By Ritter                                             H.B. No. 2271
         76R7532 PAM-F                           
                                A BILL TO BE ENTITLED
 1-1                                   AN ACT
 1-2     relating to contingent payment clauses in certain construction
 1-3     contracts.
 1-4           BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
 1-5           SECTION 1.  Subchapter A, Chapter 53, Property Code, is
 1-6     amended by adding Section 53.004 to read as follows:
 1-7           Sec. 53.004.  CONTINGENT PAYMENT CLAUSE.  (a)  In this
 1-8     section, "contingent payment clause" means a provision in a written
 1-9     agreement that makes payment for a subcontractor's work contingent
1-10     on the original contractor's receipt of payment from the owner.
1-11           (b)  A contingent payment clause is valid and enforceable
1-12     only if:
1-13                 (1)  the clause is conspicuously stated in a written
1-14     agreement signed by the subcontractor; and
1-15                 (2)  payment is wrongfully withheld from the original
1-16     contractor by the owner.
1-17           (c)  A surety furnishing a bond under Subchapter I may assert
1-18     the surety's principal's defense to payment under a valid,
1-19     enforceable contingent payment clause.
1-20           (d)  If a subcontractor's claim against the original
1-21     contractor and the contractor's surety is unenforceable because of
1-22     a valid, enforceable contingent payment clause,  the bond furnished
1-23     under Subchapter I does not relieve the owner and the owner's
1-24     property from liability for the subcontractor's claim if the
 2-1     subcontractor has perfected a lien under Subchapter C.  A person
 2-2     may discharge the subcontractor's claim against the owner and the
 2-3     owner's property by filing a bond under Subchapter H.
 2-4           (e)  If a subcontractor's claim against the original
 2-5     contractor is unenforceable because of a valid, enforceable
 2-6     contingent payment clause and no bond is furnished under Subchapter
 2-7     I, the subcontractor may perfect a lien by complying with
 2-8     Subchapter C.
 2-9           SECTION 2.  Subchapter C, Chapter 53, Property Code, is
2-10     amended by adding Section 53.059 to read as follows:
2-11           Sec. 53.059.  DERIVATIVE CLAIMANT: NOTICE OF CONTINGENT
2-12     PAYMENT CLAUSE.  (a)  In this section, "contingent payment clause"
2-13     has the meaning assigned by Section 53.004.
2-14           (b)  A claimant whose claim against the original contractor
2-15     and the contractor's surety is unenforceable because of a valid and
2-16     enforceable contingent payment clause may file and give notice
2-17     under this section.
2-18           (c)  The notice authorized under this section is not required
2-19     to perfect a lien, but if a claimant fails to provide the notice,
2-20     the filing of a valid bond under Subchapter H discharges the
2-21     claimant's mechanic's lien or affidavit claiming a mechanic's lien.
2-22           (d)  Subject to Subsection (e), the claimant must file notice
2-23     with the county clerk of the county in which the property is
2-24     located not later than the 15th day of the second month after the
2-25     date of the initial delivery of materials or the performance of
2-26     labor by the claimant, whichever first occurs after a valid bond is
2-27     recorded under Section 53.203.
 3-1           (e)  If the claimant has completed the delivery of materials
 3-2     and the performance of labor before the recording of the bond, the
 3-3     claimant is not required to file and serve notice under this
 3-4     section.
 3-5           (f)  The notice must be signed and acknowledged by the
 3-6     claimant or another person on the claimant's behalf and must
 3-7     contain substantially:
 3-8                 (1)  the name and last known address of the owner or
 3-9     reputed owner;
3-10                 (2)  a description of the property for which the
3-11     claimant is furnishing materials or labor that is legally
3-12     sufficient for identification;
3-13                 (3)  the claimant's name, mailing address, and, if
3-14     different, physical address;
3-15                 (4)  the name and last known address of the original
3-16     contractor; and
3-17                 (5)  a statement that the claimant has entered into an
3-18     agreement that contains a contingent payment clause and if the
3-19     owner wrongfully withholds payment from the original contractor for
3-20     work furnished by the subcontractor, the claimant may assert a
3-21     claim against the owner and the owner's property that is not
3-22     discharged by the recorded payment bond.
