By West S.B. No. 558
74R3059 PAM-D
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to construction contract provisions and the creation of
1-3 and management policies applicable to a trust account created to
1-4 hold funds associated with a construction contract.
1-5 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-6 SECTION 1. Subchapter A, Chapter 162, Property Code, is
1-7 amended by amending Section 162.005 and adding Sections 162.006,
1-8 162.007, and 162.008 to read as follows:
1-9 Sec. 162.005. Definitions. In this chapter:
1-10 (1) A trustee acts with "intent to defraud" when the
1-11 trustee:
1-12 (A) <he> retains, uses, disburses, or diverts
1-13 trust funds with the intent to deprive the beneficiaries of the
1-14 trust funds;
1-15 (B) commingles trust funds from separate trust
1-16 accounts if the trust accounts are required to be kept separate
1-17 under this subchapter; or
1-18 (C) does not place trust funds received in a
1-19 trust account if the trust funds are required to be kept in a trust
1-20 account under this subchapter.
1-21 (2) "Current or past due obligations" are those
1-22 obligations incurred or owed by the trustee for labor or materials
1-23 furnished in the direct prosecution of the work under the
1-24 construction contract prior to the receipt of the trust funds and
2-1 which are due and payable by the trustee no later than 30 days
2-2 following receipt of the trust funds.
2-3 (3) "Direct cost" means a cost included under a
2-4 construction contract that is specific to the construction of the
2-5 improvement that is the subject of the contract.
2-6 (4) "Indirect cost" means a cost included under a
2-7 construction contract that is not specific to the construction of
2-8 the improvement that is the subject of the contract.
2-9 (5) "Financial institution" means a bank, trust
2-10 company, insurance company, credit union, savings and loan
2-11 association, investment trust, investment company, or any other
2-12 organization held out to the public as a place for deposit of funds
2-13 or medium of savings or collective investment.
2-14 (6) "Trust account" includes an escrow account.
2-15 Sec. 162.006. CONTRACT PROVISION REQUIRED. A contractor
2-16 shall include a provision in writing in the original construction
2-17 contract that specifies the maximum percentage of funds received
2-18 under the contract that will be spent on indirect costs.
2-19 Sec. 162.007. TRUST ACCOUNT REQUIRED IN CERTAIN
2-20 CIRCUMSTANCES. (a) A contractor shall place trust funds received
2-21 under each construction contract in a separate trust account in a
2-22 financial institution.
2-23 (b) The periodic statement received from the financial
2-24 institution must refer to the account as a "trust account" or
2-25 "escrow account" to satisfy the requirements of this section.
2-26 Sec. 162.008. MANAGEMENT OF TRUST ACCOUNTS. (a) A
2-27 contractor required to maintain a trust account under this
3-1 subchapter shall maintain an account record for each trust account
3-2 that provides information relating to:
3-3 (1) the source and character of all funds in the
3-4 account and the date the funds were deposited;
3-5 (2) the date and amount of each disbursement from the
3-6 account and the person to whom the funds were disbursed; and
3-7 (3) the current balance of the account.
3-8 (b) The contractor shall maintain a separate ledger in the
3-9 account record for direct costs and indirect costs.
3-10 (c) The contractor shall retain all invoices and other
3-11 supporting documentation received relating to funds that were
3-12 disbursed from the trust account.
3-13 (d) The contractor shall ensure that all deposit and
3-14 disbursement documentation includes the trust account number or
3-15 information that provides a direct connection between the
3-16 documentation and the account.
3-17 (e) The contractor may not destroy information required to
3-18 be maintained under this section before the first anniversary of
3-19 the date the improvement that is the subject of the contract is
3-20 completed.
3-21 SECTION 2. (a) This Act takes effect September 1, 1995.
3-22 The change in law made by this Act applies only to a construction
3-23 contract entered into on or after September 1, 1995, and funds
3-24 received under a construction contract entered into on or after
3-25 September 1, 1995.
3-26 (b) A construction contract entered into before September 1,
3-27 1995, or funds received under a construction contract entered into
4-1 before September 1, 1995, are governed by the law as it existed
4-2 immediately before September 1, 1995, and that law is continued in
4-3 effect for that purpose.
4-4 SECTION 3. The importance of this legislation and the
4-5 crowded condition of the calendars in both houses create an
4-6 emergency and an imperative public necessity that the
4-7 constitutional rule requiring bills to be read on three several
4-8 days in each house be suspended, and this rule is hereby suspended.