BILL ANALYSIS S.B. 662 By: Harris (Gray) 5-16-95 Committee Report (Amended) BACKGROUND Construction contract clauses prevent subcontractors from having entitlement to payment for properly performed work by not obligating the general contractor to make payment to the subcontractor. Typically, this is accomplished through the payment the subcontractor contingent upon events occurring other than the subcontractor properly performing the work. PURPOSE S.B. 662 provides that certain agreements for the payment of subcontractors are against public policy and are void. RULEMAKING AUTHORITY It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency or institution. SECTION BY SECTION ANALYSIS SECTION 1. Amends Subchapter D, Chapter 35, Business and Commerce Code, by adding Section 35.521, as follows: Section 35.521. AGREEMENT FOR PAYMENT OF CONSTRUCTION SUBCONTRACTOR. (a) Provides that a provision of a contract or other agreement, by which payment form an original contractor is conditioned upon receipt of payment from another person, then the subcontractor can cease providing labor, service, or materials required under contract with the original contractor, without penalty; and the subcontractor has a cause of action against the owner for all of the unpaid payments as if it has contracted directly with the owner. (b) Provides that under this section, the rights and remedies granted to the subcontractor are in addition to, not in lieu of, any other rights and remedies otherwise available by law. (c) Provides that under subsection (a), an action brought by a subcontractor, an owner has an affirmative defense of offset for any damages of the owner for any labor, services, or materials furnished by the subcontractor that do no comply with the requirements of the original contract. (d) Defines "original contractor", "owner", and "subcontractor". (e) Provides that subsection (a) does not apply to contracts undertaken by the Texas Department of Transportation or to a contract or agreement for the construction of a one-family to four-family dwelling. SECTION 2. This Act applies only to a contract or other agreement entered into on or after the effective date of this Act. SECTION 3. Establishes effective date as September 1, 1995. SECTION 4. Emergency Clause. EXPLANATION OF AMENDMENTS SECTION 1, Section 35.521(a) states that a subcontractor can proceed to halt services and seek rights and remedies granted to subconstractors under the law, under a contract or agreement between an original contractor and a subcontractor that includes the proviso that payment from an original contractor to a subcontractor is conditioned upon receipt of payment from another person, if the owner has not made payment to the original contractor by the 35th day following the date of the subcontractor's invoice that is satisfactorily completed to the original contracter and the original contractor has not made payment of such invoice to the subcontractor. Amendment #1 clarifies this section by adding that the original contractor must invoice the owner for work performed by the subcontractor. SUMMARY OF COMMITTEE ACTION S.B. 662 was considered by the Committee on Business and Industry in a public hearing on May 16, 1995. The committee considered one (1) amendment to the bill. Without objection, committee amendment #1 was adopted. No public testimony was considered on this bill. S.B. 662 was reported favorably, as amended with the recommendation that it do pass and be printed, by a record vote of six (6) ayes, zero (0) nays, zero (0) present-not-voting, and three (3) absent.