By Mowery H.B. No. 554
77R208 PAM-D
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to management of construction funds and payment of
1-3 subcontractors under public contracts.
1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-5 SECTION 1. Chapter 28, Property Code, is amended to divide
1-6 the chapter into subchapters, amend Section 28.001, amend and
1-7 redesignate Section 28.010 as Section 28.002, amend and redesignate
1-8 Section 28.006(a) as Section 28.003, redesignate Section 28.007 as
1-9 Section 28.004, redesignate Section 28.002 as Section 28.051, amend
1-10 and redesignate Section 28.006(b) as Section 28.052, amend and
1-11 redesignate Section 28.003 as Section 28.053, amend and redesignate
1-12 Section 28.008 as Section 28.054, amend and redesignate Section
1-13 28.009 as Section 28.055, add Sections 28.101 and 28.102,
1-14 redesignate Section 28.004 as Section 28.151, and redesignate
1-15 Section 28.005 as Section 28.152 to read as follows:
1-16 CHAPTER 28. PROMPT PAYMENT TO CONTRACTORS AND SUBCONTRACTORS
1-17 SUBCHAPTER A. GENERAL PROVISIONS
1-18 Sec. 28.001. DEFINITIONS. In this chapter:
1-19 (1) "Contracting governmental entity" means a
1-20 governmental entity with an interest in real property that is
1-21 improved, for whom an improvement is made, and who ordered the
1-22 improvement to be made.
1-23 (2) "Contractor" means a person who contracts with an
1-24 owner or a contracting governmental entity to improve real property
2-1 or perform construction services for the [an] owner or entity.
2-2 (3) [(2)] "Improve" means to:
2-3 (A) build, construct, effect, erect, alter,
2-4 repair, or demolish any improvement on, connected with, or beneath
2-5 the surface of real property;
2-6 (B) excavate, clear, grade, fill, or landscape
2-7 real property;
2-8 (C) construct a driveway or roadway;
2-9 (D) furnish any material, including trees or
2-10 shrubbery, for the purpose of taking any action described by
2-11 Paragraphs (A)-(C) of this subdivision; or
2-12 (E) perform any labor on or in connection with
2-13 an improvement.
2-14 (4) [(3)] "Improvement" includes all or any part of:
2-15 (A) a building, structure, erection, alteration,
2-16 demolition, or excavation on, connected with, or beneath the
2-17 surface of real property; and
2-18 (B) the act of clearing, grading, filling, or
2-19 landscaping real property, including constructing a driveway or
2-20 roadway or furnishing trees or shrubbery.
2-21 (5) [(4)] "Owner" means a person or entity, other than
2-22 a governmental entity, with an interest in real property that is
2-23 improved, for whom an improvement is made, and who ordered the
2-24 improvement to be made.
2-25 (6) [(5)] "Real property" includes lands, leaseholds,
2-26 tenements, hereditaments, and improvements placed on the real
2-27 property.
3-1 (7) [(6)] "Subcontractor" means a person who contracts
3-2 to furnish labor or material to, or has performed labor or supplied
3-3 materials for, a contractor or another subcontractor in connection
3-4 with a contract to improve real property.
3-5 Sec. 28.002. APPLICABILITY [28.010. EXEMPTION FOR MINERAL
3-6 DEVELOPMENT AND OILFIELD SERVICES]. (a) This chapter does not
3-7 apply to any agreement:
3-8 (1) to explore, produce, or develop oil, natural gas,
3-9 natural gas liquids, synthetic gas, sulphur, ore, or other mineral
3-10 substances, including any lease or royalty agreement, joint
3-11 interest agreement, production or production-related agreement,
3-12 operating agreement, farmout agreement, area of mutual interest
3-13 agreement, or other related agreement;
3-14 (2) for any well or mine services; or
3-15 (3) to purchase, sell, gather, store, or transport
3-16 oil, natural gas, natural gas liquids, synthetic gas, or other
3-17 hydrocarbon substances by pipeline or by a fixed, associated
3-18 facility.
3-19 (b) In this section:
3-20 (1) "Agreement" includes a written or oral agreement
3-21 or understanding:
3-22 (A) to provide work or services, including any
3-23 construction, operating, repair, or maintenance services; or
3-24 (B) to perform a part of the services covered by
3-25 Paragraph (A) or an act collateral to those services, including
3-26 furnishing or renting equipment, incidental transportation, or
3-27 other goods and services furnished in connection with those
4-1 services.
