Bill not drafted by TLC or Senate E&E.

      Line and page numbers may not match official copy.

         By:  Armbrister                               S.B. No. 468

                                A BILL TO BE ENTITLED

                                       AN ACT

 1-1     relating to the prompt payment of contractors and subcontractors.

 1-2           BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

 1-3           SECTION 1.  Chapter 28, Texas Property Code, is amended to

 1-4     read as follows:

 1-5           Sec. 28.001.  Definitions.  In this chapter:

 1-6                 (1)  "Contractor" means a person who contracts with an

 1-7     owner to improve real property or perform construction or

 1-8     maintenance services for an owner.

 1-9                 (2)  "Improve" means to:

1-10                       (A)  build, construct, effect, erect, alter,

1-11     maintain, repair, or demolish any improvement on, connects with, or

1-12     beneath the surface of real property;

1-13                       (B)  excavate, clear, grade, fill, or landscape

1-14     real property;

1-15                       (C)  construct a driveway or roadway;

1-16                       (D)  furnish any material, including trees or

1-17     shrubbery, for the purpose of taking any action described by

1-18     Paragraphs (A)-(C) of this subdivision; or

1-19                       (E)  perform any labor on or in connection with

1-20     an improvement.

1-21                 (3)  "Improvement" includes all or any part of:

1-22                       (A)  a building, structure, erection, alteration,

1-23     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

 3-1     subcontractor.  A subcontractor shall submit invoices periodically,

 3-2     but no less often than monthly, to the contractor for all goods or

 3-3     services provided for the contractor, including those goods or

 3-4     services provided to the subcontractor by another subcontractor.

 3-5           (b) [(a)]  If an owner or an owner's representative receives

 3-6     a written payment request from a contractor for an amount that is

 3-7     allowed to the contractor for properly performed work or suitably

 3-8     stored or specially fabricated materials, the owner shall pay the

 3-9     amount to the contractor, less any amounts withheld as authorized

3-10     by statute [statutory offsets], not later than the 14th [45th] day

3-11     after the owner receives the request.

3-12           (c) [(b)]  A contractor who received a payment under

3-13     Subsection (a) or otherwise from an owner in connection with a

3-14     contract to improve real property shall pay each of its

3-15     subcontractors the portion of the owner's payment, including

3-16     interest, if any, that is attributable to properly [work] performed

3-17     work or [materials] suitably stored or specially fabricated

3-18     materials by that subcontractor [if payment for stored materials is

3-19     provided for in the contract,] to the extent of that

3-20     subcontractor's interest in the owner's payment.  The payment

3-21     required by this subsection must be made not later than the seventh

3-22     day after the date the contractor receives the owner's payment.

3-23           (d) [(c)]  A subcontractor who receives a payment under

3-24     Subsection (b) or otherwise from a contractor in connection with a

3-25     contract to improve real property shall pay each of its

 4-1     subcontractors the portion of the payment, including interest, if

 4-2     any, that is attributable to properly [work] performed work or

 4-3     [materials] suitably stored or specially fabricated materials by

 4-4     that subcontractor [if payment for stored materials is provided for

 4-5     in the contract,] to the extent of that subcontractor's interest in

 4-6     the payment.  The payment required by this subsection must be made

 4-7     not later than the seventh day after the date the subcontractor

 4-8     receives the contractor's payment.

 4-9           Sec. 28.003.  Exception for Good Faith Dispute; Withholding.

4-10     If a good faith dispute exists concerning the amount owed for a

4-11     payment requested or required by this chapter, whichever entity,

4-12     the owner, contractor, or subcontractor, that is disputing its

4-13     obligation to pay or the amount of payment, may withhold from the

4-14     payment owed not more than 100 [110] percent of the difference

4-15     between the amount the obligee claims is due and the amount the

4-16     obligor claims is due.  A good faith dispute includes a dispute

4-17     regarding whether the work was performed in a proper manner.