3-23           (g)  A claimant who files notice under this section must send
3-24     a copy of the notice by registered or certified mail not later than
3-25     the fifth day after the date the notice is filed with the county
3-26     clerk to:
3-27                 (1)  the owner or reputed owner at the owner's last
 4-1     known address; and
 4-2                 (2)  the original contractor at the original
 4-3     contractor's last known address.
 4-4           SECTION 3.  Section 53.157, Property Code, is amended to read
 4-5     as follows:
 4-6           Sec. 53.157.  DISCHARGE OF LIEN.  A mechanic's lien or
 4-7     affidavit claiming a mechanic's lien filed under Section 53.052 may
 4-8     be discharged of record by:
 4-9                 (1)  recording a lien release signed by the claimant
4-10     under Section 53.152;
4-11                 (2)  failing to institute suit to foreclose the lien in
4-12     the county in which the property is located within the period
4-13     prescribed by Section 53.158, 53.175, or 53.208;
4-14                 (3)  recording the original or certified copy of a
4-15     final judgment or decree of a court of competent jurisdiction
4-16     providing for the discharge;
4-17                 (4)  filing the bond and notice in compliance with
4-18     Subchapter H, except as provided by Sections 53.004 and 53.059;
4-19                 (5)  filing the bond in compliance with Subchapter I;
4-20     or
4-21                 (6)  recording a certified copy of the order removing
4-22     the lien under Section 53.160 and a certificate from the clerk of
4-23     the court that states that no bond or deposit as described by
4-24     Section 53.161 was filed by the claimant within 30 days after the
4-25     date the order was entered.
4-26           SECTION 4.  Section 53.201(b), Property Code, is amended to
4-27     read as follows:
 5-1           (b)  Except as provided by Sections 53.004 and 53.059, if
 5-2     [If] a valid bond is filed, a claimant may not file suit against
 5-3     the owner or the owner's property and the owner is relieved of
 5-4     obligations under Subchapter D or E.
 5-5           SECTION 5.  Subchapter B, Chapter 2253, Government Code, is
 5-6     amended by adding Section 2253.028 to read as follows:
 5-7           Sec. 2253.028.  CONTINGENT PAYMENT CLAUSE.  (a)  In this
 5-8     section, "contingent payment clause" means a provision in a written
 5-9     agreement that makes payment for a subcontractor's work contingent
5-10     on the prime contractor's receipt of payment from the governmental
5-11     entity.
5-12           (b)  A contingent payment clause is valid and enforceable
5-13     only if:
5-14                 (1)  the clause is conspicuously stated in a written
5-15     agreement signed by the subcontractor; and
5-16                 (2)  payment is wrongfully withheld from the prime
5-17     contractor by the governmental entity.
5-18           (c)  A surety furnishing a bond under this subchapter may
5-19     assert the surety's principal's defense to payment under a valid,
5-20     enforceable contingent payment clause.
5-21           (d)  If a subcontractor's claim against the prime contractor
5-22     and the contractor's surety is unenforceable because of a valid,
5-23     enforceable contingent payment clause and the subcontractor
5-24     provides the governmental entity with the notice required under
5-25     Subchapter C, the governmental entity is subject to the same
5-26     liability as the prime contractor's surety would be if the claim
5-27     had been perfected.
 6-1           SECTION 6.  (a)  This Act takes effect September 1, 1999.
 6-2           (b)  The changes in law made by this Act apply only to an
 6-3     agreement containing a contingent payment clause, as that term is
 6-4     defined by Section 53.004, Property Code, and Section 2253.028,
 6-5     Government Code, as added by this Act, that is entered into on or
 6-6     after September 1, 1999.  An agreement containing a contingent
 6-7     payment clause, as that term is defined by Section 53.004, Property
 6-8     Code, and Section 2253.028, Government Code, as added by this Act,
 6-9     that was entered into before September 1, 1999, is governed by the
6-10     law as it existed on the date the agreement was entered into, and
6-11     the former law is continued in effect for that purpose.
6-12           SECTION 7.  The importance of this legislation and the
6-13     crowded condition of the calendars in both houses create an
6-14     emergency and an imperative public necessity that the
6-15     constitutional rule requiring bills to be read on three several
6-16     days in each house be suspended, and this rule is hereby suspended.