Bill not drafted by TLC or Senate E&E.
Line and page numbers may not match official copy.
By Elkins H.B. No. 1031
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to the prompt payment of contractors and subcontractors.
1-3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-4 SECTION 1. Chapter 28, Texas Property Code, is amended to
1-5 read as follows:
1-6 Sec. 28.001. DEFINITIONS. In this chapter:
1-7 (1) "Contractor" means a person who contracts with an
1-8 owner to improve real property or perform construction or
1-9 maintenance services for an owner.
1-10 (2) "Improve" means to:
1-11 (A) build, construct, effect, erect, alter,
1-12 maintain, repair, or demolish any improvement on, connects with, or
1-13 beneath the surface of real property;
1-14 (B) excavate, clear, grade, fill, or landscape
1-15 real property;
1-16 (C) construct a driveway or roadway;
1-17 (D) furnish any material, including trees or
1-18 shrubbery, for the purpose of taking any action described by
1-19 Paragraphs (A)-(C) of this subdivision; or
1-20 (E) perform any labor on or in connection with
1-21 an improvement.
1-22 (3) "Improvement" includes all or any part of:
1-23 (A) a building, structure, erection, alteration,
1-24 demolition, or excavation on, connected with, or beneath the
2-1 surface of real property; and
2-2 (B) the act of clearing, grading, filling, or
2-3 landscaping real property, including construction of a driveway or
2-4 roadway or furnishing trees or shrubbery.
2-5 (4) "Owner" means a person or entity, other than a
2-6 governmental entity, with an interest in real property that is
2-7 improved, for whom an improvement is made, and who ordered the
2-8 improvement to be made.
2-9 (5) "Owner's Representative" means a person or company
2-10 authorized to receive a payment request for the Owner.
2-11 (6) "Properly performed or supplied" means labor,
2-12 services or materials that are supplied, or suitably stored, or
2-13 specifically fabricated in accordance with the contract between the
2-14 contractor and subcontractor.
2-15 (7) [(5)] "Real Property" includes lands, leaseholds,
2-16 tenements, hereditaments, and improvements placed on the real
2-17 property.
2-18 (8) [(6)] "Subcontractor" means a person who contracts
2-19 to furnish labor or material to, or has performed labor or supplied
2-20 materials for, a contractor or another subcontractor in connection
2-21 with a contract to improve real property.
2-22 Sec. 28.002. Prompt Pay Required. (a) A contractor shall
2-23 submit invoices periodically, but no less often than monthly, to
2-24 the owner for all goods or services provided for the owner,
2-25 including those goods or services provided to the contractor by a
2-26 subcontractor. A subcontractor shall submit invoices periodically,
2-27 but no less often than monthly, to the contractor for all goods or
2-28 services provided for the contractor, including those goods or
2-29 services provided to the subcontractor by another subcontractor.
2-30 (b) [(a)] If an owner or an owner's representative receives
3-1 a written payment request from a contractor for an amount that is
3-2 allowed to the contractor for properly performed work or suitably
3-3 stored or specially fabricated materials, the owner shall pay the
3-4 amount to the contractor, less any amounts withheld as authorized
3-5 by statute [statutory offsets], not later than the 14th [45th] day
3-6 after the owner receives the request.
3-7 (c) [(b)] A contractor who received a payment under
3-8 Subsection (a) or otherwise from an owner in connection with a
3-9 contract to improve real property shall pay each of its
3-10 subcontractors the portion of the owner's payment, including
3-11 interest, if any, that is attributable to properly [work] performed
3-12 work or [materials] suitably stored or specially fabricated
3-13 materials by that subcontractor [if payment for stored materials is
3-14 provided for in the contract,] to the extent of that
3-15 subcontractor's interest in the owner's payment. The payment
3-16 required by this subsection must be made not later than the seventh
3-17 day after the date the contractor receives the owner's payment.
