By: Madla S.B. No. 1128
97S0737/1
A BILL TO BE ENTITLED
AN ACT
1-1 relating to certain construction bonds executed by sureties.
1-2 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-3 SECTION 1. Section 1, Chapter 87, Acts of the 56th
1-4 Legislature, Regular Session, 1959 (Article 7.19-1, Vernon's Texas
1-5 Insurance Code), is amended by amending Subsection (a) and adding
1-6 Subsections (c) and (d) to read as follows:
1-7 (a) Whenever any bond, undertaking, recognizance or other
1-8 obligation is, by law or the charter, ordinances, rules and
1-9 regulations of a municipality, board, body, organization, court,
1-10 judge or public officer, required or permitted to be made, given,
1-11 tendered or filed, and whenever the performance of any act, duty or
1-12 obligation, or the refraining from any act, is required or
1-13 permitted to be guaranteed, such bond, undertaking, obligation,
1-14 recognizance or guarantee may be executed by a surety company duly
1-15 authorized to do business in this state; and, except as provided by
1-16 Subsection (b), (c), or (d) of this section, such execution by such
1-17 company of such bond, undertaking, obligation, recognizance or
1-18 guarantee shall be in all respects a full and complete compliance
1-19 with every law, charter, rule or regulation that such bond,
1-20 undertaking, obligation, recognizance or guarantee shall be
1-21 executed by one surety or by one or more sureties, or that such
1-22 sureties shall be residents, or householders, or freeholders, or
1-23 either, or both, or possess any other qualification and all courts,
2-1 judges, heads of departments, boards, bodies, municipalities, and
2-2 public officers of every character shall accept and treat such
2-3 bond, undertaking, obligation, recognizance or guarantee when so
2-4 executed by such company, as conforming to, and fully and
2-5 completely complying with, every requirement of every such law,
2-6 charter, ordinance, rule or regulation.
2-7 Provided, however, that any municipality may require in any
2-8 specifications for work or supplies, on which sealed bids are
2-9 required, that any corporate surety tender shall designate, in a
2-10 manner satisfactory to it, an agent resident in the county of such
2-11 municipality to whom any requisite notices may be delivered and on
2-12 whom service of process may be had in matters arising out of such
2-13 suretyship.
2-14 (c) A bond for an amount that exceeds $100,000 that is made,
2-15 given, tendered, or filed under Subchapter H or I, Chapter 53,
2-16 Property Code, or Chapter 2253, Government Code, may be executed
2-17 only by a surety company that is authorized and admitted to write
2-18 surety bonds in this state and is the holder of a certificate of
2-19 authority from the United States secretary of the treasury to
2-20 qualify as a surety on obligations permitted or required under
2-21 federal law. A bond for an amount that exceeds $100,000 that is
2-22 made, given, tendered, or filed under Subchapter H or I, Chapter
2-23 53, Property Code, must state that the surety is a current holder
2-24 of a certificate of authority from the United States secretary of
2-25 the treasury. A third party afforded protection under Section
3-1 53.174 or 53.204, Property Code, may conclusively rely on the
3-2 statement and the record of the bond as provided in those sections.
3-3 (d) The provisions requiring that a surety be a current
3-4 holder of a certificate of authority from the United States
3-5 secretary of the treasury in Subsection (c) of this section do not
3-6 apply if the amount of the bond in excess of $100,000 is reinsured
3-7 by an entity that is authorized and admitted in this state as a
3-8 surety or reinsurer and that is the holder of a certificate of
3-9 authority from the United States secretary of the treasury to
3-10 qualify on obligations permitted or required under federal law.
