Texas Payment Bond Claim for Sub-subcontractors: Requirements and Best Practices | Handle

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Texas Payment Bond Claim for Sub-subcontractors: Requirements and Best Practices

Texas Payment Bond Claim for Sub-subcontractors: Requirements and Best Practices

June 5, 2020

The right to file a mechanics lien applies only to construction parties working on private projects. Fortunately, parties on public projects are allowed to make a payment bond claim to recover their payment from non-paying clients.

In Texas as well as in other states, general contractors for public projects are obligated by law to furnish a payment bond that will protect lower-tier contractors from non-payment. Lower-tier contractors are therefore able to secure their compensation from this payment bond.

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This guide will explain the entire process of making a public payment bond claim specifically for sub-subcontractors, or those parties who have no direct contractual relationship with the general contractor.

How do sub-subcontractors make a public bond claim in Texas?

The process for making a public bond claim for Texas sub-subcontractors includes four simple steps:

How do sub-subcontractors make a public bond claim in Texas

1. Request a copy of the payment bond

When you secure a contract for a public project, your first course of action is to request a copy of the payment bond. This can be done by writing your subcontractor a formal letter asking for a copy of the bond.

The subcontractor should be able to serve you a copy of the payment bond, which they can obtain from the general contractor. Note that in Texas, a written request for information must be responded to within 10 days of receipt. General contractors and other higher-tier parties are therefore mandated by law to give you the information that you request.

Another way of getting information pertaining to the payment bond is to talk directly with the government body that contracted the project. Government offices should be able to lead you to the person who can give you the details that you need.

Having a copy of the Texas payment bond is very important because it allows you to know specific details, such as the name and address of the surety. Knowing these pieces of information will help you fulfill the succeeding steps in making a Texas public payment bond claim.

2. Serve a second-month (preliminary) notice

The second step is to serve a document that is commonly known as the second-month notice. This second-month notice acts as a preliminary notice, which is required for all parties who do not have a direct contract with the general contractor.

All sub-subcontractors and other lower-tier parties who have no direct contact with the general contractor are therefore required to serve the second-month notice on the subcontractor, the general contractor, and the surety.

When do you serve the second-month notice?

The Texas second-month notice for sub-subcontractors must be served by the 15th day of the second month after each month in which you worked on a project and did not get fully paid. This second-month notice is a recurring notice. It is very important to keep in mind that you have to serve it multiple times during the course of a project.

Deadline for Serving the Texas Second-Month Preliminary Notice for Sub-subcontractors

What happens if you do not serve the second-month notice?

Failing to serve the second-month notice will forfeit your right to make a valid payment bond claim. This means that even if you make a payment bond claim, the surety will not cover your payment if they know that you did not serve them a valid second-month notice.

Note, however, that since the second-month notice is a recurring requirement, missing to serve this notice for one specific month does not revoke your payment bond claim rights for the entirety of the project. If, for instance, you did not serve a second-month notice for the month of April, you can correct your mistake and make sure that you serve a valid notice in succeeding months.

On whom must you serve the second-month notice?

The second-month notice is served on the general contractor, the surety, and the party who hired you. If you successfully completed step 1, you should have the valid addresses of both the general contractor and the surety in your files.

What information must be included in your second-month notice?

The following details must be written on your Texas public project preliminary notice:

  • Your name
  • The name of the general contractor
  • The amount of the unpaid balance
  • The month and year when you furnished the services related to the unpaid balance that you are claiming
  • The date when you served the notice

You may use the following template, as prescribed by the government of Austin, Texas, for your second-month notice:

TO WHOM IT MAY CONCERN:
_____(Sub-Contractor’s Name of Firm) _____ , has a claim in the sum of $ _______ against _____ (Subcontractor’s Name) ___________________ for labor performed and materials delivered for services during the month of _____(Month, Year)_______ , on the above-referenced project.

A copy of the written sub-subcontract agreement and invoices are attached, along with a Sworn Statement of Account.

