Texas Bonding Requirements Overview
Texas's public construction bonding requirements are governed by Texas Government Code Chapter 2253, commonly known as the McGregor Act. This statute is Texas's version of the "Little Miller Act" and establishes the framework for when and how surety bonds must be furnished on publicly funded construction projects throughout the state. Understanding these requirements is essential for any contractor working on — or hoping to bid on — public projects in Texas, the second-largest construction market in the United States.
What makes Texas unique among the states is that Chapter 2253 establishes separate thresholds for payment bonds and performance bonds. Most states that follow the Little Miller Act model apply a single threshold above which both bonds are required. Texas takes a different approach:
- Payment bonds are required on public construction projects exceeding $25,000 (or $50,000 for municipalities).
- Performance bonds are required on public construction projects exceeding $100,000.
This means that on a Texas public project with a contract value between $25,001 and $100,000, only a payment bond is required by statute — a performance bond is not mandated. On projects exceeding $100,000, both bonds are required. Both the payment bond and the performance bond must be in an amount equal to 100% of the contract price.
The McGregor Act applies to construction contracts with governmental entities in Texas, which includes state agencies, counties, cities, school districts, special districts, and other political subdivisions. The bond must be executed by a corporate surety authorized to do business in the state of Texas. The surety must also hold a certificate of authority from the Texas Department of Insurance (TDI) to write surety bonds in the state.
Another important feature of Texas bonding law is that the governmental entity is required to provide a copy of the payment bond to any person who requests it. Under Chapter 2253, the governmental entity must furnish a copy of the payment bond and the contract to any person who submits a written request. This transparency provision ensures that subcontractors, laborers, and material suppliers can identify the surety and understand their rights under the bond.
Texas also has specific rules governing retainage on public projects. Under Texas Government Code § 2252.032, a governmental entity may not withhold retainage in excess of 5% of the contract price on most public works contracts. This provision works in conjunction with the bonding requirements to protect all parties involved in public construction.
Bid Bonds in Texas
A bid bond is a contract surety bond submitted with a contractor's bid on a construction project. It guarantees that the contractor will honor their bid price, enter into the contract if awarded the project, and provide the required performance and payment bonds upon contract execution. Bid bonds protect project owners from frivolous or unreliable bids and help ensure that the competitive bidding process is credible and efficient.
In Texas, bid bonds are routinely required on public construction projects bid through competitive solicitation processes. The Texas Department of Transportation (TxDOT) is one of the largest issuers of public construction contracts in the state and requires bid bonds on virtually all of its highway, bridge, and infrastructure projects. TxDOT's standard bid bond requirement is typically 5% of the bid amount, and the bond must be issued by a surety authorized to do business in Texas.
Municipal and county governments across Texas also commonly require bid bonds as part of their competitive bidding procedures. Texas cities and counties follow the competitive bidding requirements set forth in the Texas Local Government Code, which establishes thresholds and procedures for when competitive bids must be solicited. Most invitations for bids issued by Texas governmental entities specify that a bid bond or cashier's check must accompany the bid submission.
Texas bid bond requirements apply across a wide range of public project types, including:
- TxDOT highway, bridge, and roadway construction projects
- Municipal building and infrastructure projects
- County road and facility construction
- School district construction projects (governed by Texas Education Code Chapter 44)
- Water district and utility construction projects
- State agency facility construction managed by the Texas Facilities Commission
- Public university and college campus construction
At Surety Specialist, bid bonds are always free — no premiums, no fees, no hidden costs. We issue bid bonds at no charge for Texas contractors, whether you have an existing bonding line or are applying for the first time. This ensures you never have to pay for the opportunity to compete on a project.
Performance Bonds in Texas
A performance bond guarantees that the contractor will complete the construction project in accordance with the contract documents, plans, specifications, and timeline. If the contractor defaults — by abandoning the project, performing substandard work, or failing to meet contractual deadlines — the surety is obligated to step in to ensure the project is completed.
Under the McGregor Act, performance bonds are required on all Texas public construction projects exceeding $100,000. This is a mandatory statutory requirement, not discretionary. The performance bond must be in an amount equal to 100% of the contract price and must be executed by a corporate surety authorized to do business in Texas.
The $100,000 performance bond threshold under Chapter 2253 is separate from and higher than the $25,000 payment bond threshold. This two-tiered structure means that on smaller public projects (between $25,001 and $100,000), the governmental entity receives payment bond protection for subcontractors and suppliers without requiring the contractor to obtain a performance bond. On projects above $100,000, both bonds are required, providing comprehensive protection for both the project owner and the downstream parties.
