Why Owners and Contractors Rely on Bonds

• Project continuity – A bonded job is more likely to reach the finish line even if the contractor defaults.
• Payment security – Subcontractors and suppliers gain a clear path to recovery without clouding the owner’s title through mechanic’s liens on public land.
• Market discipline – Surety underwriting forces contractors to maintain healthy finances and proven project controls.

Core Bond Types

Bid bond – Assures the owner the bidder will sign the contract and furnish final bonds at the bid price.

Performance bond – Guarantees completion in accordance with plans, specs, and schedule. If the contractor defaults, the surety may finance the original builder, hire a replacement, or pay the owner the cost to finish.

Payment bond – Protects sub-tiers by guaranteeing they will be paid. Claimants bypass the owner and proceed directly against the surety when funds dry up.

Maintenance or warranty bond – Covers defects discovered during the post-completion maintenance period.

Supply bond – Ensures a vendor delivers materials or equipment per contract terms.

Statutory Landscape

• Federal Miller Act – Performance and payment bonds are mandatory on federal contracts exceeding $150,000. Suit on the bond must be filed in federal court no earlier than day 91 and no later than one year after the claimant’s last labor or material.
• Texas “Little Miller” Act (Gov’t Code ch. 2253) –
  
  • State and county projects: payment bond required for contracts over $25,000; performance bond required over $100,000.
  • Municipal projects: payment bond threshold rises to $50,000.
  • Claimants serve notice by the 15th day of the third month after each month of unpaid work and sue the surety within one year after final completion of the prime contract.
• Private projects – Owners may post a statutory bond to remove mechanic’s lien claims under Property Code Chapter 53, Subchapter H. The bond substitutes surety credit for the lien on real estate.
• Licensing bonds – Certain Texas municipalities and specialty trades require separate license or permit bonds as a condition of pulling work permits.

How Bond Claims Unfold

1. Notice – Payment-bond claimants send the statutorily timed written notice and supporting invoices.
2. Investigation – The surety verifies contract balance, job status, and defenses.
3. Resolution – The surety may pay, deny, or tender a completion contractor depending on the bond type and facts.
4. Indemnity recovery – The principal must reimburse the surety under the general indemnity agreement, creating a strong incentive to avoid default in the first place.

Best Practices for Owners and Developers

• Demand bonds in the solicitation. Require Treasury-listed sureties for federal or bonded private work, and confirm the bond amount matches the contract price.
• Read the bond form. Verify that the obligee is named correctly and that any required riders—contract, scope, penalty amount—are attached.
• Track progress and signals of distress. If quality drops or payroll delays surface, engage the surety early; timely notice preserves options.

Best Practices for Contractors

• Maintain strong financials. Net worth, working capital, and profitable history drive bonding capacity and rates.
• Manage sub-bonding. Flow down bond requirements to critical trade partners to protect schedule and limit back-end exposure.
• Communicate candidly with the surety. Unexpected cost spikes or owner disputes disclosed early often yield surety support rather than confrontation.
• Honor indemnity obligations. Keep books clean and project funds segregated to avoid personal exposure under the Trust-Fund Act and the indemnity agreement.

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On public work, surety bonds are the law; on private projects, they are wise business. They assure owners of completion, safeguard subcontractor payments, and incentivize sound financial stewardship. Understanding the statutory triggers, notice windows, and indemnity mechanics lets all parties harness the protection bonds offer without stumbling into avoidable claims or capacity constraints. When questions arise—from drafting bond forms to prosecuting or defending claims—seasoned construction counsel can keep the guarantee intact and the project on course.