City of Houston Capital Contracts: Bonds, Insurance and Retainage

Paragraph 11.4.1 of the 2024 General Conditions reads: "For Contracts over the value of $25,000, Contractor shall provide Bonds on the City's standard forms." The bonds must be for 100 percent of the original contract price, and the paragraph ties them to Chapter 2253 of the Texas Government Code, the statute that governs public works performance and payment bonds for Texas governmental entities.

Paragraph 11.5 adds a one-year maintenance bond, also at 100 percent of the original contract price. That matters to the surety: a Houston contract can leave a contractor with bonded exposure for a full year after substantial completion, at the full original price rather than a reduced warranty figure. The City's table of contents also lists a one-year surface correction bond form, which can appear on paving and street contracts, so check whether the solicitation includes it.

Paragraph 11.6.5 says the bonds go on City forms with no changes and must be no more than 30 days old when furnished. A surety that is used to issuing on its own forms, or a contractor that obtains bonds early, should line both points up before award.

Section 11.6 sets the surety standard. The surety must be authorized and admitted to write surety bonds in Texas (11.6.1). If a bond exceeds 10 percent of the surety's capital and surplus, reinsurance is required (11.6.2). Bonds over $100,000 need a surety holding a certificate of authority from the U.S. Treasury, or reinsurance from a Treasury-listed reinsurer that is also admitted in Texas (11.6.3).

Paragraph 11.6.6 requires the surety to name an agent who resides in Harris County. A contractor bonded through an out-of-area program can usually meet this, but the agent designation has to be in place before the bonds are signed, not after the City flags it.

None of these rules decide whether a surety will support a given contract. Bonding capacity, the size of the job against work on hand and indemnity terms are set by the surety's own underwriting, and the contractor's financial statements and backlog typically drive that answer more than the City's form does.

The 10 percent figure below comes from a single source: a Document 00410 Bid Form issued with a January 3, 2024, General Services Department addendum for one project. That form says the bid includes a security deposit of 10 percent of the total bid price and that the bid is irrevocable for 90 days. It also lists required bid supplements, including the MWSBE participation plan, the good faith efforts form and the Pay or Play form.

We could not read the City's Instructions to Bidders, so we do not state 10 percent as a citywide rule. Houston Public Works and other departments can set bid security in their own bid forms, and the amount, the accepted form of security and the irrevocability period should be confirmed in each solicitation.

Table 1 of the 2024 General Conditions lists the required coverage. These figures come from that document; a project's Supplementary Conditions or insurance exhibit can add coverage or raise limits, and the solicitation controls.

Insurers must hold a Texas certificate of authority, or be an eligible nonadmitted insurer with a Best's rating of at least B+ and a financial size category of Class VI or better (11.2.3). All policies except workers' compensation must name the City as additional insured (11.2.4), every policy must carry a waiver of subrogation in favor of the City (11.2.7), and each policy except workers' compensation must apply as primary (11.2.8). The City asks for 30 days' advance written notice of cancellation or nonrenewal and for notice of possible claims that could reduce any aggregate limit below 75 percent.

Paragraphs 11.2.13.1 through 11.2.13.16 list general liability exclusions the City does not accept, including construction defect completed operations, damage to work performed by subcontractors, explosion, collapse and underground hazards, subsidence, work height and designated-project limitations. Those exclusions are common on some contractor programs, so the policy forms need a line-by-line check before bid. Subcontractors must carry general liability, workers' compensation, employer's liability and auto meeting the same section, with additional insured and waiver terms. Certificates must be under 12 months old, show the insurer's NAIC number and name the project in the holder box. Table 1 lists no pollution liability line; any pollution, builder's risk or higher umbrella requirement would sit in the project's Supplementary Conditions.

• Workers' compensation: Texas statutory, with no alternative form and no self-insurance
• Employer's liability: $500,000 each accident, disease policy limit and disease each employee
• Commercial general liability: $1 million each occurrence, $2 million general aggregate and $2 million products-completed operations aggregate, with completed operations for one year after completion
• Owner's and contractor's protective: $1 million each occurrence and aggregate
• Installation floater: the value of stored material and equipment paid for but not yet incorporated
• Automobile liability: $1 million combined single limit on any auto, or all owned, hired and non-owned autos
• Excess liability: $1 million each occurrence and aggregate over general liability and auto, following form and primary to the City's own insurance

Paragraph 9.6.1.3 provides for progress payments "less retainage of five percent." The prime contractor may not withhold more retainage from subcontractors than the City withholds from the prime, so subcontract forms with a 10 percent retention clause need to change for Houston work.

The General Conditions define the defect correction period as one year following the date of substantial completion and acceptance of the project (1.1.19). Under 12.1.7, corrective work gets an additional year, and the document says the one-year correction period does not establish a duration for the contractor's general warranty. The maintenance bond sits behind the correction period, so a defect claim in that window can reach the surety.

An earlier edition dated January 1, 2020, issued in a General Services Department bid addendum, carried a $1 million general liability aggregate instead of $2 million and let a contractor reduce employer's liability to $500,000 when excess limits reached $2 million. Firms carrying forward older Houston certificates should check them against the 2024 table.

Document 00808, the City's MWSBE and PDBE program requirements for construction contracts, says the goals for each contract are specified in Document 00800, and firms counted toward the goal must be certified by the Office of Business Opportunity at the time of bid. A certified MBE or WBE prime's own work can count for up to 50 percent of the overall advertised goal, and good faith efforts are evaluated within 10 business days of bid opening.

An Office of Business Opportunity letter reports that Council adopted an amended Chapter 15 ordinance on May 6, with a new citywide annual goal of 34 percent MWBE participation for construction, split 23 percent MBE and 11 percent WBE. The letter's meeting dates place it in 2025, and it removes the 4 percent cap on SBE participation in construction, adds veteran and disabled-veteran SBEs and a personal net worth test, and says the new procedures would be in place by January 2026. A February 2026 training deck repeats those goals and says firms may continue to bid but will not have compliance access in B2GNow or LCP Tracker until required training is complete.

The work behind these rules is large. Houston's adopted FY2027 budget shows the FY2027 through FY2031 capital improvement plan of about $18.0 billion, with about $4.1 billion budgeted for FY2027, and recalls voter-approved general obligation bonds of $410 million in 2012, $495 million in 2017 and $478 million in 2022.