3-18 (d) [(c)] A subcontractor who receives a payment under
3-19 Subsection (b) or otherwise from a contractor in connection with a
3-20 contract to improve real property shall pay each of its
3-21 subcontractors the portion of the payment, including interest, if
3-22 any, that is attributable to properly [work] performed work or
3-23 [materials] suitably stored or specially fabricated materials by
3-24 that subcontractor [if payment for stored materials is provided for
3-25 in the contract,] to the extent of that subcontractor's interest in
3-26 the payment. The payment required by this subsection must be made
3-27 not later than the seventh day after the date the subcontractor
3-28 receives the contractor's payment.
3-29 Sec. 28.003. Exception for Good Faith Dispute; Withholding.
3-30 If a good faith dispute exists concerning the amount owed for a
4-1 payment requested or required by this chapter, whichever entity,
4-2 the owner, contractor, or subcontractor, that is disputing its
4-3 obligation to pay or the amount of payment, may withhold from the
4-4 payment owed not more than 100 [110] percent of the difference
4-5 between the amount the obligee claims is due and the amount the
4-6 obligor claims is due. A good faith dispute includes a dispute
4-7 regarding whether the work was performed in a proper manner.
4-8 Sec. 28.004. Interest on Overdue Payment. (a) An unpaid
4-9 amount required under this chapter begins to accrue interest on the
4-10 day after the date on which the payment becomes due.
4-11 (b) An unpaid amount bears interest at the rate of 2 1/2 [1
4-12 1/2] percent each month.
4-13 (c) Interest on an unpaid amount stops accruing under this
4-14 section on the earlier of:
4-15 (1) the date of delivery;
4-16 (2) the date of mailing, if payment is mailed and
4-17 delivery occurs within three days; or
4-18 (3) the date a judgment is entered in an action
4-19 brought under this chapter.
4-20 Sec. 28.005. Action to Enforce Payment. (a) A person may
4-21 bring an action to enforce the person's rights under this chapter.
4-22 (b) In an action brought under this chapter, the court may
4-23 award costs and reasonable attorney's fees as the court determines
4-24 equitable and just.
4-25 (c) Post judgment interest shall be the higher of the amount
4-26 provided in this section or the amount otherwise provided by law.
4-27 Sec. 28.006. No Waiver. (a) Except as provided by
4-28 Subsection (b), an attempted waiver of a provision of this chapter
4-29 is void.
4-30 (b) A written contract between an owner and a contractor for
5-1 improvements to or construction of a single-family residence may
5-2 provide that the payment required under Section 28.002(a) be made
5-3 not later than a date that occurs the 61st day after the date the
5-4 owner receives the payment request. Notwithstanding Section
5-5 28.004(b), an unpaid amount under a contract subject to this
5-6 subsection that allows payment later than the date otherwise
5-7 required under Section 28.002(a) bears interest at the rate of 2
5-8 1/2 [1 1/2] percent each month.
5-9 Sec. 28.007. Legal Construction. (a) This chapter may not
5-10 be interpreted to void a contractor's or subcontractor's
5-11 entitlement to payment for properly performed work or suitably
5-12 stored materials.
5-13 (b) Nothing in this statute shall be interpreted to change
5-14 the rights and obligations set forth in Chapter 53, Property Code.
5-15 Sec. 28.008. Exception for Failure of Lender To Disburse
5-16 Funds. The date of payment required of the owner pursuant to
5-17 Section 28.002(a) shall change from the 14th [45th] day after the
5-18 date the owner receives the payment request to the 5th day after
5-19 the owner receives loan proceeds in the event that:
5-20 (1) the owner has obtained a loan intended to pay for
5-21 all or part of a contract to improve real property;
5-22 (2) the owner has timely and properly requested
5-23 disbursement of proceeds from that loan; and
5-24 (3) the lender is legally obligated to disburse such
5-25 proceeds to the owner, but has failed to do so within 14 [45] days
5-26 after the date the owner received the contractor's payment request.
5-27 Sec. 28.009. RIGHT TO STOP WORK. In addition to the rights
5-28 provided by this chapter and any rights and remedies otherwise
5-29 available at law:
5-30 (a) If a payment in the undisputed amount is not made by an
6-1 owner to a contractor within the time limits provided herein, the
6-2 contractor and any subcontractor may suspend performance of their
6-3 contracts ten (10) days after giving the owner written notice of
6-4 its intent to do so and the contractor and any subcontractor will
6-5 not have the obligation to supply further labor, services or
6-6 materials until properly paid as provided herein plus costs for
6-7 demobilization and remobilization.
