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.