Performance bonds are routinely required on Texas public projects of all types, including:
- TxDOT contracts, which require both performance and payment bonds on all projects
- Municipal infrastructure projects involving roads, water, sewer, and public facilities
- School district construction (Texas Education Code Chapter 44 requires competitive bidding and bonding)
- State agency projects, including those managed by the Texas Facilities Commission
- County road, bridge, and building projects
Performance bond premiums for Texas contractors generally range from 1% to 3% of the contract price, depending on the contractor's financial strength, credit history, experience, and the project's size and complexity. Performance and payment bonds are typically issued together as a matched pair, and the premium covers both bonds. Texas contractors with strong financial statements, good credit, and demonstrated experience on similar projects will qualify for the most competitive rates.
Payment Bonds in Texas
The payment bond is a critical component of Texas's public construction framework. Texas Government Code Chapter 2253 requires a payment bond on every public construction project in Texas that exceeds $25,000. The $25,000 threshold is notably lower than the thresholds in many other states, reflecting the Texas Legislature's strong commitment to protecting subcontractors, laborers, and material suppliers on public projects.
The payment bond guarantees that the contractor will pay all subcontractors, laborers, and material suppliers who furnish labor, materials, or supplies for the project. This requirement exists because mechanic's liens cannot be placed on public property in Texas. On private projects, unpaid subcontractors and suppliers can file a mechanic's lien under the Texas Property Code Chapter 53 to secure their interest in the property. But this remedy is not available on public projects. The payment bond serves as a substitute for mechanic's lien rights, ensuring that those who contribute labor and materials to a public project have a financial remedy if the contractor fails to pay them.
Key Requirements Under Chapter 2253
The payment bond under the McGregor Act must meet several specific requirements:
- Bond amount: The payment bond must be in an amount equal to 100% of the total contract price.
- Surety qualification: The surety must be authorized to do business in the state of Texas and must hold a certificate of authority from the Texas Department of Insurance.
- Copy availability: The governmental entity must furnish a copy of the payment bond and the contract to any person who submits a written request. This ensures transparency and allows potential claimants to identify the surety and understand their rights.
- Beneficiaries: The payment bond is for the protection of all claimants who furnish labor, materials, or supplies for the project and who have a direct contractual relationship with the prime contractor or a subcontractor.
Notice Requirements for Payment Bond Claimants
The notice and claim procedures under Chapter 2253 are critically important for subcontractors and suppliers seeking payment on bonded Texas public projects. The requirements differ depending on the claimant's contractual tier:
- First-tier claimants (those with a direct contract with the prime contractor, such as first-tier subcontractors and direct material suppliers) are not required to send preliminary notice as a condition of making a claim on the payment bond.
- Second-tier claimants (sub-subcontractors, second-tier suppliers, and others without a direct contract with the prime contractor) must send written notice to the prime contractor by the 15th day of the third month after each month in which the labor was performed or the materials were furnished. For example, if a second-tier subcontractor furnished labor in January, the notice must be sent by April 15th.
- Method of notice: The notice must be sent by certified or registered mail to the prime contractor at the contractor's address.
Suit Deadline
Under Chapter 2253, a claimant may not bring suit on the payment bond earlier than the 61st day after the date the claimant sends written notice of the unpaid balance to the prime contractor. This 61-day waiting period gives the contractor an opportunity to resolve the claim before litigation begins. The claimant must also file suit no later than the first anniversary (one year) of the date on which the claimant last provided labor or materials. A claimant who misses this one-year deadline loses their right to recover on the bond, regardless of the merits of their claim.
Subdivision Bonds in Texas
Subdivision bonds (also called site improvement bonds or plat bonds) are required by Texas counties and municipalities when a land developer subdivides property and is responsible for constructing public improvements. These improvements typically include roads, sidewalks, curbing, storm drainage, water and sewer lines, street lighting, and other infrastructure within public rights-of-way.
In Texas, subdivision bond requirements are established at the local level by individual counties and municipalities through their subdivision ordinances and land development codes. The Texas Local Government Code provides the enabling authority for cities and counties to regulate subdivisions and to require financial security — including surety bonds — to guarantee the completion of required public improvements.
