Part 3: Public Works Contracts & Subcontractors: Prime Contracts Over $25,000

In reality, most public works projects are over $25,000.00 in value. When projects exceed $25,000.00 in value, the general contractor must post a payment bond in the amount of the prime contract for the protection of subcontractors and sub-subcontractors. Tex. Gov’t Code § 2253.021. If subcontractors are not paid by the general contractor, they can file a lawsuit to collect on the payment bond; however, before they can file suit, subcontractors must ensure that they have complied with strict notice requirements. If the notice requirements, including deadlines and content, are not properly met, the subcontractor will not be able to successfully sue to collect on the payment bond.

Subcontractors (those having a contract directly with the general contractor) must 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 has not been paid (often called the “Third Month Notice”). Tex. Gov’t Code § 2253.041(b). If this deadline is not properly met, the subcontractor will have lost its ability to prevail in a lawsuit. Furthermore, the notice must identify specific details such as: the labor or materials provided; who they were provided to; and when they were provided; in addition to other required information. Additionally, a sworn statement must be included verifying the amount due. Tex. Gov’t Code § 2253.041(c). The notices must be mailed by the proper method and to the proper addresses. Tex. Gov’t Code § 2253.044.

Sending the required notices on time is crucial for subcontractors but is often overlooked until it is too late or sent incorrectly due to a misunderstanding of the applicable laws. Subcontractors often wait too long believing that they will work something out with the general contractor. When they eventually do seek help from an attorney, the deadline has already passed. Subcontractors should pay careful attention to their past due invoices and ensure they seek an attorney’s advice far enough in advance so that all deadlines can be met and the subcontractor’s rights protected.

Texas law governing public projects can be found in Texas Government Code Chapter 2253 (formerly known as the McGregor Act) and Texas Property Code Chapter 53.

Please visit our blog again in a few days for Part 4: Public Works Construction Projects & Subcontractors: Prime Contracts Over $25,000.00 & Retainage.

Posted by Sarah F. Berry.