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.