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State Public Works Projects
With the limited exception of a lien on funds for public projects of $50,000 or less (or, in some cases, $25,000 or less), no lien may be placed on public property in Texas. The Texas Government Code provides a remedy to unpaid subcontractors and suppliers through a payment bond to be provided by the prime contractor on the project.
A payment bond is required for public works projects if the contract is in excess of $25,000, and the governmental entity is not a municipality or a joint board created under Subchapter D, Chapter 22, of the Transportation Code.
A payment bond is required for contracts in excess of $50,000 if the contract is with a governmental entity that is a municipality or a joint board created under Subchapter D, Chapter 22, of the Transportation Code.
As is the case with lien claims under the Property Code, subcontractors and suppliers wishing to benefit from the protection of a payment bond are required to give specific notices to preserve their claims. The notices required are addressed in detail under the “Notices Required” headings below.
Texas Public Projects Under $25,000/$50,000
On Texas public projects for which a bond is not required, as described above, a lien is allowed under limited circumstances against the funds held by the contracting public entity. For this limited group of claims, Texas Property Code Subchapter J requires notice from the claimant to the contracting entity not later than the fifteenth day of the second month following the month in which the labor was performed or the material furnished for which the claimant was not paid.
The notice must state the amount claimed, the name of the party to whom the materials were delivered or for whom the labor was performed, the date and place of delivery, a description reasonably sufficient to identify the materials delivered and the amount due.
Of course, the notice must also include a description reasonably sufficient to identify the project and the claimant’s business address. Lastly, the notice must include a statement under oath that the amount claimed is just and correct and that all payments, lawful offsets, and credits known to the affiant (claimant) have been allowed.
In summary, the notice sent to the public works entity to perfect a lien against funds held under Texas Government Code § 2253.027 bears a close resemblance to the sworn statement of account notice required to be sent to the bonding company under Tex. Gov. Code § 2253.041 as discussed below in the bond claim notice section.
Failure to Require a Bond
For prime contracts in excess of the statutory amounts described above, ($25,000 or $50,000), if the contracting entity fails to obtain a payment bond from the prime contractor, the contracting entity may be liable to a limited extent for failure to obtain the payment bond. In such a case, the law can require the contracting entity to, essentially, step into the shoes of the surety that should have provided protection for subcontractors and suppliers on the project.
To recover in a suit against a public entity failing to require a bond of the contractor requires a notice to the governmental entity provided as if the governmental entity were a surety in a similar form as that described below under “Notices Required.”
Prime Contractor Claims
Unfortunately, the remedies available to subcontractors and suppliers under the Texas Government Code, are not available to prime contractors. Even though no lien is available to the prime contractor, the contracting entity is not required to provide any bond or other guarantee of payment for the benefit of the prime contractor. Prime contractors are left with only their contractual remedies against the contracting entity.
As with the Property Code, your notice requirements will depend on whether you have a contract directly with the prime contractor or with a subcontractor. Those having a contract directly with the prime contractor are often referred to as “first tier” subcontractors or suppliers. Those not having a contract directly with the prime contractor are sometimes referred to as “second tier” (or third tier, etc.) subcontractors or suppliers.
First tier subcontractors or suppliers (those having a contract directly with the prime contractor) are required to give written notice to the prime contractor and surety not later than the fifteenth day of the third month following each month in which the labor or material was provided for which the claimant (subcontractor or supplier) has not been paid.
The notice to the surety must contain a sworn statement of account, stating in substance that the amount claimed is just and correct and that all just and lawful offsets, payments, and credits known to the claimant have been allowed. The notice must be sent by certified or registered mail to both the surety and the prime contractor. The notice to the prime contractor may be sent to the prime contractor’s last known business address or at the prime contractor’s residence. Links to the required notices are provided at the end of this outline.
Notice Required of Second Tier and Below Subcontractors and Suppliers
Texas Government Code Section 2253.047 requires additional notice by claimants without a contract directly with the prime contractor. These lower tier claimants must provide notice to the prime contractor on or before the fifteenth day of the second month following each month in which labor or material was provided for which the claimant has not been paid.
This second month notice to the general contractor does not require a sworn statement of account. A copy of your statement sent to your upstream subcontractor and sent to the prime contractor under cover of a letter stating that the amount remains unpaid should be sufficient for notice under this subsection.
The second month notice, alone, will not suffice to perfect a claim. This second month notice is required in addition to the third month notice containing the sworn statement of account under Texas Government Code Section 2253.041. A link to the form for this notice is provided at the end of the outline.
Additional Information Required if no Written Agreement Exists
Texas Government Code Section 2253.43 requires additional information from parties not having a written contract with the prime contractor or the subcontractor.
This section would appear to apply to you, if you have an oral agreement directly with the prime contractor, or if you have only an oral contract with a subcontractor (second tier claimants or below).
In such case, you must include in your notice of claim: (1) the name of the party for whom the work was performed or to whom the material was delivered; (2) the approximate date of performance or delivery; (3) a description of the work, labor or material reasonably identifying it; and, (4) the amount due.
