Most Texas small businesses don't need a bond just to operate, and Texas has no statewide contractor license bond. Bonds come up mainly on government construction contracts, where state law requires performance and payment bonds above set dollar amounts, and in some local permits or licensed industries.
What a Surety Bond Is
A bond is a guarantee from a surety company that you'll meet your obligations. If you don't, the surety pays the harmed party and then collects from you. Unlike insurance, a bond protects your customer or the government, not your business.
Public Works Bonds (Texas Government Code Chapter 2253)
When a Texas government entity hires a prime contractor for a public work contract, the contractor must provide these bonds before work begins:
- Performance bond: required if the contract is over $100,000. It guarantees the project will be finished.
- Payment bond: required if the contract is over $25,000, or over $50,000 when the government entity is a city (or certain joint boards). It protects subcontractors and suppliers who can't file liens on public property.
- Bonds are generally written for the full contract amount and must come from a surety authorized to do business in Texas.
Bid Bonds and Federal Work
- Many public bids require a bid bond, often a percentage of the bid, to show you'll sign the contract if you win.
- Federal construction projects in Texas follow the federal Miller Act instead, which generally requires bonds on contracts over $150,000.
Local and Industry Bonds
Some cities require bonds for certain permits, such as work in public streets or rights-of-way. Some licensed industries also require a bond as a license condition. Check with your licensing agency and city. Plumbing, electrical, and HVAC contractors in Texas meet their state requirements with liability insurance, not a bond.
Getting Bonded as a New Business
Sureties look at your credit, finances, and experience. New contractors often start with smaller, project-by-project bonds. Clean bookkeeping and separate business finances make approval easier.
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Common Mistakes
Bidding a public job without lining up the required bond first.
Assuming the $25,000 payment-bond threshold applies to city projects, where it's $50,000.
Confusing a bond with insurance. A bond doesn't protect your business from its own losses.
Frequently Asked Questions
Do Texas contractors need a license bond?
Not at the state level for general contractors. Bonds are required on many public works contracts and for some local permits.
When is a performance bond required on Texas public work?
When a public work contract is over $100,000, under Texas Government Code section 2253.021.
Official Sources
This guide is general information, not legal, tax, or insurance advice. Requirements can change; verify with the agency before acting.
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