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Texas Payment Bond

The construction industry is essential to the health and vitality of Texas. Contractors manage the work of many subcontractors and coordinate with suppliers to keep their projects moving forward. To ensure that the contractor will properly funnel funds from the project to pay these people, some contracts, including public works contracts, may require a surety bond known as a Texas payment bond.

What is a Texas Payment Bond?

A Texas payment bond is a type of surety bond that guarantees that contractors pay their subcontractors and suppliers appropriately, according to the contract. Because it covers both, this is sometimes called a Texas labor and material bond. The bond creates a financial incentive to comply with the payment terms as well as a mechanism for enforcing compliance.

A payment bond in Texas serves as a risk-management tool. Many contracts involve vast sums of money and a demand for significant supplies from many vendors. The logistics can be complex and must be handled according to the contract to avoid jeopardizing the construction project. The bond requirement helps ensure the project continues without interruption.

How Does a Texas Labor and Material Bond Work?

Like all surety bonds, a Texas labor and material bond is a legal agreement between three essential parties:

  • The Principal is the contractor who is bonded.
  • The Obligee is the entity that requires the bond. Often, this is a government agency in charge of the construction project.
  • The Surety is the insurance company that underwrites the Texas payment bond.

If a bonded contractor fails to pay a subcontractor or supplier, that person can file a claim against the Texas payment surety bond. The surety must thoroughly investigate every claim. If the surety determines the claim is valid, the surety pays the claim in full, up to the bond's total value. However, they will dismiss any claim that has no merit.

The bond principal must repay the surety for any claims that are paid on their behalf.

Who Needs a Texas Payment Bond?

Texas contractors may be required to secure a payment bond in any of three circumstances:

  • All federal public works projects in Texas valued at $100,000 or more require both a payment and a performance bond in Texas.
  • All state-funded projects in Texas valued at $25,000 or more require a payment bond.
  • Any private project owner may choose to require a payment bond.

If you require any assistance determining what Texas construction bonds you need, our surety experts will be happy to guide you through your state's requirements.

How Much Does a Payment Bond in Texas Cost?

The cost of any surety bond is typically a tiny fraction of the bond's value, determined by the bond obligee. Let's say you need a $100,000 Texas payment bond. The premium for it will be just 1-5% of the total or between $1,000-$5,000. The specific premium the surety charges is based on your credit and financial standing. The better your credit, the lower the cost of your bond.

How Can I Get a Texas Payment Bond?

At Viking Bond Service, obtaining a surety bond is quick and hassle-free. Our seasoned payment bond specialists will guide you through the application process then send you a competitive quote for your bond ASAP. Feel free to contact us online or to call us at 1-888-2-SURETY (1-888-278-7389) with any questions. We'll help you get ready for business.

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