Texas contractors must obtain certain surety bonds in order to be awarded and begin working on federal public works projects within the state. Learn more about Texas payment and performance bonds below, and request a quote from Surety Bond Professionals today.
What Are They?
- Payment bonds guarantee payment of subcontractors, laborers, and suppliers.
- Performance bonds guarantee completion of the contract in accordance with all specifications, terms, and conditions.
A payment and performance bond combines both forms of protection in a single bond—though payment bonds and performance bonds can also be purchased separately. These bonds offer financial protection for project owners, assuring project owners that their completed projects will be free of all liens.
Who Needs Them?
- Federal projects. Texas contractors selected for federally funded public works projects valued in excess of $100,000 are required to purchase payment and performance bonds.
- State-funded projects. The Texas Little Miller Act also requires a payment bond for state-funded projects valued over $25,000. A performance bond is required for projects valued over $100,000.
- Private projects. Owners of private construction projects of any size can require payment and performance bonds.
How Do They Work?
Any failure to live up to the terms and conditions of the bond can result in a claim against the bond. For example, failure to pay a subcontractor on time and in the proper amount gives the subcontractor the right to file a claim against the contractor’s payment bond. As another example, if the contractor defaults on the contract, the project owner can file a claim against the performance bond and collect the funds needed to get the work completed.
The Claims Process
When the surety company that issued the bond receives a claim, it conducts an investigation to make sure that the claim is valid. The surety company will then pay the claim—but only as an advance on behalf of the contractor, the principal in the surety bond agreement. The financial responsibility for claims ultimately belongs to the contractor, who must reimburse the surety for claims paid.
What Do They Cost?
The total penal amount (the maximum amount available to pay claims) of a Texas payment and performance bond is established by the project owner. This can be as much as 100% of the construction project’s value. But the premium the principal will pay for the bond is only a small percentage of the total bond amount.
The premium rate is determined by the surety company based on factors that are predictive of the likelihood that claims will be incurred and the contractor’s ability to support the project. The underwriters look at the contractor’s personal credit scores, the financial stability and strength of the contractor, and the contractor’s industry experience and ability to complete the project successfully.
Texas contractors with good credit typically pay the standard market rate of between 1% and 3% of the total bond amount. Those with poorer credit can expect to pay a higher premium (up to 5%).
Request A Quote
Of course, the easiest way to determine your bond cost is to request a free quote from Surety Bond Professionals. We have over 30 years of experience in construction surety, nationwide. Make us your first stop when shopping for Texas construction bonds.