This notice is sent in compliance with Chapter 2253, Texas Government Code, and is NOT to be construed as a reflection upon the credit practices or paying habits of ____(Name of General Contractor) ______ .
This notice is required by law and it is generally welcomed by all responsible firms who uphold sound methods of conducting their businesses. If you need any additional information to process this claim or if you believe that this claim is defective in any way, please notify us at once.

Dated this ______(Day, Month, Year)__________ .
By: _____(Name of Owner or Representative Subcontractor)_______

Are there any additional documents that must be included in your second-month notice?

Yes, there are. The following documents must be attached to your second-month notice when you serve it on the appropriate parties:

  • Sworn Statement of Account
  • A copy of the sub-subcontract agreement
  • Copies of the invoices related to your payment claims

The Sworn Statement of Account is a notarized document that attests to the truth of your payment claim. This document includes basic details, such as the amount of the unpaid balance, the name of the party who owes you the payment, the name of the project, and the specific month for when you are submitting the second-month notice.

The following template shows a sample Statement of Account:

SWORN STATEMENT OF ACCOUNT

Before me the undersigned authority on this day personally appeared __(Name of Owner of Sub-subcontractor)____ , whom after being by me duly sworn did depose and say:

1) My name is ____(Name of Owner of Sub-subontractor or Representative)____ , I am the Owner of ___ (Name of your firm)___ and am authorized to make this affidavit.

2) ___(Name of your firm)____ has a claim in the amount of $ ___________ for labor performed and/or materials delivered to ____(Name of Subcontractor)___ for work performed and or materials delivered during the month of ___(Month, Year)___ . The labor performed and materials delivered included: ______(describe activities)______ , for the _____(Name of the Project)_____ in ___(name of county)___, Texas. These activities are itemized on the attached contract invoices.

3) The amount of the claim as shown on the attached invoices is just and correct, and all lawful offsets, payments and credits known to the undersigned claimant have been allowed.4) This claim includes total contract amount claimed, plus retainage.

By: ____( Owner’s Name or Representative) _______

SWORN TO AND SUBSCRIBED BEFORE ME this ___(Day, Month, Year)_______ . ___________________________________
Notary Public, State of Texas

Remember that the Sworn Statement of Account must be notarized. You or your representative must sign the form while in the presence of an authorized notary officer.

Aside from the Statement of Account, you must also include a copy of your written sub-subcontract agreement, if available, as well as copies of the invoices that you issued to your client in relation to your payment claim.

Failing to include these relevant documents will most likely invalidate your second-month notice and consequently nullify your payment bond claim for that specific month. You must therefore be very diligent in serving the second-month preliminary notice for public projects in Texas to make sure that you do not lose any of your earnings.

How must you serve the second-month notice?

You must serve the second-month notice together with the attached documents via registered or certified mail with return receipt requested. The addresses of the general contractor as well as the surety should be on the copy of the payment bond that you secured through Step 1.

3. Serve a third-month notice

The third step is to serve another monthly notice known as the Notice of Claim for each month that you do not receive your full payment. Like the second-month notice, the third-month notice is also a recurring notice, which means that you have to serve it multiple times throughout the project for every month that have a valid payment claim.

When do you serve the third-month notice?

The third-month Notice of Claim in Texas must be served on or before the 15th day of the third month after each month for which you have an unpaid balance from the party who hired you.

Deadline for serving a Texas notice of claim

Unlike in other states, the Notice of Claim in Texas is served regularly for each month that you have an unpaid balance. It is very important to remember that you are not supposed to serve a single-payment bond claim in Texas – you must serve a Notice of Claim multiple times throughout the course of a project.

If you do not serve a Notice of Claim for a specific month, you forfeit your right to secure payment through the payment bond for that month. Note that a payment bond claim for sub-subcontractors in Texas will not be awarded unless you also served a valid second-month notice.

On whom must you serve the third-month notice?

The third-month notice is Texas is served on the general contractor and the surety, and you may also serve it on the party with whom you have a direct contract. The names and addresses of these receiving parties should be on the copy of the payment bond claim that you secured in step 1.

What details should the third-month notice form include?