6-8 (b) Unless notified in writing, prior to the suspension of
6-9 work, by the owner or contractor that payment has been made or that
6-10 a bona fide dispute for payment exists stating the specific reasons
6-11 therefor, the subcontractor or contractor shall not be responsible
6-12 for damages resulting from the suspension of its work, provided its
6-13 work is not specified as a reason for nonpayment.
6-14 (c) In the event the owner or contractor provides a list of
6-15 specific reasons to the subcontractor or contractor in accordance
6-16 with (b) of this Section that includes the subcontractor's labor,
6-17 services or materials, the owner or contractor shall give the
6-18 subcontractor a reasonable opportunity to cure the listed items,
6-19 and will accept the cured items or a reasonable value offered by
6-20 the subcontractor to be retained to cover the items that may not be
6-21 promptly cured, and the subcontractor will not have the obligation
6-22 to supply further labor, services or materials until properly paid
6-23 as provided herein for work that is properly performed or supplied
6-24 plus costs for demobilization and remobilization.
6-25 Sec. 28.010. DIRECT ACTION BY SUBCONTRACTOR AGAINST OWNER.
6-26 In addition to the rights provided by this chapter and any rights
6-27 and remedies otherwise available at law:
6-28 (a) If the owner has not paid the contractor the undisputed
6-29 amount within the time limits prescribed in this section, the
6-30 contractor or subcontractor, as the case may be, after giving the
7-1 owner 10 days written notice of non-payment and its intent to
7-2 exercise its rights under this section, also has a direct cause of
7-3 action against the owner for all of its unpaid labor, services or
7-4 materials and the reasonable cost of suspension of work, and other
7-5 reasonable damages including, but not limited to, costs for
7-6 demobilization and remobilization. In such action, the owner may
7-7 offset for damages for labor, services or materials furnished by
7-8 the contractor that do not comply with the requirements of the
7-9 contract between the owner and the contractor.
7-10 (b) Any agreement of a contractor to indemnify or defend an
7-11 owner shall be unenforceable only to the extent that it applies to
7-12 a direct cause of action of a subcontractor provided in Sec.
7-13 28.010(a)(1) of this Chapter.
7-14 (d) Any agreement of a subcontractor to indemnify or defend
7-15 the contractor, owner or another subcontractor shall be
7-16 unenforceable to the extent that it applies to a direct cause of
7-17 action of a subcontractor provided in Sec. 28.010(a)(1) of this
7-18 Chapter.
7-19 Sec. 28.011. INTEREST CHARGES NOT USURY. Interest charged
7-20 in compliance with or attempted compliance with this Chapter is not
7-21 usurious.
7-22 SECTION 2. Sections 2251.001(2) and (7), Government Code,
7-23 are amended to read as follows:
7-24 (2) "Governmental entity" means this state or a state
7-25 agency or political subdivision of this state.
7-26 (7) "Subcontractor" means a person who contracts with
7-27 a vendor or another subcontractor to work or contribute toward
7-28 completing work for a governmental entity.
7-29 SECTION 3. Section 2251.002(a), Government Code, is amended
7-30 to read as follows:
8-1 (a) Except as provided by Section 2251.042, this [This]
8-2 chapter does not apply to a payment made by a governmental entity,
8-3 vendor, or subcontractor if:
8-4 (1) there is a bona fide dispute between the
8-5 governmental entity [political subdivision] and a vendor or [,
8-6 contractor,] subcontractor[, or supplier] about the goods delivered
8-7 or the services performed that causes the payment to be late;
8-8 (2) there is a bona fide dispute between a vendor and
8-9 a subcontractor or between a subcontractor and its subcontractor
8-10 [supplier] about the goods delivered or the services performed that
8-11 causes the payment to be late;
8-12 (3) the terms of a federal contract, grant,
8-13 regulation, or statute prevent the governmental entity from making
8-14 a timely payment with federal funds; or
8-15 (4) the invoice is not mailed to the person to whom it
8-16 is addressed in strict accordance with any instruction on the
8-17 purchase order relating to the payment.
