By Siebert                                            H.B. No. 1522
         Line and page numbers may not match official copy.
         Bill not drafted by TLC or Senate E&E.
                                A BILL TO BE ENTITLED
 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)  A contractor shall
 1-8     submit invoices at least monthly to the owner for goods or services
 1-9     provided for the owner, including goods or services provided to the
1-10     contractor by a subcontractor.  A subcontractor shall submit
1-11     invoices at least monthly to the contractor for goods or services
1-12     provided to the subcontractor by another subcontractor.
1-13           (b) [(a)]  If an owner or a person authorized to act on
1-14     behalf of the owner receives a written payment request from a
1-15     contractor for an amount that is allowed to the contractor under
1-16     the contract for properly performed work or suitably stored or
1-17     specially fabricated materials, the owner shall pay the amount to
1-18     the contractor, less any amount withheld as authorized by statute
1-19     [statutory offsets], not later than the 30th [45th] day after the
1-20     date the owner receives the request.
1-21           (c) [(b)]  A contractor who receives a payment under
 2-1     Subsection (b) [(a)] or otherwise from an owner in connection with
 2-2     a contract to improve real property shall pay each of its
 2-3     subcontractors the portion of the owner's payment, including
 2-4     interest, if any, that is attributable to work properly performed
 2-5     or materials suitably stored or specially fabricated as provided
 2-6     under the contract by that subcontractor [if payment for stored
 2-7     materials is provided for in the contract], to the extent of that
 2-8     subcontractor's interest in the owner's payment.  The payment
 2-9     required by this subsection must be made not later than the seventh
2-10     day after the date the contractor receives the owner's payment.
2-11           (d) [(c)]  A subcontractor who receives a payment under
2-12     Subsection (c) [(b)] or otherwise from a contractor in connection
2-13     with a contract to improve real property shall pay each of its
2-14     subcontractors the portion of the payment, including interest, if
2-15     any, that is attributable to work properly performed or materials
2-16     suitably stored or specially fabricated as provided under the
2-17     contract by that subcontractor [if payment for stored materials is
2-18     provided for in the contract], to the extent of that
2-19     subcontractor's interest in the payment.  The payment required by
2-20     this subsection must be made not later than the seventh day after
2-21     the date the subcontractor receives the contractor's payment.
2-22           SECTION 2.  Section 28.003, Property Code, is amended to read
2-23     as follows:
2-24           Sec. 28.003.  EXCEPTION FOR GOOD FAITH DISPUTE; WITHHOLDING.
2-25     If a good faith dispute exists concerning the amount owed for a
 3-1     payment requested or required by this chapter, the owner,
 3-2     contractor, or subcontractor, that is disputing its obligation to
 3-3     pay or the amount of payment, may withhold from the payment owed
 3-4     not more than 100 [110] percent of the difference between the
 3-5     amount the obligee claims is due and the amount the obligor claims
 3-6     is due.  A good faith dispute includes a dispute regarding whether
 3-7     the work was performed in a proper manner.
 3-8           SECTION 3.  Section 28.006(b), Property Code, is amended to
 3-9     read as follows:
3-10           (b)  A written contract between an owner and a contractor for
3-11     improvements to or construction of a single-family residence may
3-12     provide that the payment required under Section 28.002(b)
3-13     [28.002(a)] be made not later than a date that occurs before the
3-14     61st day after the date the owner receives the payment request.
3-15     Notwithstanding Section 28.004(b), an unpaid amount under contract
3-16     subject to this subsection that allows payment later than the date
3-17     otherwise required under Section 28.002(b) [28.002(a)] bears
3-18     interest at the rate of 1-1/2 percent each month.
3-19           SECTION 4.  Section 28.008, Property Code, is amended to read
3-20     as follows:
3-21           Sec. 28.008.  EXCEPTION FOR FAILURE OF LENDER TO DISBURSE
3-22     FUNDS.  The date of payment required of the owner pursuant to
3-23     Section 28.002(b) [28.002(a)] shall change from the 30th [45th] day
3-24     after the date the owner receives the payment request to the fifth
3-25     [5th] day after the date the owner receives loan proceeds in the
 4-1     event that:
 4-2                 (1)  the owner has obtained a loan intended to pay for
 4-3     all or part of a contract to improve real property;
 4-4                 (2)  the owner has timely and properly requested
 4-5     disbursement of proceeds from that loan; and
 4-6                 (3)  the lender is legally obligated to disburse such
 4-7     proceeds to the owner, but has failed to do so within 30 [45] days
 4-8     after the date the owner received the contractor's payment request.
