Subcontractors

The Payment Bond Claims Process

Step One:  Get a copy of the Bond
Step Two:  Send the Required Notice
Step Three:  Please respond to our inquiries
Step Four:  Remember: Your customer/our Principal is primarily liable for the claimed debt.  
(The bond is a secondary source of recovery. A bond claim is not a substitute for collection through normal business channels.) 
Step Five:  Please give your customer the courtesy of notifying us when and if your claim is paid or reduced.
Step Six:  Don't lose your claim once you have perfected it.

Step One: Get a copy of the Bond

A payment bond is an obligation by our principal and by our company to pay certain obligations of our principal if our principal fails to do so. Most payment bonds limit our liability only to those claims that have either been filed with us strictly in accordance with the requirements of the written terms of the bond we have written or in accordance with one of several laws that govern such claims.

Rarely are payment bonds written as blanket obligations to pay all of the debts of a contractor or subcontractor related to a construction project.

• Some bonds may not afford any direct protection to a supplier, subcontractor, or other vendor. The bond may only indemnify another party, e.g., the owner or general contractor, against such claims.
• Some bonds provide coverage only for those who deal directly with our principal. Some extend the coverage to debts incurred by our principal's subcontractors and sub-subcontractors.
• In some cases, the deadline to make a claim begins to run when labor or material is delivered. In others, it may not begin to run until the last of the labor or material is delivered.
• Direct labor and materials actually incorporated in the work are usually covered, but overhead items, rented equipment, hand tools, trucking costs, taxes, utility bills, repairs to equipment, insurance premiums, materials delivered elsewhere or picked up at the supplier's office may or may not be covered, depending on the wording of the bond or the applicable law.
• Most payment bonds require timely notice of a claim. They may differ as to who must be notified, the contents of the notices, and manner in which the notices must be delivered.
• Some bonds require that you comply with all of the steps to perfect a mechanic's lien against the project, including the filing of a lien affidavit with the County Clerk. Others do not.
• In some cases, state law may read in additional requirements that are not stated in the bond form or eliminate the need to meet a requirement. In some cases, state law may read out specific requirements contained in our bond forms.

As you can see, any generalization about payment bonds, or what must be done to make a timely claim, is very difficult. We are often not in control of the form of bond used. This will differ from project to project and from obligee to obligee. Your first step in making any payment bond claim is to determine what the bond says, whether or not you are even covered, and what requirements must be met to comply with the bond.

The best place to get a copy of any payment bond is from the obligee who required the bond. They asked our principal to furnish such a bond either to meet statutory requirements, to protect themselves from your claims, or to provide you with additional security to get paid on the project. They will have the original fully executed bond in their possession and should readily furnish you with a copy of the bond. There are certain statutes that also require an obligee to furnish you a copy of the bond on request, sometimes upon the payment of their costs of copying and mailing.

When we approve the issuance of a payment bond, it is often issued in the offices of one of our agents. Whether issued through our office or an agent's office, the copy of the bond in our file will often be incomplete. We may have a copy with our signature or that of our agent, but once it is delivered to the principal, we may not have a copy of the bond with our principal's signature. In some cases, the principal may decide not to deliver the bond, in which case it is not effective. The only way to know if a fully executed and delivered bond protects you is to contact the obligee and request a copy of the bond.

As a general rule, you will not know what rights you have against a subcontract bond until you have read the bond. If we bonded a prime contractor (one in direct contract with the project owner) on a federal, state, or local public works project, there is a somewhat greater chance that you can follow the steps required by the applicable laws and have a good claim without having first reviewed the bond.

• For Federal projects (those projects where the federal government is the awarding authority and not just a lender), your rights against a bond issued by us for a prime prime contractor are generally covered by the Miller Act. For more information about the Miller Act, please click here.
• For Texas public works projects (state government, cities, counties, schools, utility districts, etc.), your rights against a bond issued by us for a prime contractor are generally covered by Chapter 2253 of the Government Code. For more information about Chapter 2253 of the Government Code (the codification of an earlier statute commonly known as the McGregor Act), please click here.
• For private projects (those where the awarding authority and landowner is not a public entity) in the State of Texas, your rights against a bond issued by us for prime contractor are generally covered by Chapter 53 of the Property Code. For more information about Chapter 53 of the Property Code (the codification of an earlier statute commonly know as the Hardeman Act), please click here.
• A booklet published by the Texas Building Branch, Associated General Contractors, contains the text of all three statutes and forms for filing claims. For more information on the AGC Bonds & Liens Booklet, please contact the AGC at (512) 478-5629. The books are $19.50 for AGC members and $39.00 for non-members. Shipping charges of $3.00 and sales tax will be added.

