Whether one is a general contractor or a subcontractor on a public or private job, one of the highest priorities is to ensure payment for any goods and/or services rendered. The provisions contained in certain Texas laws can be an invaluable asset in obtaining prompt payment for general contractors and subcontractors.
PRIVATE JOBS – 18% INTEREST
The Private Works Prompt Pay Act can be found in Texas Property Code Section 28.001 and provides for prompt payment to contractors and subcontractors on private jobs. The statute provides that when an owner receives a written payment request for work that has been properly performed or for materials that have suitably stored or specially fabricated, the owner must remit payment to the contractor for the amount requested within thirty-five days of such request.
In order for this provision to apply, the contractor requesting payment must have contracted with the owner to improve real property or perform construction services for same. Once the payment is received by the contractor, the contractor is then obligated to pay each of its subcontractors the portion of the owner’s payment for which it is owed for work that has been properly performed or for materials that have suitably stored or specially fabricated, plus any interest applicable thereto. This payment is required to be made by the seventh day after receipt of payment from the owner.
An exception to the deadline for payment is a good faith dispute between the parties as to the amount owed and/or whether the work was performed properly. If the contract is for improvements to a single-family residence, duplex, triplex or quadplex, the owner, contractor or subcontractor who is disputing the amount owed may not withhold more than one hundred and ten percent of the difference between what the two parties allege is owed. If the dispute is regarding any other type of real property, then the party disputing the amount owed is only allowed to withhold one hundred percent of the difference between what the parties allege is owed.
Late payments under this statute begin to accrue interest on the day after the date on which the payment is due. Interest accrues at a rate of one and one-half percent per month or eighteen percent per year. Interest will stop accruing at the earlier of when the payment is received, when the payment is mailed, or when a judgment is entered by the Court against the party. The provisions provided for in this statute cannot be waived, and any attempt at a waiver of such will be held to be void.
A contractor or subcontractor may bring an action to enforce the provisions of this statute, and may be awarded court costs and attorney’s fees. The statute also provides that if an owner fails to pay the contractor the undisputed amount within the time limits, the contactor or any subcontractor may suspend performance. But in order to do so, it must provide the owner and the owner’s lender, under certain circumstances, notice informing them that payment has not been received and stating the intent of the contractor or subcontractor to suspend performance for nonpayment. This option should not be chosen lightly, because if the reason for nonpayment is failure to perform in compliance with the contract, the contractor or subcontractor may expose themselves to liability. This liability can include claims for costs of completion, additional labor to correct the work, damages for delay and other penalties.
PUBLIC JOBS – PRIME RATE PLUS 1% INTEREST
The Public Works Prompt Pay Act can be found in Texas Government Code Section 2251.001, and provides for prompt payment to contractors and subcontractors on public jobs and is very similar to the statute regarding private jobs with only a few notable distinctions. This statute allows a governmental entity thirty-one days to remit payment after the later of which the entity receives the goods under the contract, the date of the performance of service under the contract is completed, or the date the entity receives the invoice for the goods and/or services provided. Additionally, once the payment is received by the contractor, it has ten days in which to submit monies owed to its subcontractors. The interest rate applicable to untimely payments with regard to work performed for public jobs is approximately one percent plus the prime rate.
This is a broad overview of the Public and Private Works Prompt Pay Acts and should only be used as a guide. Please consult the aforementioned statutes, as each job has its own nuances and circumstances, and there may be additional exceptions and/or provisions that apply. Overall, these statutes are a superb tool for contractors and subcontractors in obtaining payment and additionally give a financial incentive for the owners to do so promptly and fully.