1-1 By: Siebert, Seaman, et al. H.B. No. 1522
1-2 (Senate Sponsor - Armbrister)
1-3 (In the Senate - Received from the House April 23, 1999;
1-4 April 26, 1999, read first time and referred to Committee on
1-5 Economic Development; May 13, 1999, reported favorably by the
1-6 following vote: Yeas 4, Nays 0; May 13, 1999, sent to printer.)
1-7 A BILL TO BE ENTITLED
1-8 AN ACT
1-9 relating to prompt payment requirements for work performed by
1-10 contractors and subcontractors on certain real property.
1-11 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-12 SECTION 1. Section 28.002, Property Code, is amended to read
1-13 as follows:
1-14 Sec. 28.002. PROMPT PAY REQUIRED. (a) If an owner or a
1-15 person authorized to act on behalf of the owner receives a written
1-16 payment request from a contractor for an amount that is allowed to
1-17 the contractor under the contract for properly performed work or
1-18 suitably stored or specially fabricated materials, the owner shall
1-19 pay the amount to the contractor, less any amount withheld as
1-20 authorized by statute [statutory offsets], not later than the 35th
1-21 [45th] day after the date the owner receives the request.
1-22 (b) A contractor who receives a payment under Subsection (a)
1-23 or otherwise from an owner in connection with a contract to improve
1-24 real property shall pay each of its subcontractors the portion of
1-25 the owner's payment, including interest, if any, that is
1-26 attributable to work properly performed or materials suitably
1-27 stored or specially fabricated as provided under the contract by
1-28 that subcontractor [if payment for stored materials is provided
1-29 for in the contract], to the extent of that subcontractor's
1-30 interest in the owner's payment. The payment required by this
1-31 subsection must be made not later than the seventh day after the
1-32 date the contractor receives the owner's payment.
1-33 (c) A subcontractor who receives a payment under Subsection
1-34 (b) or otherwise from a contractor in connection with a contract
1-35 to improve real property shall pay each of its subcontractors the
1-36 portion of the payment, including interest, if any, that is
1-37 attributable to work properly performed or materials suitably
1-38 stored or specially fabricated as provided under the contract by
1-39 that subcontractor [if payment for stored materials is provided
1-40 for in the contract], to the extent of that subcontractor's
1-41 interest in the payment. The payment required by this subsection
1-42 must be made not later than the seventh day after the date the
1-43 subcontractor receives the contractor's payment.
1-44 SECTION 2. Section 28.003, Property Code, is amended to read
1-45 as follows:
1-46 Sec. 28.003. EXCEPTION FOR GOOD FAITH DISPUTE; WITHHOLDING.
1-47 (a) If a good faith dispute exists concerning the amount owed for
1-48 a payment requested or required by this chapter under a contract
1-49 for construction of or improvements to a detached single-family
1-50 residence, duplex, triplex, or quadruplex, the owner, contractor,
1-51 or subcontractor that is disputing its obligation to pay or the
1-52 amount of payment may withhold from the payment owed not more than
1-53 110 percent of the difference between the amount the obligee claims
1-54 is due and the amount the obligor claims is due. A good faith
1-55 dispute includes a dispute regarding whether the work was performed
1-56 in a proper manner.
1-57 (b) If a good faith dispute exists concerning the amount
1-58 owed for a payment requested or required by this chapter under a
1-59 contract for construction of or improvements to real property,
1-60 excluding a detached single-family residence, duplex, triplex, or
1-61 quadruplex, the owner, contractor, or subcontractor that is
1-62 disputing its obligation to pay or the amount of payment may
1-63 withhold from the payment owed not more than 100 percent of the
1-64 difference between the amount the obligee claims is due and the
2-1 amount the obligor claims is due. A good faith dispute includes a
2-2 dispute regarding whether the work was performed in a proper
2-3 manner.
2-4 SECTION 3. Section 28.008, Property Code, is amended to read
2-5 as follows:
2-6 Sec. 28.008. EXCEPTION FOR FAILURE OF LENDER TO DISBURSE
2-7 FUNDS. The date of payment required of the owner pursuant to
2-8 Section 28.002(a) shall change from the 35th [45th] day after the
2-9 date the owner receives the payment request to the fifth [5th] day
2-10 after the date the owner receives loan proceeds, in the event that:
2-11 (1) the owner has obtained a loan intended to pay for
2-12 all or part of a contract to improve real property;
2-13 (2) the owner has timely and properly requested
2-14 disbursement of proceeds from that loan; and
2-15 (3) the lender is legally obligated to disburse such
2-16 proceeds to the owner, but has failed to do so within 35 [45] days
2-17 after the date the owner received the contractor's payment request.
2-18 SECTION 4. Chapter 28, Property Code, is amended by adding
2-19 Sections 28.009 and 28.010 to read as follows:
2-20 Sec. 28.009. RIGHT TO SUSPEND WORK. (a) If an owner fails
2-21 to pay the contractor the undisputed amount within the time limits
2-22 provided by this chapter, the contractor or any subcontractor may
2-23 suspend contractually required performance the 10th day after the
2-24 date the contractor or subcontractor gives the owner and the
2-25 owner's lender written notice:
2-26 (1) informing the owner and lender that payment has
2-27 not been received; and
2-28 (2) stating the intent of the contractor or
2-29 subcontractor to suspend performance for nonpayment.