8-18 SECTION 4. Subchapter A, Chapter 2251, Government Code, is
8-19 amended by adding Sections 2251.004-2251.006 to read as follows:
8-20 Sec. 2251.004. WAIVER PROHIBITED. The provisions of this
8-21 chapter may not be waived by contract or otherwise.
8-22 Sec. 2251.005. INTEREST NOT USURIOUS. Interest charged in
8-23 accordance with or attempted compliance with this chapter is not
8-24 usurious.
8-25 Sec. 2251.006. TIME FOR SUBMITTING INVOICES UNDER CERTAIN
8-26 CONTRACTS. (a) This section applies only to the submission of
8-27 invoices under a contract with a governmental entity to improve
8-28 real property or to perform construction of maintenance services.
8-29 (b) A vendor shall submit invoices to the governmental
8-30 entity periodically, but no less often than monthly, for all goods
9-1 and services provided by or through the vendor for the governmental
9-2 entity, including those goods and services provided to the vendor
9-3 by a subcontractor.
9-4 (c) A subcontractor shall submit invoices to the vendor
9-5 periodically, but no less often than monthly, for all goods and
9-6 services provided by or through the subcontractor for the vendor,
9-7 including those goods and services provided to the subcontractor by
9-8 another subcontractor.
9-9 SECTION 5. Sections 2251.021(a) and (b), Government Code,
9-10 are amended to read as follows:
9-11 (a) Except as provided by Subsection (b), a payment by a
9-12 governmental entity [under a contract executed on or after
9-13 September 1, 1987,] is overdue on the 15th [31st] day after the
9-14 later of:
9-15 (1) the date the governmental entity receives the
9-16 goods under the contract;
9-17 (2) the date the performance of the service under the
9-18 contract is completed; or
9-19 (3) the date the governmental entity, or a
9-20 representative of the governmental entity authorized to receive
9-21 invoices for the entity, receives an invoice for the goods or
9-22 services.
9-23 (b) A payment under a contract [executed on or after
9-24 September 1, 1993,] owed by a political subdivision whose governing
9-25 body meets only once a month or less frequently is overdue on the
9-26 31st [46th] day after the later event described by Subsections
9-27 (a)(1) through (3).
9-28 SECTION 6. Section 2251.022, Government Code, is amended to
9-29 read as follows:
9-30 Sec. 2251.022. TIME FOR PAYMENT BY VENDOR. (a) A vendor
10-1 who receives a payment from a governmental entity shall pay a
10-2 subcontractor the appropriate share of the payment, plus any
10-3 interest, not later than the 7th [10th] day after the date the
10-4 vendor receives the payment.
10-5 (b) The appropriate share, plus any interest, is overdue on
10-6 the 8th [11th] day after the date the vendor receives the payment.
10-7 SECTION 7. Section 2251.023, Government Code, is amended to
10-8 read as follows:
10-9 Sec. 2251.023. TIME FOR PAYMENT BY SUBCONTRACTOR. (a) A
10-10 subcontractor who receives a payment from a vendor shall pay its
10-11 subcontractor [a person] who supplies goods or a service for which
10-12 the payment is made the appropriate share of payment, plus any
10-13 interest, not later than the 7th [10th] day after the date the
10-14 subcontractor receives the payment.
10-15 (b) The appropriate share, plus any interest, is overdue on
10-16 the 8th [11th] day after the date the subcontractor receives the
10-17 payment.
10-18 SECTION 8. Section 2251.025, Government Code, is amended to
10-19 read as follows:
10-20 Sec. 2251.025. Interest on Overdue Payment. (a) A payment
10-21 begins to accrue interest on the day the payment is overdue.
10-22 (b) An overdue payment bears interest at the rate of two and
10-23 one-half [one] percent each month.
