Texas Construction Bonds

At Surety Bonds Agent, we offer a full range of surety bonds nationwide through an extended carrier network. Continue below to learn more about Texas construction bonds. If you have additional questions or want to explore bonding solutions for your business, speak with one of our knowledgeable surety bond experts.

What Is a Texas Construction Bond?

Texas construction bonds protect construction project owners against the financial losses that can result from a contractor’s statutory and/or contractual violations. Construction bonds:

  1. require the contractor to comply with all relevant laws and the terms and specifications spelled out in the construction contract, and
  2. provide a way to compensate the project owner or other injured party for monetary damages caused by the contractor’s actions. 

What Types of Texas Construction Bonds May Be Needed?

Texas licenses only specialty contractors at the state level, but some municipalities and counties have their own licensing rules and may require the purchase of a contractor license bond. 

Texas’s “Little Miller Act,” the state’s version of the federal Miller Act, requires performance bonds and payment bonds for all state-funded projects, regardless of their value. The Little Miller Act does not apply to private construction projects, but many private project owners also require their contractors to purchase performance and payment bonds. Both state and local contracting authorities and private project owners have the option of requiring a bid bond from every contractor in a competitive bidding situation. 

Other construction bonds that contractors doing business in Texas may need to purchase include:

  • Maintenance bonds
  • Subdivision/site improvement bonds
  • Supply bonds
  • Solar decommissioning bonds
  • Right of Way bonds
  • Contractor License bonds

How Does a Texas Construction Bond Work?

The three parties to a Texas construction bond are the:

  • Project owner (known as the “obligee”),
  • Contractor (the “principal”), and
  • Guarantor (the “surety”)

The legal obligation to pay valid claims belongs entirely to the principal. But as the bond’s guarantor, the surety will pay a valid claim as an extension of credit to the principal. Because the surety is indemnified by the bond, the principal must then repay the resulting debt according to the surety’s credit terms. Not repaying the debt can subject the principal to legal debt recovery proceedings initiated by the surety.

How Much Does It Cost?

The premium a contractor will pay for a Texas construction bond is the product of multiplying the bond amount by the premium rate. While the obligee establishes the required bond amount, the surety assigns the premium rate through underwriting. The main underwriting concern is that the principal might not repay the surety for claims paid on the principal’s behalf. The risk of non-repayment is measured by the principal’s personal credit score. 

A principal with a high credit score is viewed as a low risk to the surety, so the premium rate will be low. A lower credit score is a sure sign of elevated risk, which calls for a higher premium rate. 

The premium rate for a principal with good credit usually is in the range of 1% to 3%.

At Surety Bonds Agent, we offer a full range of surety bonds nationwide through an extended carrier network. Continue below to learn more about Texas construction bonds. If you have additional questions or want to explore bonding solutions for your business, speak with one of our knowledgeable surety bond experts.

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FREE CONSTRUCTION BOND QUOTE

What Is a Texas Construction Bond?

Texas construction bonds protect construction project owners against the financial losses that can result from a contractor’s statutory and/or contractual violations. Construction bonds:

  1. require the contractor to comply with all relevant laws and the terms and specifications spelled out in the construction contract, and
  2. provide a way to compensate the project owner or other injured party for monetary damages caused by the contractor’s actions.

Texas licenses only specialty contractors at the state level, but some municipalities and counties have their own licensing rules and may require the purchase of a contractor license bond. 

Texas’s “Little Miller Act,” the state’s version of the federal Miller Act, requires performance bonds and payment bonds for all state-funded projects, regardless of their value. The Little Miller Act does not apply to private construction projects, but many private project owners also require their contractors to purchase performance and payment bonds. Both state and local contracting authorities and private project owners have the option of requiring a bid bond from every contractor in a competitive bidding situation. 

Other construction bonds that contractors doing business in Texas may need to purchase include:

  • Maintenance bonds
  • Subdivision/site improvement bonds
  • Supply bonds
  • Solar decommissioning bonds
  • Right of Way bonds
  • Contractor License bonds

The three parties to a Texas construction bond are the:

  • Project owner (known as the “obligee”),
  • Contractor (the “principal”), and
  • Guarantor (the “surety”)

The legal obligation to pay valid claims belongs entirely to the principal. But as the bond’s guarantor, the surety will pay a valid claim as an extension of credit to the principal. Because the surety is indemnified by the bond, the principal must then repay the resulting debt according to the surety’s credit terms. Not repaying the debt can subject the principal to legal debt recovery proceedings initiated by the surety.

The premium a contractor will pay for a Texas construction bond is the product of multiplying the bond amount by the premium rate. While the obligee establishes the required bond amount, the surety assigns the premium rate through underwriting. The main underwriting concern is that the principal might not repay the surety for claims paid on the principal’s behalf. The risk of non-repayment is measured by the principal’s personal credit score. 

A principal with a high credit score is viewed as a low risk to the surety, so the premium rate will be low. A lower credit score is a sure sign of elevated risk, which calls for a higher premium rate. 

The premium rate for a principal with good credit usually is in the range of 1% to 3%.

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Request a quote online or call today to speak with one of our surety bond experts about obtaining a Texas construction bond.