4-18           Sec. 28.004.  Interest on Overdue Payment.  (a)  An unpaid

4-19     amount required under this chapter begins to accrue interest on the

4-20     day after the date on which the payment becomes due.

4-21           (b)  An unpaid amount bears interest at the rate of 2 1/2 [1

4-22     1/2] percent each month.

4-23           (c)  Interest on an unpaid amount stops accruing under this

4-24     section on the earlier of:

4-25                 (1)  the date of delivery;

 5-1                 (2)  the date of mailing, if payment is mailed and

 5-2     delivery occurs within three days; or

 5-3                 (3)  the date a judgment is entered in an action

 5-4     brought under this chapter.

 5-5           Sec. 28.005.  Action to Enforce Payment.  (a)  A person may

 5-6     bring an action to enforce the person's rights under this chapter.

 5-7           (b)  In an action brought under this chapter, the court may

 5-8     award costs and reasonable attorney's fees as the court determines

 5-9     equitable and just.

5-10           (c)  Post judgment interest shall be the higher of the amount

5-11     provided in this section or the amount otherwise provided by law.

5-12           Sec. 28.006.  No Waiver.  (a)  Except as provided by

5-13     Subsection (b), an attempted waiver of a provision of this chapter

5-14     is void.

5-15           (b)  A written contract between an owner and a contractor for

5-16     improvements to or construction of a single-family residence may

5-17     provide that the payment required under Section 28.002(a) be made

5-18     not later than a date that occurs the 61st day after the date the

5-19     owner receives the payment request. Notwithstanding Section

5-20     28.004(b), an unpaid amount under a contract subject to this

5-21     subsection that allows payment later than the date otherwise

5-22     required under Section 28.002(a) bears interest at the rate of 2

5-23     1/2 [1 1/2] percent each month.

5-24           Sec. 28.007.  Legal Construction.  (a)  This chapter may not

5-25     be interpreted to void a contractor's or subcontractor's

 6-1     entitlement to payment for properly performed work or suitably

 6-2     stored materials.

 6-3           (b)  Nothing in this statute shall be interpreted to change

 6-4     the rights and obligations set forth in Chapter 53, Property Code.

 6-5           Sec. 28.008.  Exception for Failure of Lender To Disburse

 6-6     Funds.  The date of payment required of the owner pursuant to

 6-7     Section 28.002(a) shall change from the 14th [45th] day after the

 6-8     date the owner receives the payment request to the 5th day after

 6-9     the owner receives loan proceeds in the the event that:

6-10                 (1)  the owner has obtained a loan intended to pay for

6-11     all or part of a contract to improve real property;

6-12                 (2)  the owner has timely and properly requested

6-13     disbursement of proceeds from that loan; and

6-14                 (3)  the lender is legally obligated to disburse such

6-15     proceeds to the owner, but has failed to do so within 14 [45] days

6-16     after the date the owner received the contractor's payment request.

6-17           Sec. 28.009  RIGHT TO STOP WORK.  In addition to the rights

6-18     provided by this chapter and any rights and remedies otherwise

6-19     available at law:

6-20           (a)  If a payment in the undisputed amount is not made by an

6-21     owner to a contractor within the time limits provided herein, the

6-22     contractor and any subcontractor may suspend performance of their

6-23     contracts ten (10) days after giving the owner written notice of

6-24     its intent to do so and the contractor and any subcontractor will

6-25     not have the obligation to supply further labor, services or

 7-1     materials until properly paid as provided herein plus costs for

 7-2     demobilization and remobilization.

 7-3           (b)  Unless notified in writing, prior to the suspension of

 7-4     work, by the owner or contractor that payment has been made or that

 7-5     a bona fide dispute for payment exists stating the specific reasons

 7-6     therefor, the subcontractor or contractor shall not be responsible

 7-7     for damages resulting from the suspension of its work, provided its

 7-8     work is not specified as a reason for nonpayment.

