Texas Municipal Utility Districts: Bidding, Bonds and Developer Contracts

Section 49.273, last amended by House Bills 3437 and 3507 effective September 1, 2023, sets three tiers. For contracts over $150,000, the board advertises the letting once a week for two consecutive weeks, with the first notice at least 14 days before the bid opening. For contracts over $25,000 up to $150,000, the board solicits written competitive bids from at least three bidders. Contracts of $25,000 or less need no bidding.

The section also bars a board from subdividing work to avoid the advertising requirements. It lets district staff approve change orders of $150,000 or less and allows change orders that add more than 25% in total only for the reasons the statute lists. A contractor pricing a phased development should expect the district to bid the full scope as the statute requires, and should not plan on a series of small contracts.

Section 49.271, last amended by House Bill 2815 effective June 18, 2023, requires a bidder on a construction contract over $50,000 to submit a certified or cashier's check or a bid bond for at least 2% of the bid. For a contract over $250,000, the district must accept a bid bond in the amount it requires. A bidder that will not sign the contract or will not furnish the payment and performance bonds forfeits the deposit. The section also lets the district set minimum criteria for bidders and for sureties.

Subsection (f) is the developer's rule: the section applies to a contract for construction work entered into by a third party on behalf of a district. A developer that hires the contractor for district-financed water, sewer or drainage lines is therefore typically running a public bid with public bid security, not a private negotiated job. The developer and its contractor should expect the district's engineer to set the bid documents and the bond forms.

Section 49.275 says a district contractor must give good and sufficient performance and payment bonds in accordance with Chapter 2253 of the Government Code. Under section 2253.021, a performance bond applies to a contract over $100,000 and a payment bond to a contract over $25,000 when the governmental entity is not a municipality, which includes a utility district. Each bond is for the full contract amount and must be written by a corporate surety.

Section 49.276 sets payment. Ten percent of the estimated amount is retained until final completion and acceptance of the contract work, and after the work is 50% complete the board may pay in full. No interest is owed on retainage for the first half of the work, while interest is owed on retainage held on the remaining half. Section 49.277 gives the board control of the construction work and its inspection, and the district's engineer files as-built plans at completion. Claim notices on these bonds follow chapter 2253 and are not repeated here.

The TCEQ adoption document for Rule Project No. 2025-009-293-OW amends 30 TAC 293.63. The proposal appeared in the Texas Register on February 27, 2026. The adoption and effective dates were not stated in the text read for this page, so confirm the date the amendment took effect with TCEQ. As amended, the rule has district contract documents follow the Texas Section ASCE forms, repeats the 2% bid deposit over $50,000 and the bid bond over $250,000 and raises the advertising threshold from $75,000 to $150,000 to match House Bill 3507.

Two parts of the rule matter to a contractor's surety. Bidders submit, with the bid, the name of the firm that will execute the payment and performance bonds, and the apparent low bidder submits a statement of qualifications. A district may require a surety with a rating of at least B from Best's Key Rating Guide; the rule's alternative criteria involve Small Business Administration eligibility and listing on Treasury Circular 570. Whether a given surety meets the district's criteria is a question for the district and the surety, subject to underwriting.

A developer usually advances the cost of district facilities and is repaid from district bonds. Section 49.181 bars a district from issuing bonds for a project under TCEQ review unless the commission determines that the project is feasible and issues an order approving the bonds, with listed exceptions such as certain refunding bonds. Section 49.107(f) requires the TCEQ executive director's approval before a district reimburses a developer from operation and maintenance tax funds.

The amended 30 TAC 293.59(k) caps the combined projected tax rate for a first bond issue at $1.50 in Harris, Fort Bend, Montgomery and other listed counties, $1.20 in Travis, Williamson, Collin, Dallas and other listed counties and $1.00 elsewhere. It also obligates a developer to refund the difference, with interest, if an estimated valuation supported an exemption that the final valuation does not. TCEQ Form 20166, revised in 2004, asks whether financed underground utilities and streets are 95% complete or backed by financial guarantees. Under Water Code sections 54.238 and 54.239, a person aggrieved by a board decision on the cost, purchase or use of developer-built facilities may appeal to TCEQ within 30 days.

Chapters 49 and 54 of the Water Code set no insurance or indemnity requirement for district contractors. Section 49.070 lets the board itself subscribe to workers' compensation, but contractor limits, additional insured wording and indemnity clauses come from the district's contract and its engineer's specifications. Ask the engineer for the insurance exhibit before bidding, and compare it to the contractor's general liability, auto, umbrella and pollution terms.

Two other points are set outside the statute and should be confirmed for each district: the developer's cost share and exemptions under the TCEQ developer rules, and when developer-built facilities are conveyed to the district. Both usually appear in the development financing agreement and the TCEQ rules, and both change who carries the property and liability exposure during construction. Coverage for any claim depends on the policy forms, the contract and the facts, subject to underwriting.