By: West S.B. No. 558
A BILL TO BE ENTITLED
AN ACT
1-1 relating to construction contract provisions, construction trust
1-2 funds, and the creation of and management policies applicable to a
1-3 construction account created to hold funds associated with a
1-4 construction contract; providing penalties.
1-5 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-6 SECTION 1. Section 162.001, Property Code, is amended by
1-7 adding Subsection (c) to read as follows:
1-8 (c) If a contractor and property owner have entered into a
1-9 written construction contract for the improvement of specific real
1-10 property in this state before the commencement of construction of
1-11 the improvement and the contract provides for the payment by the
1-12 owner of the costs of construction and a reasonable fee specified
1-13 in the contract payable to the contractor, the fee paid to the
1-14 contractor is not considered trust funds.
1-15 SECTION 2. Section 162.003, Property Code, is amended to
1-16 read as follows:
1-17 Sec. 162.003. Beneficiaries of Trust Funds. An artisan
1-18 <artist>, laborer, mechanic, contractor, subcontractor, or
1-19 materialman who labors or who furnishes labor or material for the
1-20 construction or repair of an improvement on specific real property
1-21 in this state is a beneficiary of any trust funds paid or received
1-22 in connection with the improvement.
1-23 SECTION 3. Section 162.005, Property Code, is amended to
1-24 read as follows:
2-1 Sec. 162.005. Definitions. In this chapter:
2-2 (1) A trustee acts with "intent to defraud" when the
2-3 trustee:
2-4 (A) <he> retains, uses, disburses, or diverts
2-5 trust funds with the intent to deprive the beneficiaries of the
2-6 trust funds;
2-7 (B) retains, uses, disburses, or diverts trust
2-8 funds and fails to establish or maintain a construction account as
2-9 required by Section 162.007 or fails to establish or maintain an
2-10 account record for the construction account as required by Section
2-11 162.008; or
2-12 (C) uses, disburses, or diverts trust funds that
2-13 were paid to the trustee in reliance on an affidavit furnished by
2-14 the trustee under Section 53.085 if the affidavit contains false
2-15 information relating to the trustee's payment of current or past
2-16 due obligations.
2-17 (2) "Current or past due obligations" are those
2-18 obligations incurred or owed by the trustee for labor or materials
2-19 furnished in the direct prosecution of the work under the
2-20 construction contract prior to the receipt of the trust funds and
2-21 which are due and payable by the trustee no later than 30 days
2-22 following receipt of the trust funds.
2-23 (3) "Direct cost" means a cost included under a
2-24 construction contract that is specific to the construction of the
2-25 improvement that is the subject of the contract.
2-26 (4) "Indirect cost" means a cost included under a
2-27 construction contract that is not specific to the construction of
3-1 the improvement that is the subject of the contract.
3-2 (5) "Financial institution" means a bank, trust
3-3 company, insurance company, credit union, savings and loan
3-4 association, investment trust, investment company, or any other
3-5 organization held out to the public as a place for deposit of funds
3-6 or medium of savings or collective investment.
3-7 (6) "Construction account" means a separate account in
3-8 a financial institution into which only funds from construction
3-9 payments made by the property owner and funds deposited by the
3-10 contractor that are necessary to pay charges imposed on the account
3-11 by the financial institution may be maintained.
3-12 (7) "Draw schedule" means a listing of the amount of
3-13 funds and the times in the construction process at which those
3-14 funds are advanced from the property owner to the contractor.
3-15 SECTION 4. Subchapter A, Chapter 162, Property Code, is
3-16 amended by adding Sections 162.006, 162.007, and 162.008 to read as
3-17 follows:
3-18 Sec. 162.006. DRAW SCHEDULE REQUIRED. A contractor who
3-19 agrees to construct improvements to a residential homestead shall
3-20 furnish a written draw schedule to the property owner before the
3-21 commencement of construction.