 4-9           SECTION 5.  Chapter 28, Property Code, is amended by adding
4-10     Sections 28.009 and 28.010 to read as follows:
4-11           Sec. 28.009.  RIGHT TO SUSPEND WORK.  (a)  If an owner fails
4-12     to pay the contractor the undisputed amount within the time limits
4-13     provided by this chapter, the contractor or any subcontractor may
4-14     suspend contractually required performance the 10th day after the
4-15     date the contractor or subcontractor gives the owner written
4-16     notice:
4-17                 (1)  informing the owner that payment has not been
4-18     received; and
4-19                 (2)  stating the intent of the contractor or
4-20     subcontractor to suspend performance for nonpayment.
4-21           (b)  A contractor or any subcontractor who suspends
4-22     performance as provided by this section is not:
4-23                 (1)  required to supply further labor, services, or
4-24     materials until the person is paid the amount provided by this
4-25     chapter, plus costs for demobilization and remobilization; or
 5-1                 (2)  responsible for damages resulting from suspending
 5-2     work if the contractor or subcontractor have not been notified in
 5-3     writing before suspending performance that payment has been made or
 5-4     that a good faith dispute for payment exists.
 5-5           (c)  A notification that a good faith dispute for payment
 5-6     exists provided under Subsection (b) must include a list of
 5-7     specific reasons for nonpayment.  If a reason specified includes
 5-8     labor, services, or materials provided by a subcontractor that are
 5-9     not provided in compliance with the contract, the subcontractor is
5-10     entitled to a reasonable opportunity to:
5-11                 (1)  cure the listed items; or
5-12                 (2)  offer a reasonable amount to compensate for listed
5-13     items that cannot be promptly cured.
5-14           (d)  The rights and remedies provided by this section are in
5-15     addition to rights and remedies provided by this chapter or other
5-16     law.
5-17           Sec. 28.010.  DIRECT CAUSE OF ACTION AGAINST OWNER.  (a)  If
5-18     an owner fails to pay the contractor the undisputed amount within
5-19     the time limits provided by this chapter, the contractor or a
5-20     subcontractor has a direct cause of action against the owner the
5-21     10th day after the date the contractor or subcontractor gives the
5-22     owner written notice stating the intent of the contractor or
5-23     subcontractor to exercise its rights under this section.
5-24           (b)  The contractor or subcontractor may bring a direct cause
5-25     of action against the owner under this section to recover payment
 6-1     for:
 6-2                 (1)  labor, services, or materials provided under
 6-3     contract; and
 6-4                 (2)  all reasonable damages, including the reasonable
 6-5     cost of demobilization and remobilization.
 6-6           (c)  In a direct action brought under this section, the owner
 6-7     may offset the payment required for damages for labor, services,
 6-8     and materials provided by the contractor that do not comply with
 6-9     the contract requirements.
6-10           (d)  An agreement by a contractor to indemnify or defend the
6-11     owner is unenforceable only to the extent that it applies to a
6-12     direct cause of action by a subcontractor under this section.  An
6-13     agreement by a subcontractor to indemnify or defend the owner,
6-14     contractor, or another subcontractor is unenforceable only to the
6-15     extent that it applies to a direct cause of action by a
6-16     subcontractor under this section.
6-17           (e)  The rights and remedies provided by this section are in
6-18     addition to rights and remedies provided by this chapter or other
6-19     law.
6-20           SECTION 6.  Subchapter A, Chapter 2251, Government Code, is
6-21     amended by adding Sections 2251.004 and 2251.005 to read as
6-22     follows:
6-23           Sec. 2251.004.  WAIVER PROHIBITED.  The provisions of this
6-24     chapter may not be waived by contract or otherwise.
6-25           Sec. 2251.005.  TIME FOR SUBMITTING INVOICES UNDER CERTAIN
 7-1     CONTRACTS.  (a)  This section applies only to the submission of
 7-2     invoices under a contract with a governmental entity to improve
 7-3     real property or to perform construction or maintenance services.
 7-4           (b)  A vendor shall submit invoices to the governmental
 7-5     entity periodically, but no less often than monthly, for all goods
 7-6     and services provided by or through the vendor for the governmental
 7-7     entity, including those goods and services provided to the vendor
 7-8     by a subcontractor.
 7-9           (c)  A subcontractor shall submit invoices to the vendor
7-10     periodically, but no less often than monthly, for all goods and
7-11     services provided by or through the subcontractor for the vendor,
7-12     including those goods and services provided to the subcontractor by
7-13     another subcontractor.
7-14           SECTION 7.  (a)  This Act takes effect September 1, 1999.
7-15           (b)  The changes in law made by this Act apply only to a
7-16     contract or agreement entered into on or after the effective date
7-17     of this Act.  A contract or agreement entered into before the
7-18     effective date of this Act is governed by the law in effect when
7-19     the contract was entered into, and the former law is continued in
7-20     effect for that purpose.
7-21           SECTION 8.  The importance of this legislation and the
7-22     crowded condition of the calendars in both houses create an
7-23     emergency and an imperative public necessity that the
7-24     constitutional rule requiring bills to be read on three several
7-25     days in each house be suspended, and this rule is hereby suspended.