Payment Bonds: Thresholds, Claimants and Notice Deadlines by State

Each statute sets its own threshold and amount. These figures come from the statute text and describe public work only; private owners and lenders set their own terms by contract.

Agencies may restate or add to these rules in bid documents. Contractors should confirm the required bond form before bid day, because some agencies insist on their own form and some statutes prescribe the wording.

• Federal: on contracts of more than $100,000, the payment bond equals the total amount payable under the contract unless the contracting officer finds that impractical in writing, and it may not be less than the performance bond (40 U.S.C. §3131).
• California: a direct contractor on a public works contract involving more than $25,000 gives a payment bond before work begins, in an amount not less than 100 percent of the total amount payable, executed by an admitted surety insurer (Civil Code §9550, §9554). Contracts with a state entity defined in Public Contract Code §7103 fall outside §9550.
• Texas: a payment bond in the amount of the contract on public work contracts over $25,000, or over $50,000 when the governmental entity is a municipality or a qualifying joint board (Gov. Code §2253.021).
• Arizona: a payment bond equal to the full contract amount before a covered public contract is executed, from a surety holding an Arizona certificate of authority (A.R.S. §34-222).

The Miller Act lets a person who furnished labor or material sue on the payment bond if it has not been paid in full 90 days after its last labor or material. A claimant with a direct contract with a subcontractor, but no contract with the prime contractor, must also give the prime contractor written notice no later than 90 days after its last labor or material, stating with substantial accuracy the amount claimed and the party it supplied. Notice goes by a method that provides written third-party verification of delivery or by any method a U.S. marshal could use to serve a summons. Suit must be brought no later than one year after the claimant's last labor or material.

Arizona's A.R.S. §34-223 follows a similar pattern with one addition. A claimant who contracts with a subcontractor but not with the prime contractor must give a preliminary 20-day notice as provided in A.R.S. §33-992.01 and a written 90-day notice after its last labor or material, stating the amount and the party supplied, delivered by a method with third-party verification. Suit must be filed no later than one year after the claimant's last labor or material.

Texas counts by month, not by days from last work. Under Gov. Code §2253.041, a payment bond beneficiary must mail written notice of the claim to both the prime contractor and the surety on or before the 15th day of the third month after each month in which any claimed labor was performed or material delivered. The notice must include a sworn statement of account stating that the amount is just and correct and that known offsets, payments and credits have been allowed, and it must show any unpaid retainage.

Second-tier claimants have an extra step for retainage. A beneficiary without a direct contract with the prime contractor that contracts with a subcontractor for retainage must mail the prime contractor notice, on or before the 15th day of the second month after it begins work or deliveries, that the contract provides for retainage and generally describes it. Suit on the payment bond may not be brought after the first anniversary of the date the claim notice is mailed. And if a governmental entity fails to obtain a required payment bond, §2253.027 makes the entity subject to the same liability a surety would have had.

In California, Civil Code §9300 requires a claimant to give preliminary notice to the public entity and to the direct contractor it provides work to before asserting a claim against a payment bond. Laborers and claimants with a direct contract with the direct contractor are exempt. The direct contractor itself cannot claim on the payment bond, and §9566 limits recovery to claimants who provided work to the direct contractor directly or through subcontractors.

A claimant that did not give preliminary notice may still enforce a claim under §9560 by giving written notice to the surety and the bond principal no later than 15 days after a notice of completion is recorded, or 75 days after completion of the work if none is recorded; for second-tier claimants, §9560(d) may close that route when progress payments to their subcontractor were made except amounts disputed in good faith. Under §9558, suit may be filed any time after the claimant stops providing work but no later than six months after the stop payment notice period in §9356 expires: 30 days after a recorded notice of completion, acceptance or cessation. If none is recorded, the period is 90 days after cessation or completion.

For the general contractor, payment bond claims are an indemnity problem. Each dollar the surety pays to a sub-subcontractor or supplier is typically a dollar the GC owes back, often after it has already paid the first-tier subcontractor for the same material. Lien releases, joint checks on large supply orders and tracking preliminary notices as they arrive all help a GC see trouble before a claim reaches the surety.

Contractors can also push risk down. California's §9554 allows a direct contractor to require a subcontractor to give a bond indemnifying the direct contractor for loss caused by the subcontractor's default under that section. Bonding key subcontractors or confirming their payment history before award shifts the problem toward the party that caused it.