Bonding in Texas

A surety bond is a 3-party promise. The contractor (the principal) pays a surety company for a bond that a customer, subcontractor, or a government entity (the obligee) can draw against if the contractor breaks the rules the bond covers. The surety pays valid claims up to the bond face value. The contractor then owes the surety for what the surety paid out. A bond protects the public. It is not insurance for the contractor. Texas handles bonding very differently from most states, and that difference matters to every trade. Keep the following categories separate. 1. No state general contractor license, and no state license bond. Texas does not issue a statewide general contractor license, so there is no statewide GC license bond to post. Licensing exists at the trade level (electrical, plumbing, HVAC) and, for general construction, at the city level. A city-issued contractor registration may require a local bond; check the ordinance in each jurisdiction where you pull permits. 2. Electrical licenses (TDLR): insurance, not bond. Texas Department of Licensing and Regulation administers electrical licenses under 16 Texas Administrative Code Chapter 73. The rule requires general liability insurance for Electrical Contractors, Electrical Sign Contractors, and Residential Appliance Installation Contractors at the minimum coverages set by rule 73.40. TDLR does not require a surety bond for the Master Electrician or the Electrical Contractor license itself. 3. Plumbing licenses (TSBPE): insurance, not bond. The Texas State Board of Plumbing Examiners licenses plumbers under Texas Occupations Code Chapter 1301. A Responsible Master Plumber must carry at least $300,000 in commercial general liability insurance and file a certificate of insurance with TSBPE as certificate holder. Chapter 1301 does not impose a statewide surety bond on plumbing contractors. Individual Texas cities, however, may require a local plumbing bond as part of municipal registration; the amount varies by city. 4. Public works bonds: Texas Government Code Chapter 2253 (Little Miller Act). Contracts with Texas governmental entities require statutory bonds before work begins, under Texas Government Code 2253.021. - Performance bond: required when the contract exceeds $100,000. Bond runs to the governmental entity in the amount of the contract. - Payment bond: required when the contract exceeds $25,000 for non-municipal governmental entities, or exceeds $50,000 for a municipality or a Chapter 22 joint airport board. Bond runs to the benefit of subcontractors and suppliers in the amount of the contract. Subcontractors on a bonded public job do not file mechanic's liens against public property. They perfect claims against the payment bond using the notice procedures in Chapter 2253. 5. Private construction: no state lien bond for license purposes. On private Texas projects, subcontractors and suppliers use the mechanic's and materialman's lien procedures in Texas Property Code Chapter 53. An owner or original contractor may post a bond to indemnify against liens under Chapter 53 Subchapter H, which can clear title. This is a project-specific tool, not a license bond. Premium math. A surety charges an annual premium, typically 1% to 3% of the bond face value for a contractor with strong credit and no prior claims. Weaker credit, tax liens, prior surety losses, or a new business can push the rate to 5% to 10% or more. Public works performance and payment bonds are priced per job, usually 0.5% to 3% of the contract price depending on contract size, job type, and the contractor's financial statements. Bond, insurance, and workers' compensation are separate requirements. A Texas contractor carries statutory bonds only when a public contract triggers them, general liability insurance at the coverage levels TDLR or TSBPE require for the license held, any city-specific bond required by local ordinance, and workers' compensation if the project is a public work covered by Texas Labor Code 406.096 (private-sector workers' compensation is otherwise elective in Texas). Confirm each requirement against the current rule and contract before you assume you are compliant.