Texas mechanics' lien and bond claims.

Texas is perhaps the most difficult state in which to perfect a mechanics'/materialman's lien or a claim against a surety's payment bond. Many a subcontractor or supplier has not received payment for equipment or material provided, because when a customer does not pay, the claimant has not secured

Generally, subcontractors and suppliers do not care whether their customer or a third party (i.e., a project owner or a general contractor) pays for equipment or material provided, so long as bills are paid; perfecting a lien or a bond claim helps achieve that goal. Therefore, here's a primer on Texas lien and bond laws:

1. Privately-Owned Projects

A. Progress Payments

If your customer is the general contractor (i.e., you are a "first-tier" subcontractor or supplier), no later than the 15th day of the third month after each month in which you furnish equipment or material, you must notify the project owner the amount of progress payments your customer owes you. Your notice letter to the owner must be sent by certified mail, return receipt requested, with a copy of the letter to your customer, the general contractor.

Notice letters to project owners must contain "warning language" advising the owner he may be personally liable and his property subjected to a lien unless your claim is paid or otherwise settled. The notice must also inform the owner your claim has accrued under a particular provision of the Texas Property Code or is past-due according to an agreement between you and your customer.

If your customer is a subcontractor (i.e., you are a "second-tier" subcontractor or supplier), no later than the 15th day of the second month after each month in which you furnish equipment or material you must notify the project's general contractor the amount of progress payments your customer owes you. Your notice letter to the original contractor must be sent certified mail--return receipt requested.

This "fast notice" to the prime contractor must be followed by a notice letter to the project owner--discussed above--by the 15th day of the third month after each month in which your furnish equipment or material for which you are not paid. Again, notice to the project owner must contain very specific language and advise the owner how much your customer owes you.

Texas' notice deadlines are different from those of other states. For example, other states' notice deadlines are determined by the date of a subcontractor's or a supplier's last furnishing equipment or material. Texas law, however, requires notices during the course of the project based upon each month a subcontractor or a supplier provides equipment or material and for which he has not received payment.

If you furnish equipment or material for a construction job in Texas that lasts many months--or even years--you may generate multiple notice letters over the life of a project in order to protect your lien rights.

A mistake Texas lien and bond claimants commonly make is believing that billing or invoice dates trigger notice deadlines; that is not the law in Texas. Notice deadlines in Texas are governed by months in which you actually provide equipment or material, regardless of dates shown on bills, invoices, or applications for payment.

If notice letters are mailed properly and timely and contain the mandatory language, you still must file, or record, a lien affidavit in the county in which the project is located no later than the 15th day of the fourth month after the last month in which you furnished equipment or material. Unlike having to send perhaps multiple notice letters on a job, you need only file/record one lien affidavit.

B. Retainage (Retention)

Texas law treats progress payments and retainage (retention) as two different animals.

If you enter a contract or a subcontract with a customer that calls for your customer to withhold retainage from progress payments remitted to you, Texas law provides a different, easier method by which you may perfect a lien claim for unpaid retainage. On privately-owned projects in Texas, retainage is typically 10 percent of the contract or the subcontract price.

For retainage, instead of sending notice letters during the course of a project, Texas law allows claimants to send one "retainage notice letter" at the beginning of a job to perfect a lien claim against retainage.

This retainage letter should be sent by certified mail--return receipt requested, to the project owner no later than the 15th day of the second month after the month in which you first provide equipment or material for the job. A copy of the letter should also be provided to the project's general contractor by certified mail--return receipt requested.

If the claimant enters a contract or a subcontract before furnishing equipment or material, the claimant may send the project owner and general contractor a retainage letter by the 15th day of the second month after the month in which the claimant enters its contract or subcontract with the customer.

Sending a retainage letter "up front" avoids one's having to send notice letters throughout the project to perfect a lien claim for unpaid retainage.

In addition to mailing a retainage notice letter, a claimant must still file, or record, a lien affidavit with the country clerk.

Relatively recently, the Texas Supreme Court effectively ruled if a subcontractor or a supplier is owed retainage, he must file/record his lien affidavit within 30 days of completion or termination of the construction project's prime contract.

Often, a subcontractor or a supplier does not know when a prime contract becomes complete or whether an owner has terminated his contractor. Texas' lien laws allow project owners to file an Affidavit of Completion that creates a presumption defining the date a project is complete. Texas requires that owners give subcontractors and suppliers a copy of the affidavit if requested in writing by a subcontractor or a supplier. However, Texas law does not address consequences to an owner if he fails to provide such affidavit. Texas law is unclear whether such failure would excuse a claimant's complying with the 30-day lien filing/recording deadline.