 7-9           (c)  In the event the owner or contractor provides a list of

7-10     specific reasons to the subcontractor or contractor in accordance

7-11     with (b) of this Section that includes the subcontractor's labor,

7-12     services or materials, the owner or contractor shall give the

7-13     subcontractor a reasonable opportunity to cure the listed items,

7-14     and will accept the cured items or a reasonable value offered by

7-15     the subcontractor to be retained to cover the items that may not be

7-16     promptly cured, and the subcontractor will not have the obligation

7-17     to supply further labor, services or materials until properly paid

7-18     as provided herein for work that is properly performed or supplied

7-19     plus costs for demobilization and remobilization.

7-20           Sec. 28.010.  DIRECT ACTION BY SUBCONTRACTOR AGAINST OWNER.

7-21     In addition to the rights provided by this chapter and any rights

7-22     and remedies otherwise available at law:

7-23           (a)  If the owner has not paid the contractor the undisputed

7-24     amount within the time limits prescribed in this section, the

7-25     contractor or subcontractor, as the case may be, after giving the

 8-1     owner 10 days written notice of non-payment and its intent to

 8-2     exercise its rights under this section, also has a direct cause of

 8-3     action against the owner for all of its unpaid labor, services or

 8-4     materials and the reasonable cost of suspension of work, and other

 8-5     reasonable damages including, but not limited to, costs for

 8-6     demobilization and remobilization.  In such action, the owner may

 8-7     offset for damages for labor, services or materials furnished by

 8-8     the contractor that do not comply with the requirements of the

 8-9     contract between the owner and the contractor.

8-10           (b)  Any agreement of a contractor to indemnify or defend an

8-11     owner shall be unenforceable only to the extent that it applies to

8-12     a direct cause of action of a subcontractor provided in Sec.

8-13     28.010(a)(1) of this Chapter.

8-14           (d)  Any agreement of a subcontractor to indemnify or defend

8-15     the contractor, owner or another subcontractor shall be

8-16     unenforceable to the extent that it applies to a direct cause of

8-17     action of a subcontractor provided in Sec. 28.010(a)(1) of this

8-18     Chapter.

8-19           Sec. 28.011.  INTEREST CHARGES NOT USURY.  Interest charged

8-20     in compliance with or attempted compliance with this Chapter is not

8-21     usurious.

8-22           SECTION 2.  Sections 2251.001(2) and (7), Government Code,

8-23     are amended to read as follows:

8-24                 (2)  "Governmental entity" means this state or a state

8-25     agency or political subdivision of this state.

 9-1                 (7)  "Subcontractor" means a person who contracts with

 9-2     a vendor or another subcontractor to work or contribute toward

 9-3     completing work for a governmental entity.

 9-4           SECTION 3.  Section 2251.002(a), Government Code, is amended

 9-5     to read as follows:

 9-6           (a)  Except as provided by Section 2251.042, this [This]

 9-7     chapter does not apply to a payment made by a governmental entity,

 9-8     vendor, or subcontractor if:

 9-9                 (1)  there is a bona fide dispute between the

9-10     governmental entity [political subdivision] and a vendor or[,

9-11     contractor,] subcontractor[, or supplier] about the goods delivered

9-12     or the services performed that causes the payment to be late;

9-13                 (2)  there is a bona fide dispute between a vendor and

9-14     a subcontractor or between a subcontractor and its subcontractor

9-15     [supplier] about the goods delivered or the services performed that

9-16     causes the payment to be late;

9-17                 (3)  the terms of a federal contract, grant,

9-18     regulation, or statute prevent the governmental entity from making

9-19     a timely payment with federal funds; or

9-20                 (4)  the invoice is not mailed to the person to whom it

9-21     is addressed in strict accordance with any instruction on the

9-22     purchase order relating to the payment.

9-23           SECTION 4.  Subchapter A, Chapter 2251, Government Code, is

9-24     amended by adding Sections 2251.004-2251.006 to read as follows:

9-25           Sec. 2251.004.  WAIVER PROHIBITED.  The provisions of this

 10-1    chapter may not be waived by contract or otherwise.