10-24 (c) Interest on an overdue payment stops accruing on the
10-25 date the governmental entity, subcontractor, or vendor mails or
10-26 electronically transmits the payment.
10-27 (d) In the event of a lawsuit, post judgment interest on an
10-28 overdue payment is the higher of the amount provided by this
10-29 section or the amount otherwise provided by law.
10-30 SECTION 9. Section 2251.026, Government Code, is amended to
11-1 read as follows:
11-2 Sec. 2251.026. LIABILITY FOR THE PAYMENT OF INTEREST BY
11-3 GOVERNMENTAL ENTITY [STATE AGENCY]. If the [warrant for a] payment
11-4 the originating governmental entity [state agency] owes is not
11-5 mailed or electronically transmitted before the payment is overdue,
11-6 the governmental entity [agency] is liable for an interest payment
11-7 that accrues under this chapter.
11-8 SECTION 10. Section 2251.027, Governmental Code, is amended
11-9 to read as follows:
11-10 Sec. 2251.027. PAYMENT OF INTEREST BY GOVERNMENTAL ENTITY
11-11 [POLITICAL SUBDIVISION]. (a) A governmental entity [political
11-12 subdivision] shall compute interest imposed on the governmental
11-13 entity [political subdivision] under this chapter.
11-14 (b) The governmental entity [political subdivision] shall
11-15 pay the interest at the time payment is made on the principal.
11-16 (c) The governmental entity [political subdivision] shall
11-17 submit the interest payment with the net amount due for goods and
11-18 services.
11-19 (d) The governmental entity [political subdivision] may not
11-20 require a vendor to petition, bill, or wait an additional day to
11-21 receive the interest due.
11-22 SECTION 11. Section 2251.028, Government Code, is amended to
11-23 read as follows:
11-24 Sec. 2251.028. PAYMENT OF INTEREST BY VENDOR OR
11-25 SUBCONTRACTOR. (a) A vendor or subcontractor shall pay interest as
11-26 a payment is overdue.
11-27 (b) The interest shall be paid at the time the principal
11-28 payment is made for goods and services, and a petition or bill is
11-29 not required for the interest to be paid.
11-30 SECTION 12. Section 2251.042, Government Code, is amended to
12-1 read as follows:
12-2 Sec. 2251.042. DISPUTED PAYMENT. (a) If a bona fide
12-3 dispute concerning the amount owed by a governmental entity,
12-4 vendor, or subcontractor exists, the party disputing its obligation
12-5 to pay may withhold from the payment owed not more than 100 percent
12-6 of the difference between the amount the obligee claims is due and
12-7 the amount the obligor claims is due.
12-8 (b) A governmental entity shall notify a vendor of an error
12-9 in an invoice submitted for payment by the vendor not later than
12-10 the 15th [21st] day after the date the entity receives the invoice.
12-11 (c) [(b)] If a dispute is resolved in favor of the vendor or
12-12 subcontractor and the vendor or subcontractor is awarded all or
12-13 part of its claim, the vendor or subcontractor is entitled to
12-14 receive interest as provided in this chapter on the unpaid balance
12-15 of the invoice submitted by the vendor or subcontractor beginning
12-16 on the date under Section 251.021, 2251.02, or 2251.023 that the
12-17 payment for the invoice is overdue.
12-18 (d) [(c)] If a dispute is resolved in favor of the
12-19 governmental entity, the vendor shall submit a corrected invoice
12-20 that must be paid in accordance with Section 2251.021. The unpaid
12-21 balance accrues interest as provided by this chapter if the
12-22 corrected invoice is not paid by the appropriate date.
12-23 SECTION 13. Section 2251.043, Government Code, is amended to
12-24 read as follows:
12-25 Sec. 2251.043. ATTORNEY FEES. In a formal administrative or
12-26 judicial action to collect an invoice payment or interest due under
12-27 this chapter, the opposing party, which may be the governmental
12-28 entity, [or] the vendor, or the subcontractor, shall pay the
12-29 reasonable attorney fees of the prevailing party.
