Image courtesy of Flickr (Licensed) by © Mike Licht, NotionsCapital.com

Image courtesy of Flickr (Licensed) by © mark6mauno.

That Public Works Project you are bidding may not be bonded after all.  Under Texas Law, state and local projects with a price tag of $25,000 or more are required to be bonded.  Apparently, at least one Texas municipality has decided to save money and eliminate the bonding requirement from one of its projects.  This is a clear violation of law that places huge risks on the backs of subcontractors in the event their prime contractors experience a financial collapse.

According to an August 30, 2014 article in the Kilgore News Herald, the City of Kilgore opted to ignore Texas law to save a few dollars constructing Kilgore’s  baseball complex.  Only one member of the city council voted against the decision to proceed without a bond.  It is frightening that the City Attorney advised council members that proceeding without a bond violated state law but that no penalty existed for eliminating bond requirement except that the City would assume the risk of non-payment.

Unfortunately, the correctness of the city’s attorney’s opinion is not so clear.  Subcontractors have zero ability to fix a lien on public property.  The Texas Government Code only states that:

  1. the entity is subject to the same liability that a surety would have if the surety had issued a payment bond and if the entity had obtained the bond;  and
  2. a payment bond beneficiary is entitled to a lien on money due to the prime contractor in the same manner and to the same extent as if the public work contract were subject to an ordinary lien claim.

Likely, the City of Kilgore has created a dangerous situation where subcontractors have no ability to obtain money for the work or materials provided should the general contractor not pay.  Because the bond statute does not include a clear waiver of sovereign immunity, a subcontractor’s lawsuit against a government entity, like the City of Kilgore, would likely be dismissed without any decision on the merits.

The lesson to subcontractors and vendors performing on public projects is to ask whether the project is bonded before tendering a bid and to obtain a copy of the bond before commencing work.