Completing the third-month notice should be easy as it is exactly the same as the second-month notice. The details that you need are the same as the information that you wrote on your second-month notice:

  • Your name
  • The name of the general contractor
  •  The amount of unpaid balance
  • The month and year when you furnished the services related to the unpaid balance that you are claiming
  • The date when you served the notice

You may even use the exact same template prescribed for the second-month notice:

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Are there any additional documents that must be included in your third-month notice?

Yes, there are, and these additional documents are also the same documents that you attach to your second-month notice:

  • Sworn Statement of Account
  • A copy of the sub-subcontract agreement
  • Copies of the invoices related to your payment claims

The third-month notice and the second-month notice are therefore the exact same document. However, Texas state laws require sub-subcontractors or those who have no direct contractual relationship with the general contractor to serve them separately.

So even if the second-month and third-month notices contain the same information, they serve different purposes. The second-month notice acts as a preliminary notice for parties working on Texas public projects, while the third-month notice acts as the payment bond claim itself.

How must you serve the third-month notice?

As with the second-month notice, the third-month notice or the Texas Notice of Claim must be served via registered or certified mail with return receipt requested. Ensure that you keep copies of the mailing documents and return receipts so you have documented proofs of your compliance to the rule.

Can you serve the second-month and the third-month notice at the same time?

Yes, you may send the second-month and third-month notice at the same time. Just because the third-month notice has a later deadline does not mean that you may not serve it earlier together with the second-month notice.
Note that serving both documents at the same time means serving two copies of each document on the required recipients. You may not serve only one copy and let it act as both the second-month and the third-month notice.

What happens after you serve the third-month notice?

After serving the Texas Notice of Claim or the third-month notice, you now have to wait for any of the higher parties to make the payment. The subcontractor may pay up, or the general contractor or the surety may also step up to honor your payment claim.

The surety may ask for additional information to verify your payment claim, depending on the nature of the payment bond. Be ready to provide these additional details to back up your payment claim. If you receive your payment for a specific month, your public bond claim is satisfied and you no longer have to proceed to step 4.

However, it is also possible for the surety or any of the higher-tier parties to not settle the outstanding payment. If this happens, you have to proceed to step 4 to ensure that you get paid for the services that you furnished to the project.

4. Perfect the bond claim

The last step is to perfect the bond claim, which is another way of saying that you have to initiate a lawsuit to get paid for your services. You have to perfect a Texas public bond claim no earlier than 60 days after you served the third-month notice, but no later than 1 year after issuing that notice.

So after serving your third-month notice, you can give the higher-tier parties at least 60 days to release your payment. If after 60 days you still do not receive your payment, you should consider taking legal action. The legal action must be initiated within 1 year of serving the third-month notice.

The validity of your payment bond claim expires within 1 year of serving the third-month notice, so initiating a lawsuit past this 1-year period will most likely not go in your favor. Make sure that you perfect a bond claim within this 1-year time frame so your efforts in making a payment bond claim do not go to waste.

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Best practices when making a Texas public bond claim

1. Always request for a copy of the payment bond

The first step should always be to get a copy of the payment bond, either from the party who hired you or from the general contractor. Requesting for a copy of the payment bond is as easy as writing a written request for information, and higher-tier parties are required by law to provide you the information that you need.

Take advantage of your right to information and make sure that you ask for a copy of the payment bond as soon as you secure a contract for a Texas public project.

2. Follow a schedule for serving the second-month and third-month notice

The best business practice when working for Texas public projects is to follow a regular monthly schedule for serving both the second- and third-month notices. If you send them out regularly with a fixed schedule (e.g. every 1st day of the following month), you will not miss a month and your payment rights will be secured throughout the course of a project.

Remember that while both second- and third-month notices for Texas public projects contain the same basic information, both documents should still be served. You may serve them at the same time, but you may not serve only one document to act as both the second- and third-month notices.

3. Organize your invoices

You also have to append the invoices that you issued for each month that you are making a payment bond claim. If your books are organized, collecting the invoices that should be attached to your Notice of Claim should be easy.
It is best practice to have all your documents organized per month, especially if you are working in Texas in which payment bond claim notices are a recurring requirement.

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