond control, so claimants must read and follow the bond language precisely. To distinguish a subcontractor bond from a general contractor bond, review the principal named on the bond and map it against the contracting chain. When both exist, make claims on both.

How to Get the Bond

The best source is a direct request to the general contractor. A payment bond document typically lists the principal, obligee, surety, project, and claim address. If the general contractor prefers, the bonding agent or surety may provide the details. Claimants should obtain the actual bond, not just a bond number or a verbal confirmation, to avoid errors that can jeopardize a claim. On private projects, recorded copies may appear in county real property records, although recording is inconsistent. On public projects, a FOIA request can obtain the bond, but it should be made early because responses can take time.

Deadlines — Private Projects

For bonded private projects in Texas, the deadline to send the notice that doubles as the bond claim is the 15th day of the third month after the month of furnishing. The statutory third month notice form is used, and the surety is added as a recipient at both the Texas Department of Insurance registered address and the claim address listed in the bond. Although not required, filing a mechanics lien in addition to the bond notice often increases pressure to resolve payment. Notices should be sent to the owner, the general contractor, any applicable first tier subcontractor, and the surety at the required addresses.

If a subcontractor bond also exists on a private job, include all relevant sureties on the same statutory notice package.

State or Local Government Bond Claims

For Texas state or local jobs, there are two steps. First, a second month preliminary notice must be sent by parties who do not contract directly with the general contractor. Second, all claimants must send a third month bond claim by the 15th day of the third month. The third month claim must include a sworn statement of account with the statutory language affirming that all known offsets, payments, and credits have been allowed. The sworn statement must be notarized. The bond claim must also include core project information such as the contracting party, dates of performance or delivery, and a clear description of the labor or materials. Send the claim to the general contractor and the surety at the principal business addresses, registered agent addresses, and any claim addresses listed in the bond. For unit price or rental arrangements, include unit lists or pricing and completion status, often satisfied by attaching invoices and purchase orders.

Key Deadlines for Bond Claims

Private Projects

• Deadline: 15th day of the third month after labor or materials were furnished.

• The notice should include the surety’s registered address (from the Texas Department of Insurance) and the address listed in the bond.

• Although filing a mechanics lien is not mandatory for a bonded private project, doing so adds extra pressure for payment.

State or Local Government Projects

• Preliminary Notice: 15th day of the second month for those without a direct contract with the GC.

• Bond Claim Notice: 15th day of the third month after furnishing labor or materials.

• The bond claim must include a sworn statement of account affirming that all payments and offsets have been credited.

• Notices must be sent by certified mail, return receipt requested.

Federal Projects (Miller Act)

• Deadline: 90 days after the last substantial labor or material was furnished.

• For first-tier subcontractors, a notice is not technically required, but sending one ensures proper documentation.

• Second-tier subcontractors must send a notice within 90 days.

• The statute of limitations to file a lawsuit is one year from the date of last work performed.

What Happens After a Bond Claim Is Made

Once a bond claim is submitted, the surety typically responds within two weeks. The surety may request:

• Copies of invoices or contracts

• Delivery tickets or payment applications

• Additional documentation or sworn forms

Claimants should respond promptly and provide all requested details. If the bond claim is timely and compliant, sureties generally pay the claim unless the general contractor disputes it. In the case of a dispute, the surety will defer to its principal (the GC), and the claimant may need to litigate the issue to recover payment.

Limitations and Timing of Suit

For payment bond claims on private or state projects, a lawsuit must be filed within one year from the date the first claim notice was sent. Claimants who perform over multiple months may send multiple notices, but the one year period runs from the first notice date. Negotiations and project disputes can consume time quickly, so conservative calendaring is essential.

Federal Projects — Miller Act Claims

Miller Act notice is due within 90 days after the claimant’s last substantial labor or material. First tier subcontractors technically have a claim without sending notice, but providing notice is practical and recommended. Second tier subcontractors must send notice. Federal protection stops at the second tier, so third tier entities are not covered and must ensure their payor includes their sums in its own claim. The supplier versus subcontractor distinction can affect eligibility. Parties who only drop off materials without installation may be treated as suppliers rather than subcontractors. Notices must be sent by certified mail return receipt requested or an approved commercial carrier. Suit must be filed within one year from the date of last substantial work, which is an earlier measuring point than state law that counts from mailing of the claim.

After You Make a Bond Claim

After a bond claim is mailed, sureties typically acknowledge the claim and request documents such as contracts, invoices, delivery tickets, and sworn claim forms. Claimants should respond promptly and completely. If the claim is timely and compliant, sureties often pay, unless the principal disputes liability or performance. In that case, the surety will allow the principal to contest the facts, and the claimant must be prepared to prove entitlement through negotiation or litigation.

Final Takeaway

Payment bond claims are an essential part of protecting payment rights in the Texas construction industry. Understanding the type of project, the correct bond, and the applicable deadlines is critical to ensuring timely recovery.

From private developments to public infrastructure and federal contracts, every contractor or supplier should make it standard practice to verify whether a project is bonded and secure a copy of the payment bond early in the process. Doing so ensures they can take the right steps to protect their right to payment when disputes or delays arise.

Common Questions Contractors Ask

Q1. I received a letter from the surety company saying that my third-month bond notice is just a “notice” and not an actual bond claim. On a private job, if I send my third-month bond notice on time and include the bond company and all required entities, is that considered my bond claim, or do I need to send another document?

Yes, that is your bond claim.
Rebecca explained that many sureties currently send this kind of confusing letter — essentially saying, “We received your letter, it sounds like a claim, but we think it’s only a notice.”

In such cases, her advice is simple: respond with a short follow-up letter — about three sentences — confirming that yes, it is indeed a claim.
Once you send that clarification, the surety will typically respond with another letter requesting additional information such as invoices, contracts, or supporting documentation. You’ll then need to provide those details to move the claim forward.

Q2. On a private bonded job, should I send both the third-month fund-trapping notice and a separate third-month bond notice? Or if the bond company is listed on my fund-trapping notice, does that count as proper notification for the bond claim?

If the surety is included in your regular fund-trapping notice letter (the statutory third-month notice), that already qualifies as your bond claim on a private project.
You do not need to send an additional document.

However, there is one exception.
If you are working on large residential developments where projects may be partially under a Municipal Utility District (MUD) but still privately owned by a developer, there is a gray area in Texas law.
In such cases, the project could be treated as either a local government job (under Chapter 2253) or a private project.

To stay protected, Rebecca recommends sending both:

• The bond claim notice with a sworn statement, and

• The standard fund-trapping notice letter.

This ensures your rights are perfected under both public and private statutes while Texas law on such hybrid projects remains unclear.