Further, project owners commonly do not release retainage until more than 30 days after completion of the prime contract. Therefore, a prudent course of action to make certain one perfects a claim for retainage is for a subcontractor or a supplier who is owed retainage to file/record a lien within 30 days of the subcontractor or the supplier completing its scope of work. While doing so may, understandably, ruffle customers" feathers, such action is the only way to ensure one docs not miss a lien-filing deadline for unpaid retainage.

2. Public Works

A. Progress Payments

Public works are those for the State of Texas and its political subdivisions (e.g., Texas Department of Transportation, The University of Texas, independent school districts, and counties).

In Texas, if a public work's prime contract exceeds $25,000, subcontractors and suppliers may not assert a lien against the public work's property. Instead, subcontractors and suppliers may assert a claim against a payment bond issued for the public work.

Time deadlines for notice letters on public works are the same as those for privately-owned projects in Texas. However, instead of sending notice letters to the owner of tile public work, one must send notice letters to the general contractor's surety, or bonding company, with copies provided to the general contractor.

If you are a first-tier subcontractor or supplier, notice letters should be sent to the public work's bonding company with a copy to your customer, the prime contractor. If you are a second-tier subcontractor or supplier, notice letters should be sent to the public work's bonding company and the public work's prime contractor.

Again, time deadlines for public work notice letters mirror those of privately-owned jobs. Also, as with privately-owned projects in Texas, payment bond claimants should send public work notice letters by certified mail--return receipt requested.

In Texas, the form of a public work notice letter differs from a notice letter for private projects. A bond claim letter to a surety must be in affidavit form (i.e., sworn to) and comply with strict content requirements of the Texas Government Code.

As with private jobs, a claimant may generate multiple notice letters to a public work surety and the public work's prime contractor in order to perfect a bond claim R)r progress payments. Likewise, attention to deadlines and to forms is critical to perfect a bond claim for progress payments against a public work in Texas.

B. Retainage or Retention

To perfect a claim for retainage owed on a public work in Texas, a claimant must send a notice letter by certified mail, return receipt requested, to the public work's surety and general contractor within 90 days of the prime contract's completion. The notice letter must comply with specifics of the Texas Government Code.

A claimant has responsibility to keep its finger on the pulse of the public work to learn when the prime contractor completes its contract. The public work's completion date "starts the clock" on the 90 day window, within which a claimant must notify the bonding company and the general contractor the claimant is owed retainage.

Of course, as with retainage owed on a privately-owned project, a claimant could send a retainage notice letter to the public work surety and the general contractor within 90 days of the claimant's completing its scope of work. Doing so would ensure the claimant's notice letter is sent within 90 days of the original contractor completing its contract.

The claimant should provide copies of notice letters to the public work's general contractor by certified mail-return receipt requested.

3. Final Thoughts

* Some states allow "pre-lien" or "preliminary" notice letters; Texas does not. You must be owed money for equipment or material provided in order to invoke lien or bond rights.

* If a subcontractor or a supplier initiates a lawsuit to recover money owed under a lien or a payment bond, the subcontractor or the supplier may recover attorney fees at trial.

* In some situations, Texas law allows a subcontractor or a supplier to recover "prompt payment" interest from a non-paying customer. With privately-owned jobs, such interest is eighteen percent (18 percent) per year; for public works, such interest is twelve percent (12 percent) per year.

* This article discusses perfecting lien and bond claims for progress payments and retainage on commercial projects. Texas has different laws for perfecting claims for specially fabricated material and for residential jobs.

* Obtain as much project information as possible at the beginning of a job. If you know "up front" who the owner and the contractor are, you will have less haste if trying to beat a notice letter deadline or a lien-filing deadline. On Texas' public works, obtain a copy of the payment bond from the public work for which the project is being constructed.

Texas law does not easily forgive subcontractors and suppliers whose notice letters or liens are untimely or improper. One should consult legal counsel before trying to perfect a lien claim or a bond claim against projects located in Texas.

Efforts to perfect such claims pay off when a customer fails to pay, but you have another pocket into which you may reach to collect money you have earned.

Ragon Richey is a lawyer with Thomas, Feldman & Wilshusen, LLP in Dallas, Texas. Mr. Richey's practice focuses upon construction law, creditors" rights, and business litigation throughout Texas. A member of NACM, Ragon may be reached via e-mail at rrichey@tfandw.com