It’s unambiguous that Texas law requires a payment bond be posted for all construction projects exceeding $25,000 in value. It’s unambiguous that the new Kilgore Baseball Complex project in Kilgore, Texas exceeds this value. Nevertheless, the Kilgore city council has voted to purposefully not follow the law. 

Let’s repeat that:  The Kilgore city council voted to purposefully not follow the law.

Can they do that, and what are the consequences to the council, the City of Kilgore, and the contractors / suppliers hired to furnish to this project?

City Decision to Eliminate Payment Bond Based On Poor Advice and Misunderstanding of Law

Understanding payment bonds is fairly easy. Most city, state, and federal construction projects require project participants to post a “payment bond” to protect the payment rights of subcontractors and suppliers.  If – for any reason – payment is not made to those furnishing labor or materials to a project, a claim can be made directly against the bond for payment. This bond claim is typically the only remedy available to subs, suppliers, laborers, and others who work on these types of jobs.

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Kilgore is building a new baseball complex, and it’s clear as day that a payment bond must be posted on the job under Texas law.

[lts_blockquote align=”left”]One problem here is that the Kilgore City Council lacks the authority to ignore a state law. The other problem is that their outlook on the bonding requirement is dangerously distorted.[/lts_blockquote] According to Kilgore News Herald’s City Assumes Risk for Work on Ballfields, however, city attorney Rob Schleier advised that “Waiving the bond requirements is against statutes…but there is no penalty for violating them. The city assumes the risk. Doing so covers the spirit of the law.”

This advice fit nicely within the city council’s underlying challenge: that Kilgore cannot afford the project with the bonding costs.

Instead of focusing on the project’s overall costs and the problem that presents, the council members couched the high costs as a impediment to small contractors.  Again, according to the Kilgore News Herald’s article, Kilgore’s Public Works Director Seth Sorensen stated that “[w]aiving bonding requirements for contractors will reduced overhead costs to the firms and subsequently to the city, enable[ing] small or local contractors to bid on portions of the project and likewise enable[ing] larger local contractors to keep bonding capacity open for other jobs.”

Based on this advise and distorted view, the Kilgore City Council took the law into their hands and voted to waive the requirement.

One problem here is that the Kilgore City Council lacks the authority to ignore a state law. The other problem is that their outlook on the bonding requirement is dangerously distorted.

If Kilgore can’t afford the project, then that should be a full stop. The solution in Kilgore is to figure out how to afford the project, and not to shave off a legally mandated cost that the council considers to be expendable.

Sure, the city attorney advised that “there is no penalty for violating the law” and that by assuming the risk the city is following “the spirit of the law,” but this advice seems very suspect. In an article on his RFI Blog, Subcontractors Strike Out – City Eliminates Payment Bond, construction attorney Brian Carroll disagrees with the city attorney’s advice:

Unfortunately, the correctness of the city’s attorney’s opinion is not so clear. Subcontractors have zero ability to fix a lien on public property[, and b]ecause the bond statute does not include a clear waiver of sovereign immunity, a subcontractor’s lawsuit against a government entity, like the City of Kilgore, would likely be dismissed without any decision on the merits.

Caroll’s perspective on this is dead-on accurate.  The subcontractors and suppliers to this project will indeed “strike out,” because without a bond, there are no legal remedies available in a payment problem event.

Subcontractors & Suppliers Beware of the Kilgore Baseball Project Complex

The city of Kilgore has already admitted that the budget on this project is so tight they cannot even afford a payment bond. What do you think is going to happen when the inevitable delays, unforeseen conditions, default instances, change orders, and other problems pop up on this project?  If the city of Kilgore is voting to remove the payment bond requirement because they can’t afford, you can be certain that they cannot afford any payment problems that arise.

So, what will happen if a subcontractor or supplier encounters a non-payment or delayed payment situation?

