How Can I Purchase a Performance Bond in Texas?

performance bond - In Texas, how do I obtain a performance bond

In Texas, how do I obtain a performance bond?

An employer in a Texas state court suit must obtain a performance bond if the employer does not have a written employment agreement with an employee. The bond is an insurance policy that protects the employer from financial loss when it is issued by its former employees for payment of wages under the Fair Labor Standards Act,  Title 29 of United States Code section 201 et seq., and similar state laws regulating minimum wage and overtime payments to employees.

Contract workers and independent contractors must obtain a performance bond if their contract requires it: It is recommended that Fiduciaries obtain Performance Bonds from principals who have been asked to engage in fiduciary activities which might include the investment of funds for others into real estate or other investments.

In Texas, where can I receive a performance bond?

Performance bonds provide assurance to your client that you will complete the work you were hired for. Without them, your client could ask for a refund of its money if you do not fulfill the contractual obligations. The Performance Bond Act of 1983 requires contractors and subcontractors on public works projects in Texas to execute their performance and payment bond within 60 days after notice from the owner to proceed with work. Bonds must be filed in Austin and submitted in duplicate originals to:

Bureau of Administration, PO Box 1270, Capitol Station, Austin TX 78711-1270, Phone: (512) 463-9362.

Submit two original copies along with one copy for your contract documents. Any change in ownership or location requires written notice to the commissioner.

In Texas, how much does a performance bond cost?

A performance bond is a type of contract in which one party agrees to be responsible for the debt or obligation of another. Performance bonds refer to many types of contracts depending on the industry and type of price quote, but most often make reference to public work projects such as road construction and excavation. They are also known as contractor’s payment bonds, supply bonds, labor, and material payment bonds, progress payment guarantees, etc.

Currently, private contractors are required by the state of Texas to procure performance bonds if they’re bidding for any public works project valued at more than $25000. The amount varies depending on the value range for different types of projects: 

  • For Projects under $100000 – 100% of the contract price 
  • Between $100001 and $500000 – The base amount of 100% of contract price plus an additional 1% 
  • Between $500001 and $1000000 – The base amount of 100% of contract price plus an additional 2% 
  • For Projects over $1000000 – The base amount of 100% of contract price plus 5%. 

However, there is a cap on maximum coverage which is around 2.5million. In other words, the maximum bond amount can be up to 150 thousand dollars. In this case, 5% coverage will have to be divided into two parts: 3%: The base minimum percentage that covers bidding or proposal security, or 10 percent if required by the awarding authority. 2%: The additional percentage needed for contract performance. 

Is there a need for a performance bond in Texas?

In Texas, an owner may contract with a general contractor for the construction of improvements and require performance bonds from either the contractor or subcontractor. The bond amounts will vary depending on the nature and location of work to be performed by the parties involved in the project. 

For personal property work (not involving real estate) up to $100,000, for example, there is no requirement that you purchase a performance bond prior to commencing work. If you choose not to acquire such a bond and fail to complete the contractual obligations you could be held personally liable for any costs incurred by your client in completing the contracted tasks. 

This liability would extend well into the future and could devastate your business if it were applied widely enough. You may also incur personal liability if you actually complete the work and fail to get paid.

On the other hand, if you are going to be working on a job that is for more than $100,000 in value or involves the construction of a building on someone else’s property (real estate), then a performance bond may be required by an owner/client prior to commencing work. 

The purpose behind requiring this bond is so that one party (the owner) can be assured that there will be someone responsible to complete any contracted tasks on time without having to assume any additional risk associated with not paying installments under the contract. In some cases, an owner may require more than one type of surety bond from several contractor parties involved with a project.

In Texas, who issues a performance bond?

In Texas, a contractor’s license bond is known as a performance bond. A performance bond is required by the State of Texas to ensure that a contractor performs any work for which they have been hired. Performance bonds are only issued when the value of the contract exceeds $4500.

Performance Bonds can be purchased from any surety company licensed in Texas and will secure all contracts up to $500,000. Bonds must be purchased prior to submitting your application or you will need to wait until your application has been processed before purchasing one.

Performance bonds are purchased with what is called an annual aggregate limit. This means that if there are multiple contracts under the same license number on file with TDLR, these contracts combined cannot exceed $500,000 worth of work. 

If you begin contracting on another project before your current projects are completed, the amount of the performance bond does not change until your current contracts are complete (or you terminate them). Then, when you start your next contract, the new contract must be for at least $4500 to require a performance bond.

To know more about performance bonds, check out Alpha Surety Bonds now!

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