Under Texas Local Government Code Chapter 212, municipalities have the authority to adopt subdivision regulations that govern the division of land within their jurisdiction and extraterritorial jurisdiction (ETJ). These regulations typically require developers to post a subdivision bond or other financial security before the final plat is recorded, ensuring that the required public improvements will be completed even if the developer defaults.
Texas counties also have authority to regulate subdivisions under Texas Local Government Code Chapter 232. County subdivision requirements apply to unincorporated areas and may include bonding requirements for roads, drainage, and utility infrastructure.
The bond amount is typically determined by the local government's engineer based on the estimated cost of the required improvements, and it often equals 100% to 125% of that estimate. Premiums for Texas subdivision bonds generally range from 1% to 3% of the bond amount, depending on the developer's financial condition, credit, and experience. Texas developers working in multiple jurisdictions should be aware that bond requirements and amounts can vary significantly from one city or county to another.
Texas Contractor Licensing
One of the most distinctive features of the Texas construction regulatory landscape is that Texas does not have a statewide general contractor license. Unlike states such as Florida, Arizona, Georgia, and North Carolina, which require general contractors to obtain a state-issued license, Texas has no centralized licensing board for general contractors and no state-level examination, bonding, or registration requirement for general construction work.
This does not mean that Texas construction is unregulated. The state takes a trade-specific and local approach to contractor regulation:
State-Licensed Trades
While general contractors are not licensed at the state level, several specialty trades require state licensing in Texas:
- Electricians: Licensed by the Texas Department of Licensing and Regulation (TDLR) under the Texas Occupations Code Chapter 1305. Master electricians, journeyman electricians, and electrical contractors must hold TDLR-issued licenses.
- Plumbers: Licensed by the Texas State Board of Plumbing Examiners (TSBPE) under Texas Occupations Code Chapter 1301. Master plumbers, journeyman plumbers, and plumbing contractors must be licensed.
- HVAC/Air Conditioning: Licensed by TDLR under Texas Occupations Code Chapter 1302. Air conditioning and refrigeration contractors and technicians must hold TDLR-issued licenses.
- Fire Sprinkler/Fire Alarm: Regulated by the State Fire Marshal's Office under Texas Insurance Code Chapter 6003.
- Irrigators: Licensed by the Texas Commission on Environmental Quality (TCEQ) under Texas Occupations Code Chapter 1903.
Local Licensing Requirements
Many Texas cities require contractors to obtain a local contractor license or registration before performing construction work within city limits. The requirements vary significantly from city to city:
- Houston: Requires general contractor registration through the City of Houston's Department of Public Works and Engineering. Houston also requires permits for most construction activities.
- San Antonio: Requires contractor registration through the Development Services Department. General contractors, mechanical contractors, and other trades must register before pulling permits.
- Austin: Requires contractor registration and uses a trade-specific licensing system administered by Austin Development Services.
- Dallas: Requires general contractor registration and licenses for specific trades through the Building Inspection Division.
- Fort Worth: Requires contractor registration for general contractors and specialty trades through the Development Services Department.
Because Texas lacks a statewide general contractor license, there is no statewide contractor license bond requirement. However, some local jurisdictions may require a bond or letter of credit as part of their local registration process. Contractors should check with the specific city where they plan to work to determine whether a local bond is required.
Notice & Claim Requirements in Texas
Understanding Texas's notice and claim requirements is essential for subcontractors, laborers, and material suppliers working on bonded public construction projects. The procedures under Texas Government Code Chapter 2253 are specific and strictly enforced, and failure to comply can result in the loss of payment bond rights. Below is a detailed breakdown of the key timelines and requirements.
| Requirement | Details |
|---|---|
| Payment bond threshold | Required on public projects exceeding $25,000. |
| Performance bond threshold | Required on public projects exceeding $100,000. |
| Bond amount | Both bonds must equal 100% of the contract price. |
| Notice (first-tier claimants) | Claimants with a direct contract with the prime contractor are not required to send preliminary notice. |
| Notice (second-tier claimants) | Must send written notice to the prime contractor by the 15th day of the 3rd month after each month in which labor or materials were furnished. |
| Method of notice | Certified or registered mail to the prime contractor. |
| Earliest suit date | No earlier than the 61st day after the claimant sends written notice of the unpaid balance to the prime contractor. |
| Suit deadline | No later than the 1st anniversary (1 year) of the date the claimant last provided labor or materials. |
| Bond copy availability | The governmental entity must provide a copy of the payment bond and contract to any person who submits a written request. |
| Governing statute | Texas Government Code Chapter 2253 (McGregor Act). |
These notice and claim provisions are distinct from the requirements under Texas's private construction lien law. On private projects, subcontractors and suppliers must comply with the notice and lien filing requirements of Texas Property Code Chapter 53 to preserve their mechanic's lien rights. On public projects governed by Chapter 2253, the notice requirements are different, and the remedies run against the payment bond rather than the property. Contractors, subcontractors, and suppliers should be careful not to confuse these two separate sets of requirements.