A copy of the invoice usually contains this information but should be checked against these requirements. Your notice under this section must generally itemize the claim and include with it copies of documents, invoices or orders that reasonably identify the work or material, the job or project, and the destination of delivery.
Additional Notices Required For Retainage
For claimants not having a contract directly with the prime contractor, and who wish to perfect a claim for retainage, a notice must be sent to the prime contractor on or before the fifteenth day of the second month after the date they first provide labor or material. The notice must inform the prime contractor that their subcontract provides for retainage and describe the nature of the retainage agreement.
Specially Fabricated Materials
A claimant may perfect a claim for specially fabricated materials even if they are never delivered to the job site, provided you have sent appropriate notice. Notice of a contract for specially fabricated materials must be mailed to the prime contractor on or before the fifteenth day of the second month after receipt and acceptance of an order for specially fabricated materials has been received and accepted. Claimants should keep in mind that, if the specially fabricated materials are actually delivered “for use” to the project, then a claim may be perfected in the usual manner.
Claimants Supplying Multiple Items To Be Paid For In A Lump Sum
Special notice is required of a claimant providing multiple items of labor or material that are ordered and are intended to be paid for in a lump sum. The notice must reasonably identify the labor or material and the name of the party to whom the labor or material was provided or delivered, the date or approximate date of performance or delivery, and whether the contract was written or oral, the amount of the contract and the amount claimed. Similar notices are required for claimants providing labor or material under a written unit price agreement.
Limitations on Filing Suit on a State Public Works Bond Claim
The statute of limitations for filing suit on a payment bond is one year from the date notice for a claim is mailed. However, the claimant must wait until sixty one days after the date the notice is filed before filing suit.
Federal Project Bond Claims
Claims on projects constructed on U.S. Government property, for the U.S. Government or an agency of the U.S. Government in excess of $100,000 are governed by the Miller Act, 40 U.S.C. §§ 3131-3134. The Miller Act is similar in concept to the Texas bond claim statute discussed above. As with claims on state public property, subcontractors and suppliers do not have lien rights against U.S. Government projects.
As with the Texas statute, an original (prime) contractor has no additional remedy under the Miller Act, but is left with its contractual remedies against the governmental contracting entity. Prime contractor claims on U.S. Government projects are governed by extensive regulations and procedures applicable to the particular contracting entity and are beyond the scope of this outline.
Subcontractors, however, having a contract directly with the original contractor, and those having a contract directly with those subcontractors are, under most circumstances, protected by a payment bond required by the Miller Act to be provided by the original contractor.
Although certain similarities exist between the Miller Act and the Texas bond claim statute, the Miller Act is more limited in scope in terms of the persons protected. The Miller Act does not protect any party further removed from the original contractor than one having a direct contractual relationship with a subcontractor on the project.
If you are a second tier claimant, you must have your contract with a legitimate “subcontractor” and you may not be able to successfully assert a claim against the bond if your contract is with a “materialman.”
In general, you will be deemed to be a subcontractor under the Miller Act if you have a contract with the prime contractor and have assumed the task of providing a significant part of the requirements of the prime contract.
You may also be considered a subcontractor if the materials provided are unique or custom made or are items that are not readily available on the market. A claimant providing both material and labor to the prime contractor will generally be accorded subcontractor status so that those in privity with them will be in a position to make a claim on the Miller Act bond.
Notices Required for Federal Public Works Projects
A claimant having a direct contractual relationship with the prime contractor is not required to send a notice to perfect its claim.
Claimants who do not have a contract directly with the prime contractor must provide notice of the claim in writing within 90 days from the last date on which their labor or material was provided. This notice must state with substantial accuracy the amount claimed and the name of the party to whom the material or labor was furnished or supplied.
This notice must be given by mailing it to the prime contractor at any place where an office is maintained or business is conducted or it may be sent to the contractor’s residence. The notice must be sent by “any means that provides written, third-party verification of delivery.” We recommend that you send the notices by Certified Mail, Return Receipt Requested.
Notice may also be sent by “any manner in which the United States Marshall of the district in which the public improvement is situated is authorized by law to serve summons.” This appears to authorize hand delivery of a Miller Act notice. Since notices are effective upon mailing by registered or certified mail, there is typically no advantage in giving the notice by hand delivery.
Notices given in any other manner than by registered or certified mail are effective only when received and must be received on or before the deadline date. A form for the Miller Act notice of claim is provided in the links at the end of this outline.
Limitations for Filing Suit on a Federal Miller Act Bond Claim
Suit must be filed on a Miller Act bond claim no more than one year after the date on which the last of the labor or material was provided. Suit must be brought in the name of the United States for the use of the person suing and must be brought in a United States District Court for any district in which the contract was to be performed and executed.
The statute requires a 90 day waiting period for filing suit. As with the Texas Public Works statute, this effectively reduces the already small window of opportunity for filing suit.