3-22 Sec. 162.007. CONSTRUCTION ACCOUNT REQUIRED IN CERTAIN
3-23 CIRCUMSTANCES. (a) A contractor who agrees with a property owner
3-24 to construct improvements to a residential homestead for an amount
3-25 exceeding $5,000 shall deposit the trust funds received from the
3-26 owner in a construction account in a financial institution.
3-27 (b) The periodic statement received from the financial
4-1 institution must refer to the account as a "construction account"
4-2 to satisfy the requirements of this section.
4-3 Sec. 162.008. MANAGEMENT OF CONSTRUCTION ACCOUNTS. (a) A
4-4 contractor required to maintain a construction account under this
4-5 subchapter shall maintain an account record for the construction
4-6 account that provides information relating to:
4-7 (1) the source and character of all funds in the
4-8 account and the date the funds were deposited;
4-9 (2) the date and amount of each disbursement from the
4-10 account and the person to whom the funds were disbursed; and
4-11 (3) the current balance of the account.
4-12 (b) The contractor shall maintain an account record for each
4-13 construction project that specifies the direct costs and indirect
4-14 costs charged to the owner.
4-15 (c) The contractor shall retain all invoices and other
4-16 supporting documentation received relating to funds that were
4-17 disbursed from the construction account.
4-18 (d) The contractor shall ensure that all deposit and
4-19 disbursement documentation includes the construction account number
4-20 or information that provides a direct connection between the
4-21 documentation and the account.
4-22 (e) The contractor may not destroy information required to
4-23 be maintained under this section before the first anniversary of
4-24 the date the improvement that is the subject of the contract is
4-25 completed.
4-26 SECTION 5. Section 162.032, Property Code, is amended by
4-27 adding Subsections (c) and (d) to read as follows:
5-1 (c) A trustee who fails to establish or maintain a
5-2 construction account in violation of Section 162.007 or fails to
5-3 establish or maintain an account record for the construction
5-4 account in violation of Section 162.008 commits a Class A
5-5 misdemeanor.
5-6 (d) A contractor who fails to furnish a draw schedule in
5-7 violation of Section 162.006 commits a Class C misdemeanor.
5-8 SECTION 6. (a) This Act takes effect September 1, 1995.
5-9 The changes in law made by this Act apply only to a construction
5-10 contract entered into on or after September 1, 1995, and funds
5-11 received under a construction contract entered into on or after
5-12 September 1, 1995.
5-13 (b) A construction contract entered into before September 1,
5-14 1995, or funds received under a construction contract entered into
5-15 before September 1, 1995, are governed by the law as it existed
5-16 immediately before September 1, 1995, and that law is continued in
5-17 effect for that purpose.
5-18 SECTION 7. The importance of this legislation and the
5-19 crowded condition of the calendars in both houses create an
5-20 emergency and an imperative public necessity that the
5-21 constitutional rule requiring bills to be read on three several
5-22 days in each house be suspended, and this rule is hereby suspended.
5-23 COMMITTEE AMENDMENT NO. 1
5-24 SB558
5-25 SECTION 3, Sec. 162.005 DEFINITIONS (6),
5-26 line 10 strike the words "a separate" and replace with the
5-27 word "an"
6-1 line 11 insert the word "trust" between the words "only" and
6-2 "funds"
6-3 line 11 strike the words "from construction"
6-4 line 12 strike the words "payments made by the property
6-5 owner"
6-6 Giddings
6-7 COMMITTEE AMENDMENT NO. 2
6-8 Amend S.B. 558 as follows:
6-9 On Page 3, lines 15-17, strike all of Subsection (7).
6-10 On Page 3, lines 21-24, strike all of Section 162.006 and
6-11 renumber subsequent Sections appropriately.
6-12 On page 4, line 12, after the word "and" and before the word
6-13 "of", strike the word "character" and, in its place, substitute the
6-14 word "amount".
6-15 On page 4, line 12, after the word "of" and before the word
6-16 "funds" strike the word "all" and, in its place, substitute the
6-17 word "the".
6-18 On page 5, lines 13 & 14, strike all of Subsection (d).
6-19 Solomons