Payment Bond Claims – Part 1

Over the next few posts I would like to go over payment bond claims for state and local public works projects.  You may have heard these described as Little Miller Act claims, or what was known as the McGregor Act.  In Texas the process is controlled under Chapter 2253 of the Texas Government Code.  Although it may appear that the primary purpose behind Chapter 2253 is to make sure contractors get paid for public works projects, it is also intended to protect the bond companies from being overwhelmed with claims.

The deadlines are set forth in the code in such a way that it puts the burden on the contractor to know them and follow them, or they will lose out on their claim.  On the flip side, if you are willing to do what is required by the law you have a good chance of getting the money that is owed to you.

First, we must review the timing of notifications.  The Texas courts have held up these deadlines and requirements, so they are very important to follow.

Second tier contractors that have a written agreement, must give written notice (sent by certified or registered mail) to the prime contractor and the surety.  The notice must be mailed on or before the 15th day of the third month after each month in which any of the claimed labor was performed or any of the claimed material was delivered.  The notice must be accompanied by a sworn statement of account that states in substance: (1) the amount claimed is just and correct; and (2) all just and lawful offsets, payments, and credits known to the affiant have been allowed.  The statement of account shall include the amount of any retainage applicable to the account that has not become due yet.

If there is no written agreement then these items must also be included in the notice: (1) the name of the party for whom the public work labor was performed or to whom the public work material was delivered; (2) the approximate date of performance or delivery; (3) a description of the public work labor or material for reasonable identification; and (4) the amount due.  The payment bond beneficiary must generally itemize the claim and include with it copies of documents, invoices, or orders that reasonably identify: (1) the public work labor performed or public work material delivered for which the claim is made; (2) the job; and (3) the destination of delivery.

Lower tier contractors have to follow the above rules for the third month notice but have one additional notice they need to provide.  This notice must be mailed to the prime contractor on or before the 15th day of the second month after each month in which the labor was performed or the material was delivered.

Retainage claims can be included in the above notices or by sending a separate retainage claim to the Prime contractor and surety on or before the 90th day after the final completion of the project.  The claim requires a notice to contain a statement of: (1) the amount of the contract; (2)  any amount paid;  and (3)  the outstanding balance.

A little leeway is given in the code for notice if the end of a notice period ends on a weekend, i.e. the 15th is on a Saturday, the notice is due on the next following non-holiday weekday.

Next time I’ll go over what can and can’t be included in a payment bond claim.

Law Changes: Lien Waivers and Retainage Notices

In addition to the new indemnification laws that we discussed during the last blog post, there are other laws and bills that were passed that greatly affect the construction industry.  One of them is HB 1456 the other is HB 1390 you can find the full text of the new laws here: TX HB 1456 and TX HB 1390.

HB 1456 Goes into effect January 1st and pertains to Lien waivers.  You may recall it was just a few months ago I went over some of the pit falls of lien waivers in the blog post Lien Releases: Look Before You Leap.  Well HB 1456 changes how lien waivers are handled.  It provides standard forms for conditional and unconditional lien waivers.  It also fixes something that has plagued the building industry, trying to force sub-contractors to sign an unconditional waiver before payment has been made in full for the invoice or work in question.

Here is the text from the law that fixes that issue:

“A person may not require a claimant or potential claimant
to execute an unconditional waiver and release for a progress
payment or final payment amount unless the claimant or potential
claimant received payment in that amount in good and sufficient
funds.”

One other item the new law provides are conditional and unconditional waiver forms that must be substantially complied withto be valid.

The law that arose from  HB 1390 pertains to how retainage notices were to be handled since September 1, 2011.  Back in 2009 (view it here: retainage claims) I wrote about when Retainage notices are due.  HB 1390 now allows the notices to be given at the end of the project instead of requiring the contractors and/or subcontractors to give Retainage Notices at the beginning of the project.  This is important because I very rarely saw the retainage notices being timely sent, if at all.

I am VERY excited about the changes in these laws.  These go so far in protecting the Texas Contractors and takes care of many of these issues that have come up in my legal practice almost daily in the past few years.  Again, the lawmakers have gone a long way to strengthen some of the loopholes that have been used time and time again by the unsavory.