2-30 (b) For purposes of Subsection (a), the contractor or
2-31 subcontractor must give the owner's lender the written notice only
2-32 if:
2-33 (1) the owner has obtained a loan intended to pay for
2-34 all or part of the construction project;
2-35 (2) the lender has remitted funds, including
2-36 acquisition funds, for construction purposes;
2-37 (3) the loan obtained:
2-38 (A) is evidenced by a promissory note secured by
2-39 a deed of trust recorded in the real property records of the county
2-40 in which the real property that is the subject of the contract is
2-41 located; and
2-42 (B) is not only for the acquisition of personal
2-43 property or secured only by a security instrument;
2-44 (4) the owner or lender, at the lender's option:
2-45 (A) securely posts not later than the 10th day
2-46 after the date construction commences a sign on the project site in
2-47 a prominent place accessible to each contractor, subcontractor, and
2-48 supplier that states the lender's name, address, and the person to
2-49 whom any notice should be sent; and
2-50 (B) maintains the sign during the pendency of
2-51 the construction project;
2-52 (5) not later than the 10th day after the date
2-53 construction commences, the owner or lender, at the lender's
2-54 option, provides a written copy of the notice prescribed by
2-55 Subdivision (4) to the contractor and any subcontractor or supplier
2-56 identified by the contractor by depositing the notice properly
2-57 addressed in the United States mail, first class, postage paid; and
2-58 (6) not later than the 10th day after the date a
2-59 subcontractor or supplier performs labor or furnishes materials or
2-60 equipment for the construction project, the owner, contractor, or
2-61 subcontractor provides a written copy of the notice prescribed by
2-62 Subdivision (4) to the subcontractor or supplier.
2-63 (c) A contractor or subcontractor who suspends performance
2-64 as provided by this section is not:
2-65 (1) required to supply further labor, services, or
2-66 materials until the person is paid the amount provided by this
2-67 chapter, plus costs for demobilization and remobilization; or
2-68 (2) responsible for damages resulting from suspending
2-69 work if the contractor or subcontractor has not been notified in
3-1 writing before suspending performance that payment has been made or
3-2 that a good faith dispute for payment exists.
3-3 (d) A notification that a good faith dispute for payment
3-4 exists provided under Subsection (c) must include a list of
3-5 specific reasons for nonpayment. If a reason specified includes
3-6 labor, services, or materials provided by a subcontractor that are
3-7 not provided in compliance with the contract, the subcontractor is
3-8 entitled to a reasonable opportunity to:
3-9 (1) cure the listed items; or
3-10 (2) offer a reasonable amount to compensate for listed
3-11 items that cannot be promptly cured.
3-12 (e) This section does not apply to:
3-13 (1) a contract for the construction of or improvements
3-14 to a detached single-family residence, duplex, triplex, or
3-15 quadruplex; or
3-16 (2) a contract to improve real property for a
3-17 governmental entity.
3-18 (f) The rights and remedies provided by this section are in
3-19 addition to rights and remedies provided by this chapter or other
3-20 law.
3-21 Sec. 28.010. EXEMPTION FOR MINERAL DEVELOPMENT AND OILFIELD
3-22 SERVICES. (a) This chapter does not apply to any agreement:
3-23 (1) to explore, produce, or develop oil, natural gas,
3-24 natural gas liquids, synthetic gas, sulphur, ore, or other mineral
3-25 substances, including any lease or royalty agreement, joint
3-26 interest agreement, production or production-related agreement,
3-27 operating agreement, farmout agreement, area of mutual interest
3-28 agreement, or other related agreement;
3-29 (2) for any well or mine services; or
3-30 (3) to purchase, sell, gather, store, or transport
3-31 oil, natural gas, natural gas liquids, synthetic gas, or other
3-32 hydrocarbon substances by pipeline or by a fixed, associated
3-33 facility.
3-34 (b) In this section:
3-35 (1) "Agreement" includes a written or oral agreement
3-36 or understanding:
3-37 (A) to provide work or services, including any
3-38 contruction, operating, repair, or maintenance services; or
3-39 (B) to perform a part of the services covered by
3-40 Paragraph (A) or an act collateral to those services, including
3-41 furnishing or renting equipment, incidental transportation, or
3-42 other goods and services furnished in connection with those
3-43 services.
3-44 (2) "Well or mine services" includes:
3-45 (A) drilling, deepening, reworking, repairing,
3-46 improving, testing, treating, perforating, acidizing, logging,
3-47 conditioning, purchasing, gathering, storing, or transporting oil
3-48 or natural gas, brine water, fresh water, produced water,
3-49 condensate, petroleum products, or other liquid commodities, or
3-50 otherwise rendering services in connection with a well drilled to
3-51 produce or dispose of oil, gas, or other minerals or water; and
3-52 (B) designing, excavating, constructing,
3-53 improving, or otherwise rendering services in connection with an
3-54 oil, gas, or other mineral production platform or facility, mine
3-55 shaft, drift, or other structure intended directly for use in
3-56 exploring for or producing a mineral.
3-57 SECTION 5. (a) This Act takes effect September 1, 1999.
3-58 (b) The changes in law made by this Act apply only to a
3-59 contract or agreement involving work performed on real property by
3-60 a contractor or subcontractor that is entered into on or after the
3-61 effective date of this Act. A contract or agreement entered into
3-62 before the effective date of this Act is governed by the law in
3-63 effect when the contract was entered into, and the former law is
3-64 continued in effect for that purpose.
3-65 SECTION 6. The importance of this legislation and the
3-66 crowded condition of the calendars in both houses create an
3-67 emergency and an imperative public necessity that the
3-68 constitutional rule requiring bills to be read on three several
3-69 days in each house be suspended, and this rule is hereby suspended.
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