H.B. 1171 78(R)    BILL ANALYSIS


H.B. 1171
By: Madden
State Affairs
Committee Report (Unamended)



BACKGROUND AND PURPOSE 

Chapter 2253, Government Code, requires governmental entities to obtain
performance and payment bonds from contractors on certain public work
contracts.  Under this chapter, a payment bond is for the protection of
beneficiaries who have a direct contractual relationship with a prime
contractor or a subcontractor to supply public work, labor, or material;
that is, the prime contractor's subcontractors and material suppliers.
As stipulated in Chapter 2253, if a governmental entity does not obtain a
payment bond, the governmental entity is liable as if it were the surety
and the bond beneficiary is entitled to a lien on the money due to the
contractor.  Currently, Chapter 2253 does not expressly require the bond
beneficiary to give the governmental entity notice of its claim in like
manner to that required to be given a surety under Subchapter C, Chapter
2253 of the Government Code.  The Fort Worth Court of Appeals ruled that
under Section 2253, the bond beneficiary is not required to provide notice
of its claim to the governmental entity. Texas Department of Mental Health
and Mental Retardation v. Newbasis Central, L.P., 58 S.W.3d 278, 284.
Accordingly, under the court's decision, a governmental entity that does
not obtain a payment bond has all of the liability of a surety, but is not
entitled to the notice of the claim that a surety receives.   The purpose
of House Bill 1171 is to amend Section 2253.027 of the Government Code to
require that a bond beneficiary seeking to recover against a governmental
entity must notify the governmental entity in the same manner that the
bond beneficiary is required to notify a surety. 

RULEMAKING AUTHORITY

It is the opinion of the committee that this bill does not expressly grant
any additional rulemaking authority to a state officer, department,
agency, or institution. 

ANALYSIS

House Bill 1171amends Section 2253.027 of the Government Code to provide
that if a governmental entity does not obtain a payment bond from a prime
contractor on a public work contract, then to recover in a suit against
the governmental entity, a payment bond beneficiary must provide to the
governmental entity notice in the same manner it is required to provide
notice to a surety under Subchapter C, Chapter 2253 of the Government
Code. 

EFFECTIVE DATE

September 1, 2003.