1-1 AN ACT
1-2 relating to prompt payment requirements for work performed by
1-3 contractors and subcontractors on certain real property.
1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-5 SECTION 1. Section 28.002, Property Code, is amended to read
1-6 as follows:
1-7 Sec. 28.002. PROMPT PAY REQUIRED. (a) If an owner or a
1-8 person authorized to act on behalf of the owner receives a written
1-9 payment request from a contractor for an amount that is allowed to
1-10 the contractor under the contract for properly performed work or
1-11 suitably stored or specially fabricated materials, the owner shall
1-12 pay the amount to the contractor, less any amount withheld as
1-13 authorized by statute [statutory offsets], not later than the 35th
1-14 [45th] day after the date the owner receives the request.
1-15 (b) A contractor who receives a payment under Subsection (a)
1-16 or otherwise from an owner in connection with a contract to improve
1-17 real property shall pay each of its subcontractors the portion of
1-18 the owner's payment, including interest, if any, that is
1-19 attributable to work properly performed or materials suitably
1-20 stored or specially fabricated as provided under the contract by
1-21 that subcontractor [if payment for stored materials is provided
1-22 for in the contract], to the extent of that subcontractor's
1-23 interest in the owner's payment. The payment required by this
1-24 subsection must be made not later than the seventh day after the
2-1 date the contractor receives the owner's payment.
2-2 (c) A subcontractor who receives a payment under Subsection
2-3 (b) or otherwise from a contractor in connection with a contract
2-4 to improve real property shall pay each of its subcontractors the
2-5 portion of the payment, including interest, if any, that is
2-6 attributable to work properly performed or materials suitably
2-7 stored or specially fabricated as provided under the contract by
2-8 that subcontractor [if payment for stored materials is provided
2-9 for in the contract], to the extent of that subcontractor's
2-10 interest in the payment. The payment required by this subsection
2-11 must be made not later than the seventh day after the date the
2-12 subcontractor receives the contractor's payment.
2-13 SECTION 2. Section 28.003, Property Code, is amended to read
2-14 as follows:
2-15 Sec. 28.003. EXCEPTION FOR GOOD FAITH DISPUTE; WITHHOLDING.
2-16 (a) If a good faith dispute exists concerning the amount owed for
2-17 a payment requested or required by this chapter under a contract
2-18 for construction of or improvements to a detached single-family
2-19 residence, duplex, triplex, or quadruplex, the owner, contractor,
2-20 or subcontractor that is disputing its obligation to pay or the
2-21 amount of payment may withhold from the payment owed not more than
2-22 110 percent of the difference between the amount the obligee claims
2-23 is due and the amount the obligor claims is due. A good faith
2-24 dispute includes a dispute regarding whether the work was performed
2-25 in a proper manner.
2-26 (b) If a good faith dispute exists concerning the amount
2-27 owed for a payment requested or required by this chapter under a
3-1 contract for construction of or improvements to real property,
3-2 excluding a detached single-family residence, duplex, triplex, or
3-3 quadruplex, the owner, contractor, or subcontractor that is
3-4 disputing its obligation to pay or the amount of payment may
3-5 withhold from the payment owed not more than 100 percent of the
3-6 difference between the amount the obligee claims is due and the
3-7 amount the obligor claims is due. A good faith dispute includes a
3-8 dispute regarding whether the work was performed in a proper
3-9 manner.
3-10 SECTION 3. Section 28.008, Property Code, is amended to read
3-11 as follows:
3-12 Sec. 28.008. EXCEPTION FOR FAILURE OF LENDER TO DISBURSE
3-13 FUNDS. The date of payment required of the owner pursuant to
3-14 Section 28.002(a) shall change from the 35th [45th] day after the
3-15 date the owner receives the payment request to the fifth [5th] day
3-16 after the date the owner receives loan proceeds, in the event that:
3-17 (1) the owner has obtained a loan intended to pay for
3-18 all or part of a contract to improve real property;
3-19 (2) the owner has timely and properly requested
3-20 disbursement of proceeds from that loan; and
3-21 (3) the lender is legally obligated to disburse such
3-22 proceeds to the owner, but has failed to do so within 35 [45] days
3-23 after the date the owner received the contractor's payment request.
3-24 SECTION 4. Chapter 28, Property Code, is amended by adding
3-25 Sections 28.009 and 28.010 to read as follows:
3-26 Sec. 28.009. RIGHT TO SUSPEND WORK. (a) If an owner fails
3-27 to pay the contractor the undisputed amount within the time limits
4-1 provided by this chapter, the contractor or any subcontractor may
4-2 suspend contractually required performance the 10th day after the
4-3 date the contractor or subcontractor gives the owner and the
4-4 owner's lender written notice:
4-5 (1) informing the owner and lender that payment has
4-6 not been received; and
4-7 (2) stating the intent of the contractor or
4-8 subcontractor to suspend performance for nonpayment.