 10-2          Sec. 2251.005.  INTEREST NOT USURIOUS.  Interest charged in

 10-3    accordance with or attempted compliance with this chapter is not

 10-4    usurious.

 10-5          Sec. 2251.006.  TIME FOR SUBMITTING INVOICES UNDER CERTAIN

 10-6    CONTRACTS.  (a)  This section applies only to the submission of

 10-7    invoices under a contract with a governmental entity to improve

 10-8    real property or to perform construction of maintenance services.

 10-9          (b)  A vendor shall submit invoices to the governmental

10-10    entity periodically, but no less often than monthly, for all goods

10-11    and services provided by or through the vendor for the governmental

10-12    entity, including those goods and services provided to the vendor

10-13    by a subcontractor.

10-14          (c)  A subcontractor shall submit invoices to the vendor

10-15    periodically, but no less often than monthly, for all goods and

10-16    services provided by or through the subcontractor for the vendor,

10-17    including those goods and services provided to the subcontractor by

10-18    another subcontractor.

10-19          SECTION 5.  Sections 2251.021(a) and (b), Government Code,

10-20    are amended to read as follows:

10-21          (a)  Except as provided by Subsection (b), a payment by a

10-22    governmental entity [under a contract executed on or after

10-23    September 1, 1987,] is overdue on the 15th [31st] day after the

10-24    later of:

10-25                (1)  the date the governmental entity receives the

 11-1    goods under the contract;

 11-2                (2)  the date the performance of the service under the

 11-3    contract is completed; or

 11-4                (3)  the date the governmental entity, or a

 11-5    representative of the governmental entity authorized to receive

 11-6    invoices for the entity, receives an invoice for the goods or

 11-7    services.

 11-8          (b)  A payment under a contract [executed on or after

 11-9    September 1, 1993,] owed by a political subdivision whose governing

11-10    body meets only once a month or less frequently is overdue on the

11-11    31st [46th] day after the later event described by

11-12    Subsections(a)(1) through (3).

11-13          SECTION 6.  Section 2251.022, Government Code, is amended to

11-14    read as follows:

11-15          Sec. 2251.022.  TIME FOR PAYMENT BY VENDOR.  (a)  A vendor

11-16    who receives a payment from a governmental entity shall pay a

11-17    subcontractor the appropriate share of the payment, plus any

11-18    interest, not later than the 7th [10th] day after the date the

11-19    vendor receives the payment.

11-20          (b)  The appropriate share, plus any interest, is overdue on

11-21    the 8th [11th] day after the date the vendor receives the payment.

11-22          SECTION 7.  Section 2251.023, Government Code, is amended to

11-23    read as follows:

11-24          Sec. 2251.023.  TIME FOR PAYMENT BY SUBCONTRACTOR.  (a)  A

11-25    subcontractor who receives a payment from a vendor shall pay its

 12-1    subcontractor [a person] who supplies goods or a service for which

 12-2    the payment is made the appropriate share of payment, plus any

 12-3    interest, not later than the 7th [10th] day after the date the

 12-4    subcontractor receives the payment.

 12-5          (b)  The appropriate share, plus any interest, is overdue on

 12-6    the 8th [11th] day after the date the subcontractor receives the

 12-7    payment.

 12-8          SECTION 8.  Section 2251.025, Government Code, is amended to

 12-9    read as follows:

12-10          Sec. 2251.025.  Interest on Overdue Payment.  (a)  A payment

12-11    begins to accrue interest on the day the payment is overdue.

12-12          (b)  An overdue payment bears interest at the rate of two and

12-13    one-half [one] percent each month.

12-14          (c)  Interest on an overdue payment stops accruing on the

12-15    date the governmental entity, subcontractor, or vendor mails or

12-16    electronically transmits the payment.

12-17          (d)  In the event of a lawsuit, post judgment interest on an

12-18    overdue payment is the higher of the amount provided by this

12-19    section or the amount otherwise provided by law.