4-2 (2) "Well or mine services" includes:
4-3 (A) drilling, deepening, reworking, repairing,
4-4 improving, testing, treating, perforating, acidizing, logging,
4-5 conditioning, purchasing, gathering, storing, or transporting oil
4-6 or natural gas, brine water, fresh water, produced water,
4-7 condensate, petroleum products, or other liquid commodities, or
4-8 otherwise rendering services in connection with a well drilled to
4-9 produce or dispose of oil, gas, or other minerals or water; and
4-10 (B) designing, excavating, constructing,
4-11 improving, or otherwise rendering services in connection with an
4-12 oil, gas, or other mineral production platform or facility, mine
4-13 shaft, drift, or other structure intended directly for use in
4-14 exploring for or producing a mineral.
4-15 Sec. 28.003 [28.006]. NO WAIVER. [(a)] Except as provided
4-16 by Section 28.052 [Subsection (b)], an attempted waiver of a
4-17 provision of this chapter is void.
4-18 Sec. 28.004 [28.007]. LEGAL CONSTRUCTION. (a) This chapter
4-19 may not be interpreted to void a contractor's or subcontractor's
4-20 entitlement to payment for properly performed work or suitably
4-21 stored materials.
4-22 (b) Nothing in this statute shall be interpreted to change
4-23 the rights and obligations set forth in Chapter 53, Property Code.
4-24 (Sections 28.005-28.050 reserved for expansion
4-25 SUBCHAPTER B. PROMPT PAYMENT UNDER PRIVATE CONTRACTS
4-26 Sec. 28.051 [28.002]. PROMPT PAY REQUIRED. (a) If an owner
4-27 or a person authorized to act on behalf of the owner receives a
5-1 written payment request from a contractor for an amount that is
5-2 allowed to the contractor under the contract for properly performed
5-3 work or suitably stored or specially fabricated materials, the
5-4 owner shall pay the amount to the contractor, less any amount
5-5 withheld as authorized by statute, not later than the 35th day
5-6 after the date the owner receives the request.
5-7 (b) A contractor who receives a payment under Subsection (a)
5-8 or otherwise from an owner in connection with a contract to improve
5-9 real property shall pay each of its subcontractors the portion of
5-10 the owner's payment, including interest, if any, that is
5-11 attributable to work properly performed or materials suitably
5-12 stored or specially fabricated as provided under the contract by
5-13 that subcontractor, to the extent of that subcontractor's interest
5-14 in the owner's payment. The payment required by this subsection
5-15 must be made not later than the seventh day after the date the
5-16 contractor receives the owner's payment.
5-17 (c) A subcontractor who receives a payment under Subsection
5-18 (b) or otherwise from a contractor in connection with a contract to
5-19 improve real property shall pay each of its subcontractors the
5-20 portion of the payment, including interest, if any, that is
5-21 attributable to work properly performed or materials suitably
5-22 stored or specially fabricated as provided under the contract by
5-23 that subcontractor, to the extent of that subcontractor's interest
5-24 in the payment. The payment required by this subsection must be
5-25 made not later than the seventh day after the date the
5-26 subcontractor receives the contractor's payment.
5-27 Sec. 28.052. WAIVER PERMITTED IN CERTAIN CIRCUMSTANCES.
6-1 (a) [(b)] A written contract between an owner and a contractor for
6-2 improvements to or construction of a single-family residence may
6-3 provide that the payment required under Section 28.051(a)
6-4 [28.002(a)] be made not later than a date that occurs before the
6-5 61st day after the date the owner receives the payment request.
6-6 (b) Notwithstanding Section 28.151(b) [28.004(b)], an unpaid
6-7 amount under contract subject to this section [subsection] that
6-8 allows payment later than the date otherwise required under Section
6-9 28.051(a) [28.002(a)] bears interest at the rate of 1 1/2 percent
6-10 each month.
6-11 Sec. 28.053 [28.003]. EXCEPTION FOR GOOD FAITH DISPUTE;
6-12 WITHHOLDING. (a) If a good faith dispute exists concerning the
6-13 amount owed for a payment requested or required by this subchapter
6-14 [chapter] under a contract for construction of or improvements to a
6-15 detached single-family residence, duplex, triplex, or quadruplex,
6-16 the owner, contractor, or subcontractor that is disputing its
6-17 obligation to pay or the amount of payment may withhold from the
6-18 payment owed not more than 110 percent of the difference between
6-19 the amount the obligee claims is due and the amount the obligor
6-20 claims is due. A good faith dispute includes a dispute regarding
6-21 whether the work was performed in a proper manner.
6-22 (b) If a good faith dispute exists concerning the amount
6-23 owed for a payment requested or required by this subchapter
6-24 [chapter] under a contract for construction of or improvements to
6-25 real property, excluding a detached single-family residence,
6-26 duplex, triplex, or quadruplex, the owner, contractor, or
6-27 subcontractor that is disputing its obligation to pay or the amount
7-1 of payment may withhold from the payment owed not more than 100
7-2 percent of the difference between the amount the obligee claims is
7-3 due and the amount the obligor claims is due. A good faith dispute
7-4 includes a dispute regarding whether the work was performed in a
7-5 proper manner.