4-9 (b) For purposes of Subsection (a), the contractor or
4-10 subcontractor must give the owner's lender the written notice only
4-11 if:
4-12 (1) the owner has obtained a loan intended to pay for
4-13 all or part of the construction project;
4-14 (2) the lender has remitted funds, including
4-15 acquisition funds, for construction purposes;
4-16 (3) the loan obtained:
4-17 (A) is evidenced by a promissory note secured by
4-18 a deed of trust recorded in the real property records of the county
4-19 in which the real property that is the subject of the contract is
4-20 located; and
4-21 (B) is not only for the acquisition of personal
4-22 property or secured only by a security instrument;
4-23 (4) the owner or lender, at the lender's option:
4-24 (A) securely posts not later than the 10th day
4-25 after the date construction commences a sign on the project site in
4-26 a prominent place accessible to each contractor, subcontractor, and
4-27 supplier that states the lender's name, address, and the person to
5-1 whom any notice should be sent; and
5-2 (B) maintains the sign during the pendency of
5-3 the construction project;
5-4 (5) not later than the 10th day after the date
5-5 construction commences, the owner or lender, at the lender's
5-6 option, provides a written copy of the notice prescribed by
5-7 Subdivision (4) to the contractor and any subcontractor or supplier
5-8 identified by the contractor by depositing the notice properly
5-9 addressed in the United States mail, first class, postage paid; and
5-10 (6) not later than the 10th day after the date a
5-11 subcontractor or supplier performs labor or furnishes materials or
5-12 equipment for the construction project, the owner, contractor, or
5-13 subcontractor provides a written copy of the notice prescribed by
5-14 Subdivision (4) to the subcontractor or supplier.
5-15 (c) A contractor or subcontractor who suspends performance
5-16 as provided by this section is not:
5-17 (1) required to supply further labor, services, or
5-18 materials until the person is paid the amount provided by this
5-19 chapter, plus costs for demobilization and remobilization; or
5-20 (2) responsible for damages resulting from suspending
5-21 work if the contractor or subcontractor has not been notified in
5-22 writing before suspending performance that payment has been made or
5-23 that a good faith dispute for payment exists.
5-24 (d) A notification that a good faith dispute for payment
5-25 exists provided under Subsection (c) must include a list of
5-26 specific reasons for nonpayment. If a reason specified includes
5-27 labor, services, or materials provided by a subcontractor that are
6-1 not provided in compliance with the contract, the subcontractor is
6-2 entitled to a reasonable opportunity to:
6-3 (1) cure the listed items; or
6-4 (2) offer a reasonable amount to compensate for listed
6-5 items that cannot be promptly cured.
6-6 (e) This section does not apply to:
6-7 (1) a contract for the construction of or improvements
6-8 to a detached single-family residence, duplex, triplex, or
6-9 quadruplex; or
6-10 (2) a contract to improve real property for a
6-11 governmental entity.
6-12 (f) The rights and remedies provided by this section are in
6-13 addition to rights and remedies provided by this chapter or other
6-14 law.
6-15 Sec. 28.010. EXEMPTION FOR MINERAL DEVELOPMENT AND OILFIELD
6-16 SERVICES. (a) This chapter does not apply to any agreement:
6-17 (1) to explore, produce, or develop oil, natural gas,
6-18 natural gas liquids, synthetic gas, sulphur, ore, or other mineral
6-19 substances, including any lease or royalty agreement, joint
6-20 interest agreement, production or production-related agreement,
6-21 operating agreement, farmout agreement, area of mutual interest
6-22 agreement, or other related agreement;
6-23 (2) for any well or mine services; or
6-24 (3) to purchase, sell, gather, store, or transport
6-25 oil, natural gas, natural gas liquids, synthetic gas, or other
6-26 hydrocarbon substances by pipeline or by a fixed, associated
6-27 facility.
7-1 (b) In this section:
7-2 (1) "Agreement" includes a written or oral agreement
7-3 or understanding:
7-4 (A) to provide work or services, including any
7-5 construction, operating, repair, or maintenance services; or
7-6 (B) to perform a part of the services covered by
7-7 Paragraph (A) or an act collateral to those services, including
7-8 furnishing or renting equipment, incidental transportation, or
7-9 other goods and services furnished in connection with those
7-10 services.
7-11 (2) "Well or mine services" includes:
7-12 (A) drilling, deepening, reworking, repairing,
7-13 improving, testing, treating, perforating, acidizing, logging,
7-14 conditioning, purchasing, gathering, storing, or transporting oil
7-15 or natural gas, brine water, fresh water, produced water,
7-16 condensate, petroleum products, or other liquid commodities, or
7-17 otherwise rendering services in connection with a well drilled to
7-18 produce or dispose of oil, gas, or other minerals or water; and
7-19 (B) designing, excavating, constructing,
7-20 improving, or otherwise rendering services in connection with an
7-21 oil, gas, or other mineral production platform or facility, mine
7-22 shaft, drift, or other structure intended directly for use in
7-23 exploring for or producing a mineral.
7-24 SECTION 5. (a) This Act takes effect September 1, 1999.
7-25 (b) The changes in law made by this Act apply only to a
7-26 contract or agreement involving work performed on real property by
7-27 a contractor or subcontractor that is entered into on or after the
8-1 effective date of this Act. A contract or agreement entered into
8-2 before the effective date of this Act is governed by the law in
8-3 effect when the contract was entered into, and the former law is
8-4 continued in effect for that purpose.
8-5 SECTION 6. The importance of this legislation and the
8-6 crowded condition of the calendars in both houses create an
8-7 emergency and an imperative public necessity that the
8-8 constitutional rule requiring bills to be read on three several
8-9 days in each house be suspended, and this rule is hereby suspended.
_______________________________ _______________________________
President of the Senate Speaker of the House
I certify that H.B. No. 1522 was passed by the House on April
22, 1999, by a non-record vote.
_______________________________
Chief Clerk of the House
I certify that H.B. No. 1522 was passed by the Senate on May
26, 1999, by the following vote: Yeas 30, Nays 0.
_______________________________
Secretary of the Senate
APPROVED: _____________________
Date
_____________________
Governor