12-20          SECTION 9.  Section 2251.026, Government Code, is amended to

12-21    read as follows:

12-22          Sec. 2251.026.  LIABILITY FOR THE PAYMENT OF INTEREST BY

12-23    GOVERNMENTAL ENTITY [STATE AGENCY]. If the [warrant for a] payment

12-24    the originating governmental entity [state agency] owes is not

12-25    mailed or electronically transmitted before the payment is overdue,

 13-1    the governmental entity [agency] is liable for an interest payment

 13-2    that accrues under this chapter.

 13-3          SECTION 10.  Section 2251.027, Government Code, is amended to

 13-4    read as follows:

 13-5          Sec. 2251.027.  PAYMENT OF INTEREST BY GOVERNMENTAL ENTITY

 13-6    [POLITICAL SUBDIVISION].  (a)  A governmental entity [political

 13-7    subdivision] shall compute interest imposed on the governmental

 13-8    entity [political subdivision] under this chapter.

 13-9          (b)  The governmental entity [political subdivision] shall

13-10    pay the interest at the time payment is made on the principal.

13-11          (c)  The governmental entity [political subdivision] shall

13-12    submit the interest payment with the net amount due for goods and

13-13    services.

13-14          (d)  The governmental entity [political subdivision] may not

13-15    require a vendor to petition, bill, or wait an additional day to

13-16    receive the interest due.

13-17          SECTION 11.  Section 2251.028, Government Code, is amended to

13-18    read as follows:

13-19          Sec. 2251.028.  Payment of Interest by Vendor or

13-20    Subcontractor.  (a) A vendor or subcontractor shall pay interest as

13-21    a payment is overdue.

13-22          (b)  The interest shall be paid at the time the principal

13-23    payment is made for goods and services, and a petition or bill is

13-24    not required for the interest to be paid.

13-25          SECTION 12.  Section 2251.042, Government Code, is amended to

 14-1    read as follows:

 14-2          Sec. 2251.042.  Disputed Payment.  (a)  If a bona fide

 14-3    dispute concerning the amount owed by a governmental entity,

 14-4    vendor, or subcontractor exists, the party disputing its obligation

 14-5    to pay may withhold from the payment owed not more than 100 percent

 14-6    of the difference between the amount the obligee claims is due and

 14-7    the amount the obligor claims is due.

 14-8          (b)  A governmental entity shall notify a vendor of an error

 14-9    in an invoice submitted for payment by the vendor not later than

14-10    the 15th [21st] day after the date the entity receives the invoice.

14-11          (c) [(b)]  If a dispute is resolved in favor of the vendor or

14-12    subcontractor and the vendor or subcontractor is awarded all or

14-13    part of its claim, the vendor or subcontractor is entitled to

14-14    receive interest as provided in this chapter on the unpaid balance

14-15    of the invoice submitted by the vendor or subcontractor beginning

14-16    on the date under Section 251.021, 2251.02, or 2251.023 that the

14-17    payment for the invoice is overdue.

14-18          (d) [(c)]  If a dispute is resolved in favor of the

14-19    governmental entity, the vendor shall submit a corrected invoice

14-20    that must be paid in accordance with Section 2251.021.  The unpaid

14-21    balance accrues interest as provided by this chapter if the

14-22    corrected invoice is not paid by the appropriate date.

14-23          SECTION 13.  Section 2251.043, Government Code, is amended to

14-24    read as follows:

14-25          Sec. 2251.043.  Attorney Fees.  In a formal administrative or

 15-1    judicial action to collect an invoice payment or interest due under

 15-2    this chapter, the opposing party, which may be the governmental

 15-3    entity, [or] the vendor, or the subcontractor, shall pay the

 15-4    reasonable attorney fees of the prevailing party.

 15-5          SECTION 14.   Subchapter C, Chapter 2251, Government Code, is

 15-6    amended by adding Sections 2251.044 and 2251.045 to read as

 15-7    follows:

 15-8          Sec. 2251.044.  RIGHT TO STOP WORK.  (a)  If a payment in the

 15-9    undisputed amount is not made by the governmental entity to a

15-10    vendor within the time limits provided in this chapter, the vendor

15-11    and any subcontractor of that vendor may suspend performance of

15-12    their contracts.  Before suspending performance, a vendor or

15-13    subcontractor must give the governmental entity at least 10 days

15-14    written notice of its intent to do so.