  • No Lien Right.  In Texas, as in most states, contractors and suppliers only have a right to file a mechanics lien against on property. Since this will be a city job, there will be no ability to file a mechanics lien.
  • No Payment Bond Claim Right.  As we are exploring in detail in this post, there will not be a payment bond on the complex, and accordingly, there will be no payment bond claim rights available.
  • Suing the City Directly?  The biggest question mark is whether the subcontractor or supplier would be able to sue the city directly in the event of a payment default.  The answer, however, is likely to be no.  This is because of sovereign immunity laws. Though the city attorney advises that such an action may be possible, and subcontractors or suppliers may detrimentally rely on this guarantee, the fact will remain that the city is immune from all of its bad actions, statements, guarantees, and advice.

Non-payment situation is not just possible, but it is likely.  It happens on a high percentage of projects overall, and Kilgore’s Public Works Department’s [low] level of sophistication in working on projects has been made clear by the bungling of the bonding requirements and massive misunderstanding of the laws.

When a payment problem does arise, one thing about the city attorney’s advice will indeed be true:  “there will be no penalties.”  Subcontractors & suppliers are likely left empty handed here.

Disciplinary Action or Impeachment Warranted Against Kilgore City Council & City Attorney?

Isn’t it hard to believe that government officials can take a formal vote to purposefully not follow a law?

Is this malfeasance in office? Is this sanctionable poor advice by the attorney?

Did Council & City Attorney Violate Their Oath of Office?

As an elected official in Kilgore, Texas, each city council member and the city attorney was required by the Texas Constitution to take the following oath of office.   The official oath is as follows, with the emphases ours:

I, _______________________, do solemnly swear (or affirm), that I will faithfully execute the duties of the office of ___________________ of the State of Texas, and will to the best of my ability preserve, protect, and defend the Constitution and laws of the United States and of this State, so help me God.

This is not a complicated oath of office, and it very clearly dedicates the public servants of Kilgore to “preserve, protect, and defend” Texas’ state laws. There seems to be absolutely no ambiguity here.  The public officials want to move forward with the Kilgore baseball complex, but are running into budget problems. Rather than resolve the budget problem with the project, they instead vote to purposefully disregard a law that protects small businesses, contractors, laborers, and suppliers to the project.  It is not their place to make this decision. They have taken an oath to specifically not make this type of decision.

Should Attorney Rob Schleier Face Disciplinary Action?

Rob-Schleier-Kilgore-AttorneyAccording to the preamble of the Texas Disciplinary Rules of Professional Conduct, lawyers are the “guardians of the law.”  The rules that follow govern the lawyer’s competence, diligence, objectivity, and commitment to the rule of law and the judicial process.

In the current situation in Kilgore, it appears the city attorney gave the city council the following advice: (1) That Texas law required a payment bond on the Kilgore baseball project; (2) That if the city ignored that law, there is no apparent penalties; (3) That the “spirit of the law” would be supported if Kilgore ignored the law, because Kilgore would still have lability.

This looks like pretty bad advice, but as an attorney myself, I wonder whether the advice is so poor that it warrants an investigation into what exactly transpire.

Here, a lawyer literally advised its employer to purposefully break the law because it would be more convenient and “there are no penalties.”  The advise was literally that purposefully breaking a law would support the “spirit of the law.”  That makes no sense.

Conclusion

This is a sad situation in Kilgore, Texas.  We’ve heard about fraudulent bonds, expired bonds, insolvent bonding companies, and other bonding nightmares.  Never have we run across a situation where a payment bond requirement was stared at in the face and sidestepped for no reason at all.

The citizens of Kilgore should demand more protection for their county’s assets and tax dollars, and furthermore, anyone furnishing to this project should be warned.

Summary
Subcontractors Beware: Texas City Purposefully Ignores Bonding Requirements
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Subcontractors Beware: Texas City Purposefully Ignores Bonding Requirements
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Kilgore City Council stared at the payment bond law in the face, and ignored it. What consequences will they, and all subcontractors & suppliers, face?
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zlien
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