12-30 SECTION 14. Subchapter C, Chapter 2251, Government Code, is
13-1 amended by adding Sections 2251.044 and 2251.045 to read as
13-2 follows:
13-3 Sec. 2251.044. RIGHT TO STOP WORK. (a) If a payment in the
13-4 undisputed amount is not made by the governmental entity to a
13-5 vendor within the time limits provided in this chapter, the vendor
13-6 and any subcontractor of that vendor may suspend performance of
13-7 their contracts. Before suspending performance, a vendor or
13-8 subcontractor must give the governmental entity at least 10 days
13-9 written notice of its intent to do so.
13-10 (b) The vendor or subcontractor is responsible for damages
13-11 resulting from the suspension of its work under Subsection (a) only
13-12 if the governmental entity or vendor notifies in writing the vendor
13-13 or subcontractor before work is suspended:
13-14 (1) that payment has been made; or
13-15 (2) that a bona fide dispute for payment exists as a
13-16 direct result of the vendor's or subcontractor's work, specifically
13-17 setting forth the reasons therefor in such written notice.
13-18 (c) In the event the governmental entity or vendor provides
13-19 a list of specific reasons to the vendor or subcontractor in
13-20 accordance with Subsection (b) that includes the vendor's or
13-21 subcontractor's labor, services, or goods, the governmental entity
13-22 or vendor shall give the vendor or subcontractor a reasonable
13-23 opportunity to cure the listed items. The governmental entity or
13-24 vendor shall accept the cured items or a reasonable value offered
13-25 by the subcontractor to be retained to cover the items that may not
13-26 be promptly cured, and the vendor or subcontractor is not obligated
13-27 to supply further labor, services or goods until properly paid as
13-28 provided in this chapter for work that is properly performed or
13-29 goods that are properly supplied and for the costs of
13-30 demobilization and remobilization.
14-1 (d) The rights provided by this section are in addition to
14-2 the other rights provided by this chapter and any rights and
14-3 remedies available under other law.
14-4 Sec. 2251.045. DIRECT ACTION BY VENDOR OR SUBCONTRACTOR
14-5 AGAINST GOVERNMENTAL ENTITY. (a) If the governmental entity has
14-6 not paid the vendor the undisputed amount within the time limits
14-7 prescribed by this chapter, the vendor or subcontractor, after
14-8 giving the governmental entity at least 10 days written notice of
14-9 nonpayment and its intent to exercise its rights under this
14-10 section, also has a cause of action directly against the
14-11 governmental entity for all of its unpaid labor, services, and
14-12 goods, the reasonable cost of suspension of work, and other
14-13 reasonable damages including the costs of demobilization and
14-14 remobilization. In such an action the governmental entity may
14-15 offset its damages for labor, services, or goods furnished by the
14-16 vendor that do not comply with the requirements of the contract
14-17 between the governmental entity and the vendor.
14-18 (b) Any agreement of a vendor to indemnify or defend a
14-19 governmental entity shall be unenforceable to the extent that it
14-20 applies to a direct cause of action brought by a subcontractor
14-21 under Subsection (a).
14-22 (c) Any agreement of a subcontractor to indemnify or defend
14-23 the vendor, governmental entity or another subcontractor shall be
14-24 unenforceable to the extent that it applies to a direct cause of
14-25 action brought by a subcontractor under Subsection (a).
14-26 (d) The rights provided by this section are in addition to
14-27 the other rights provided by this chapter and any rights and
14-28 remedies available under other law.
14-29 SECTION 15. Section 2251.041, Government Code, is repealed.
14-30 SECTION 16. This Act takes effect September 1, 1997.
15-1 (b) The changes in law made by this Act apply only to a
15-2 contract or agreement entered into on or after that date. A
15-3 contract or agreement entered into before the effective date of
15-4 this Act is governed by the law as it existed immediately before
15-5 the effective date of this Act, and that law is continued in effect
15-6 for that purpose.
15-7 SECTION 17. The importance of this legislation and the
15-8 crowded condition of the calendars in both houses create an
15-9 emergency and an imperative public necessity that the
15-10 constitutional rule requiring bills to be read on three several
15-11 days in each house be suspended, and this rule is hereby suspended.