15-15          (b)  The vendor or subcontractor is responsible for damages

15-16    resulting from the suspension of its work under Subsection (a) only

15-17    if the governmental entity or vendor notifies in writing the vendor

15-18    or subcontractor before work is suspended:

15-19                (1)  that payment has been made; or

15-20                (2)  that a bona fide dispute for payment exists as a

15-21    direct result of the vendor's or subcontractor's work, specifically

15-22    setting forth the reasons therefor in such written notice.

15-23          (c)  In the event the governmental entity or vendor provides

15-24    a list of specific reasons to the vendor or subcontractor in

15-25    accordance with Subsection (b) that includes the vendor's or

 16-1    subcontractor's labor, services, or goods, the governmental entity

 16-2    or vendor shall give the vendor or subcontractor a reasonable

 16-3    opportunity to cure the listed items.  The governmental entity or

 16-4    vendor shall accept the cured items or a reasonable value offered

 16-5    by the subcontractor to be retained to cover the items that may not

 16-6    be promptly cured, and the vendor or subcontractor is not obligated

 16-7    to supply further labor, services or goods until properly paid as

 16-8    provided in this chapter for work that is properly performed or

 16-9    goods that are properly supplied and for the costs of

16-10    demobilization and remobilization.

16-11          (d)  The rights provided by this section are in addition to

16-12    the other rights provided by this chapter and any rights and

16-13    remedies available under other law.

16-14          Sec. 2251.045.  DIRECT ACTION BY VENDOR OR SUBCONTRACTOR

16-15    AGAINST GOVERNMENTAL ENTITY.  (a)  If the governmental entity has

16-16    not paid the vendor the undisputed amount within the time limits

16-17    prescribed by this chapter, the vendor or subcontractor, after

16-18    giving the governmental entity at least 10 days written notice of

16-19    nonpayment and its intent to exercise its rights under this

16-20    section, also has a cause of action directly against the

16-21    governmental entity for all of its unpaid labor, services, and

16-22    goods, the reasonable cost of suspension of work, and other

16-23    reasonable damages including the costs of demobilization and

16-24    remobilization.  In such an action the governmental entity may

16-25    offset its damages for labor, services, or goods furnished by the

 17-1    vendor that do not comply with the requirements of the contract

 17-2    between the governmental entity and the vendor.

 17-3          (b)  Any agreement of a vendor to indemnify or defend a

 17-4    governmental entity shall be unenforceable to the extent that it

 17-5    applies to a direct cause of action brought by a subcontractor

 17-6    under Subsection (a).

 17-7          (c)  Any agreement of a subcontractor to indemnify or defend

 17-8    the vendor, governmental entity or another subcontractor shall be

 17-9    unenforceable to the extent that it applies to a direct cause of

17-10    action brought by a subcontractor under Subsection (a).

17-11          (d)  The rights provided by this section are in addition to

17-12    the other rights provided by this chapter and any rights and

17-13    remedies available under other law.

17-14          SECTION 15.  Section 2251.041, Government Code, is repealed.

17-15          SECTION 16.  This Act takes effect September 1, 1997.

17-16          (b)  The changes in law made by this Act apply only to a

17-17    contract or agreement entered into on or after that date.  A

17-18    contract or agreement entered into before the effective date of

17-19    this Act is governed by the law as it existed immediately before

17-20    the effective date of this Act, and that law is continued in effect

17-21    for that purpose.

17-22          SECTION 17.  The importance of this legislation and the

17-23    crowded condition of the calendars in both houses create an

17-24    emergency and an imperative public necessity that the

17-25    constitutional rule requiring bills to be read on three several

 18-1    days in each house be suspended, and this rule is hereby suspended.