It is also worth noting that Texas enacted House Bill 2237 in 2021, which amended parts of the property code relating to mechanic's lien deadlines and notice requirements on private projects. Contractors working on both public and private projects in Texas should stay current with both Chapter 2253 (public) and Chapter 53 (private) to ensure compliance with the correct set of rules for each project type.
Frequently Asked Questions About Texas Contract Bonds
Texas is unique in that it has separate thresholds for payment bonds and performance bonds under the McGregor Act (Texas Government Code Chapter 2253). A payment bond is required on public projects exceeding $25,000, while a performance bond is required on public projects exceeding $100,000. Both bonds must be in an amount equal to 100% of the contract price. This two-tiered approach means that on smaller public projects between $25,001 and $100,000, only a payment bond is statutorily required.
The notice requirements depend on the claimant's contractual relationship with the prime contractor. First-tier claimants (those with a direct contract with the prime contractor) are not required to send preliminary notice. Second-tier claimants (sub-subcontractors, remote suppliers, and others without a direct contract with the prime contractor) must send written notice to the prime contractor by the 15th day of the third month after each month in which the labor was performed or the materials were furnished. The notice must be sent by certified or registered mail.
Under Chapter 2253, a claimant may not bring suit on a payment bond earlier than the 61st day after the date the claimant sends written notice of the unpaid balance to the prime contractor. This waiting period gives the contractor a chance to resolve the claim. The claimant must also file suit no later than the first anniversary (one year) of the date on which the claimant last provided labor or materials. Missing this one-year deadline permanently bars recovery on the bond.
No. Texas does not have a statewide general contractor license requirement. This distinguishes Texas from states like California, Florida, Arizona, and North Carolina. However, certain specialty trades — including electrical, plumbing, and HVAC — require state-level licensing through the Texas Department of Licensing and Regulation (TDLR) or other state boards. Additionally, many major Texas cities (Houston, San Antonio, Austin, Dallas, Fort Worth) require local contractor licenses or registrations. Contractors should check with the specific city where they plan to work.
The McGregor Act is the informal name for Texas Government Code Chapter 2253, which is Texas's version of the Little Miller Act. Named after former state legislator Sam McGregor, this statute establishes the bonding requirements for public construction projects in Texas. It mandates payment bonds on public projects exceeding $25,000, performance bonds on public projects exceeding $100,000, and sets forth the notice and claim procedures for payment bond claimants. The McGregor Act applies to all governmental entities in Texas, including state agencies, cities, counties, school districts, and special districts.
No. Mechanic's liens cannot be filed against public property in Texas, just as in all other states. This is a fundamental principle of construction law. On Texas public projects, the payment bond required under Chapter 2253 serves as the substitute for mechanic's lien rights. If you are a subcontractor or supplier who has not been paid on a Texas public project, your remedy is to make a claim against the contractor's payment bond rather than filing a lien. You must comply with the notice and timing requirements of Chapter 2253 to preserve your payment bond claim rights.
Texas contract bond premiums typically range from 1% to 3% of the bond amount (which usually equals the contract price) for well-qualified contractors. The exact premium rate depends on several factors, including the contractor's personal and business credit scores, financial statements (balance sheet strength, working capital, net worth), years of construction experience in Texas, project size and type, and current work backlog. New contractors or those with credit challenges may pay higher rates. Bid bonds are always free through Surety Specialist. As an example, a Texas contractor bonding a $1,000,000 public project might pay $10,000 to $25,000 in combined performance and payment bond premiums.
Yes. Texas Department of Transportation (TxDOT) projects are public works projects and are fully subject to the McGregor Act's bonding requirements. TxDOT routinely requires both performance and payment bonds on its highway, bridge, and infrastructure projects. TxDOT also requires bid bonds as part of its competitive bidding process, typically at 5% of the bid amount. TxDOT is one of the largest public project owners in the United States, administering billions of dollars in construction contracts annually, making it a significant driver of surety bond demand in Texas.
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