Step Two: Send the Required Notice

If you are of the class of claimants protected by the bond, and you have determined that you wish to take at least the preliminary steps necessary to preserve and perfect you rights under our bond, you will need to send the notices required by the bonds. If the statute or bond requires certain wording or a sworn statement, that must be done. If the bond or statute requires certified mailing, that must be done. The deadlines are strictly enforced and are not extended for holidays or weekends in some cases. Send the notices to everyone that the statute or bond requires. While fax and email have become convenient means of communicating, most bond forms and statutes do not recognize these as acceptable means of perfecting claims.

We cannot waive or relax any of the notice requirements without our principal's consent. Our principal cannot waive or relax any of the notice requirements without our consent. Our consent, if granted, would only be done in rare circumstances and would have to be done in writing and signed by an officer of the company. Occasionally, a claimant will claim that they called our office and that "someone told them"or that "they understood" that they didn't have to send some notice or that something less than the statutory requirements would suffice. No one at SureTec has authority to waive or relax notice requirements over the telephone or e-mail.

Please note: Only Markel Surety claims professionals have any authority to deal with surety claims. Many of our bonds are written through surety bond producers and insurance agents. While they are a tremendous resource to us in the claim process, they do not have the authority to accept your payment bond claim or commit Markel to any course of action.

Step Three: Please respond to our inquiries.

Within a relatively short period of time of our receipt of a claim or notice, you will receive a letter from us acknowledging the claim. You may be requested to complete and return a proof of claim. A general claims information sheet will usually accompany the letter, outlining additional information we may require. Inasmuch as some laws and bond forms require notice of claims within relatively short periods of time, many notices are sent simply as a matter of precaution when payment has been delayed and not because of any serious concern over non-payment. That's the first question we will ask. Are you simply protecting your rights or do you believe there is a problem? Please let us know what you think.

Step Four: Remember: Your Customer/our Principal is primarily liable for the claimed debt.

The bond is usually a secondary source of recovery. A bond claim is not a substitute for good credit practices and collection through normal business channels.

Our principal is primarily liable for the debts it incurs. In the vast majority of cases, you are going to be paid what you are owed by our principal in the ordinary course of business. We are not a means of speeding up the normal payment process. If our principal does not owe the money until it has been paid, either because of a contingent payment clause in your contractor or purchase order, an agreement, or your custom and practice, we will generally not be obligated to pay it either. That may differ from state to state. If our principal questions the amount of your invoices, the quality of your work, or your entitlement to payment, you will generally need to work that out with the principal. We have limited ability to intercede in the day to day payment practices of the contractors we bond. Rather, we are there as a financial safety net if the contractor fails, funds are legitimately owed, and all required notices have been given in a timely manner.

Step Five: Please give your customer the courtesy of notifying us when and if your claim is paid or reduced.

Our principals pay many claims before we even have a chance to acknowledge them. When you are paid, please let us know. This allows us to clear the claims record and devote more time to more serious claims situations. A faxed letter on your letterhead to (512) 732-2663 simply stating that you have been paid, and are withdrawing your claim will suffice in most situations. In some cases, we may need formal releases or even recordable releases.

If you have filed a mechanic's lien, please contact us for an appropriate release form. Click here for a simple confirmation that your claim has been paid.

When you promptly advise us of payment, you free up our resources and you clear up what might otherwise be holds on the contractor's bonding line. Your customer will appreciate it and so will we.

Step Six: Don't lose your Claim once you have perfected it.

Most bonds and statutory schemes have relatively short time frames in which a claim must be paid or the claimant must file suit. Keep these time frames in mind.