3-11 SECTION 2. Section 53.172, Property Code, is amended to read
3-12 as follows:
3-13 Sec. 53.172. Bond Requirements. The bond must:
3-14 (1) describe the property on which the liens are
3-15 claimed;
3-16 (2) refer to each lien claimed in a manner sufficient
3-17 to identify it;
3-18 (3) be in an amount that is double the amount of the
3-19 liens referred to in the bond unless the total amount claimed in
3-20 the liens exceeds $40,000, in which case the bond must be in an
3-21 amount that is the greater of 1 1/2 times the amount of the liens
3-22 or the sum of $40,000 and the amount of the liens;
3-23 (4) be payable to the parties claiming the liens;
3-24 (5) be executed by:
3-25 (A) the party filing the bond as principal; and
4-1 (B) a corporate surety authorized and admitted
4-2 to do business under the law in this state and licensed by this
4-3 state to execute the bond as surety, subject to Section 1, Chapter
4-4 87, Acts of the 56th Legislature, Regular Session, 1959 (Article
4-5 7.19-1, Vernon's Texas Insurance Code); and
4-6 (6) be conditioned substantially that the principal
4-7 and sureties will pay to the named obligees or to their assignees
4-8 the amount that the named obligees would have been entitled to
4-9 recover if their claims had been proved to be valid and enforceable
4-10 liens on the property.
4-11 SECTION 3. Section 53.202, Property Code, is amended to read
4-12 as follows:
4-13 Sec. 53.202. Bond Requirements. The bond must:
4-14 (1) be in a penal sum at least equal to the total of
4-15 the original contract amount;
4-16 (2) be in favor of the owner;
4-17 (3) have the written approval of the owner endorsed on
4-18 it;
4-19 (4) be executed by:
4-20 (A) the original contractor as principal; and
4-21 (B) a corporate surety authorized and admitted
4-22 to do business in this state and licensed by this state to execute
4-23 bonds as surety, subject to Section 1, Chapter 87, Acts of the 56th
4-24 Legislature, Regular Session, 1959 (Article 7.19-1, Vernon's Texas
4-25 Insurance Code); and
5-1 (5) be conditioned on prompt payment for all labor,
5-2 subcontracts, materials, specially fabricated materials, and normal
5-3 and usual extras not exceeding 15 percent of the contract price.
5-4 SECTION 4. Section 2253.021, Government Code, is amended by
5-5 adding Subsections (f) and (g) to read as follows:
5-6 (f)(1) A governmental entity shall take all necessary
5-7 actions to ensure that an insurance company that is fulfilling its
5-8 obligation under a contract of insurance by arranging for the
5-9 replacement of a loss, rather than making a cash payment directly
5-10 to a governmental entity, will furnish or have furnished by a
5-11 contractor the following bonds in accordance with this chapter
5-12 prior to beginning work:
5-13 (A) a performance bond as described in
5-14 Subsection (b) for the benefit of the governmental entity; and
5-15 (B) a payment bond as described in Subsection
5-16 (c) for the benefit of the beneficiaries described in Subsection
5-17 (c).
5-18 (2) It is an implied obligation under a contract of
5-19 insurance for the insurance company to furnish the bonds specified
5-20 in this subsection.
5-21 (3) To recover in a suit where the insurance company
5-22 has furnished or caused to be furnished a payment bond, the only
5-23 notice required of a payment bond beneficiary shall be the notice
5-24 given to the surety in accordance with Subchapter C.
5-25 (4) This subsection does not apply to a governmental
6-1 entity when a surety company is complying with an obligation under
6-2 a bond that had been issued for the benefit of the governmental
6-3 entity.
6-4 (g) If the payment bond required by Subsection (f) is not
6-5 furnished, then:
6-6 (1) the governmental entity is subject to the same
6-7 liability that a surety would have if the surety had issued the
6-8 payment bond and the governmental entity had required the bond to
6-9 be obtained.
6-10 (2) To recover in a suit under this subsection, the
6-11 only notice required of a payment bond beneficiary shall be a
6-12 notice given to the governmental entity as if it were the surety,
6-13 in accordance with the requirements of Subchapter C.
6-14 SECTION 5. This Act takes effect September 1, 1997, and
6-15 applies only to a bond made, given, tendered, or filed on or after
6-16 that date. A bond made, given, tendered, or filed before the
6-17 effective date of this Act is governed by the law as it existed
6-18 immediately before the effective date of this Act, and that law is
6-19 continued in effect for that purpose.
6-20 SECTION 6. The importance of this legislation and the
6-21 crowded condition of the calendars in both houses create an
6-22 emergency and an imperative public necessity that the
6-23 constitutional rule requiring bills to be read on three several
6-24 days in each house be suspended, and this rule is hereby suspended.