When working on a publicly funded project, construction participants can deal with payment disputes by making a payment bond claim. Public projects are not covered by mechanics lien rules, but the Miller Act ensures that construction parties working on public projects are protected from potential non-payment.
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Subcontractors may look into making a bond claim if they do not receive their payment from the general contractor. In Texas, making a payment bond claim is a recurring process, which means that instead of making a single claim, you have to make a monthly bond claim for every month that you do not get paid.
This guide walks you through the process for making a Texas payment bond claim for subcontractors.
- How do subcontractors make a payment bond claim in Texas?
- Best practices when making a Texas payment bond claim
How do subcontractors make a payment bond claim in Texas?
Subcontractors working on public projects in Texas can make a payment bond claim in three simple steps:
1. Request a copy of the payment bond
The first step is to write the general contractor a formal request for a copy of the payment bond. Having a copy will allow you to have all the basic information about the bond that the general contractor furnished to the government entity. The details that you can find on the payment bond, including the name and address of the surety, will be very important in completing the next steps.
The formal request must be typewritten and may be delivered in person or via certified mail with return receipt requested. General contractors are obligated to give you the information that you need within 10 days of receiving your formal request.
2. Serve a third-month notice
The second step is to serve a monthly notice for each month that you do not receive your full payment. This notice is recurring, which means that you serve it multiple times throughout the project for every month that you have a valid payment claim.
When do you serve the third-month notice?
The third-month notice – also known as the Texas Notice of Claim – 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 prime contractor.Keep in mind that the third-month notice is a recurring one. Unlike other states, Texas requires subcontractors to serve one Notice of Claim for every month that they worked on a project and did not get fully paid.
If you do not serve a Notice of Claim, you forfeit your right to claim payment through the general contractor’s bond. Since this is a recurring notice, you can still serve a third-month notice for the succeeding months, even if you missed to serve a Notice of Claim for one month.
On whom must you serve the third-month notice?
The Texas Notice of Claim for public projects must be served on the general contractor and the surety. The name and address of the general contractor and the surety should be in the copy of the payment bond that you requested from the general contractor, as mentioned in Step 1.
What details should the third-month notice form include?
The following information must be included in your Texas public bond claim:
- 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
The following is an example of a subcontractor’s third-month notice form, as prescribed by the government of Austin, Texas:
TO WHOM IT MAY CONCERN:
_____(Sub-Contractor’s Name of Firm) _____ , has a claim in the sum of $ _________ against ___ (General Contractor’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 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)_______
Note that the form above states that a copy of the written contract and a Sworn Statement of Account are attached to the third-month notice. You can still serve a third-month notice if you do not have a written contract with the general contractor. If you do have a formal written contract, make sure that you attach a copy to the third-month notice.
The Sworn Statement of Account is a separate document stating that your payment claim is just and true. It includes the same basic information, such as the amount of payment that you are trying to claim, the month for which you performed the services related to that payment, as well as a description of the type of services that you performed.
The following shows a sample Statement of Account form with blanks that you can fill out:
SWORN STATEMENT OF ACCOUNT
Before me the undersigned authority on this day personally appeared __(Name of Owner of Subcontractor)____ , whom after being by me duly sworn did depose and say:
1) My name is ____(Name of Owner of Sub-Contractor 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
Note that the Sworn Statement of Account must be notarized. It must also include copies of the invoices that you issued in relation to the services that you performed for a specific month.
So, in summary, your third-month notice should have the following documents:
- The Notice of Claim for the specific month for which you are claiming payment
- The Sworn Statement of Account, which should be notarized
- A copy of your written contract with the general contractor
- Copies of the invoices related to the payment that you are claiming
Failing to include all the documents may invalidate your payment bond claim. You must comply with Texas requirements as the state is fairly strict in implementing its payment bond rules.
How must you serve the third-month notice?
A Texas third-month notice in relation to a public bond claim must be served via registered or certified mail with return receipt requested. You must have the third-month notice delivered to the last known address of the general contractor and the surety.
You may find the address of the surety on the copy of the payment bond that you requested in Step 1. You may also find the surety’s address by inquiring with the Texas Department of Insurance, as long as you know the name of the surety.
If you have completed Step 1, you should have the addresses of the general contractor and the surety in your records and you may simply mail them the third-month notice by the deadline.
Note that you may also serve a copy of the third-month notice on the government entity if you want. It is not required, but doing so is not prohibited either.
What happens after you serve the third-month notice?
Once you have issued a valid third-month notice, the general contractor or the surety will release your payment and settle the outstanding debt. The surety may contact you to acknowledge receipt of your third-month notice, and they may also ask for additional information.
If everything works out fine, you should be receiving your payment either from the general contractor or the surety within a reasonable amount of time. It is best practice to keep following up with the surety and the general contractor to know about the status of your claim and to know when you should expect payment.
Once you receive payment, you do not have to proceed to Step 3 as the payment claim has already been satisfied. If the surety fails to honor their obligation and does not pay up, you should then move on to the third step.
3. Perfect the bond claim
The third step is to perfect the bond claim, which means that you have to initiate a lawsuit against the general contractor and surety to receive your payment. It is best practice to have a legal counsel to guide you through this process.
You may perfect the bond claim no earlier than 60 days after you issued the third-month notice, but no later than 1 year after issuing that notice. This implies that you must give the surety and the general contractor at least 60 days after serving the third-month notice to settle the payment debt.
However, you should not wait too long to initiate a lawsuit – if the payment does not arrive in 1 year after serving the third-month notice and you do not perfect the bond claim, you may no longer enforce your claim. The validity of your bond claim expires in 1 year after serving the third-month notice. If you do not receive payment, make sure that you initiate a lawsuit before the 1-year period passes.
Best practices when making a Texas payment bond claim
1. Request a copy of the payment bond as soon as you secure a contract
The first step is to make sure that your right to payment is protected, which you can do by ensuring that a payment bond has been secured by the general contractor. You want to have a copy of that payment bond as it includes relevant information, including details about the surety. These pieces of information are important when serving the third-month notice, so it is best to have them as soon as you execute a contract with a general contractor.
2. Follow a schedule for serving the third-month notice
The third-month notice is a recurring notice in Texas, which means that you serve it regularly in the course of a project. It is best to follow a schedule for sending this notice out. Mailing it on the first day of each month, for example, is one way to ensure that you serve a valid Notice of Claim for each month.
Do not worry about potentially tarnishing your relationship with the general contractor by sending a third-month notice regularly. Serving a Notice of Claim is a regular business practice in the construction sector, and it should be something that all contractors are used to dealing with.
3. Organize your invoices per month
Note that your third-month notice must include not only the Texas Notice of Claim form but also other documents, including a Sworn Statement of Account and a copy of the invoices that you issued. If your invoices are organized according to month, you should have no problems fulfilling Texas’ requirements for properly making a public payment bond claim.