7-6 Sec. 28.054 [28.008]. EXCEPTION FOR FAILURE OF LENDER TO
7-7 DISBURSE FUNDS. The date of payment required of the owner pursuant
7-8 to Section 28.051(a) [28.002(a)] shall change from the 35th day
7-9 after the date the owner receives the payment request to the fifth
7-10 day after the date the owner receives loan proceeds, in the event
7-11 that:
7-12 (1) the owner has obtained a loan intended to pay for
7-13 all or part of a contract to improve real property;
7-14 (2) the owner has timely and properly requested
7-15 disbursement of proceeds from that loan; and
7-16 (3) the lender is legally obligated to disburse such
7-17 proceeds to the owner, but has failed to do so within 35 days after
7-18 the date the owner received the contractor's payment request.
7-19 Sec. 28.055 [28.009]. RIGHT TO SUSPEND WORK. (a) If an
7-20 owner fails to pay the contractor the undisputed amount within the
7-21 time limits provided by this subchapter [chapter], the contractor
7-22 or any subcontractor may suspend contractually required performance
7-23 the 10th day after the date the contractor or subcontractor gives
7-24 the owner and the owner's lender written notice:
7-25 (1) informing the owner and lender that payment has
7-26 not been received; and
7-27 (2) stating the intent of the contractor or
8-1 subcontractor to suspend performance for nonpayment.
8-2 (b) For purposes of Subsection (a), the contractor or
8-3 subcontractor must give the owner's lender the written notice only
8-4 if:
8-5 (1) the owner has obtained a loan intended to pay for
8-6 all or part of the construction project;
8-7 (2) the lender has remitted funds, including
8-8 acquisition funds, for construction purposes;
8-9 (3) the loan obtained:
8-10 (A) is evidenced by a promissory note secured by
8-11 a deed of trust recorded in the real property records of the county
8-12 in which the real property that is the subject of the contract is
8-13 located; and
8-14 (B) is not only for the acquisition of personal
8-15 property or secured only by a security instrument;
8-16 (4) the owner or lender, at the lender's option:
8-17 (A) securely posts not later than the 10th day
8-18 after the date construction commences a sign on the project site in
8-19 a prominent place accessible to each contractor, subcontractor, and
8-20 supplier that states the lender's name, address, and the person to
8-21 whom any notice should be sent; and
8-22 (B) maintains the sign during the pendency of
8-23 the construction project;
8-24 (5) not later than the 10th day after the date
8-25 construction commences, the owner or lender, at the lender's
8-26 option, provides a written copy of the notice prescribed by
8-27 Subdivision (4) to the contractor and any subcontractor or supplier
9-1 identified by the contractor by depositing the notice properly
9-2 addressed in the United States mail, first class, postage paid; and
9-3 (6) not later than the 10th day after the date a
9-4 subcontractor or supplier performs labor or furnishes materials or
9-5 equipment for the construction project, the owner, contractor, or
9-6 subcontractor provides a written copy of the notice prescribed by
9-7 Subdivision (4) to the subcontractor or supplier.
9-8 (c) A contractor or subcontractor who suspends performance
9-9 as provided by this section is not:
9-10 (1) required to supply further labor, services, or
9-11 materials until the person is paid the amount provided by this
9-12 chapter, plus costs for demobilization and remobilization; or
9-13 (2) responsible for damages resulting from suspending
9-14 work if the contractor or subcontractor has not been notified in
9-15 writing before suspending performance that payment has been made or
9-16 that a good faith dispute for payment exists.
9-17 (d) A notification that a good faith dispute for payment
9-18 exists provided under Subsection (c) must include a list of
9-19 specific reasons for nonpayment. If a reason specified includes
9-20 labor, services, or materials provided by a subcontractor that are
9-21 not provided in compliance with the contract, the subcontractor is
9-22 entitled to a reasonable opportunity to:
9-23 (1) cure the listed items; or
9-24 (2) offer a reasonable amount to compensate for listed
9-25 items that cannot be promptly cured.
9-26 (e) This section does not apply to:
9-27 (1) a contract for the construction of or improvements
10-1 to a detached single-family residence, duplex, triplex, or
10-2 quadruplex; or
10-3 (2) a contract to improve real property for a
10-4 governmental entity.
10-5 (f) The rights and remedies provided by this section are in
10-6 addition to rights and remedies provided by this chapter or other
10-7 law.
10-8 (Sections 28.056-28.100 reserved for expansion
10-9 SUBCHAPTER C. PROMPT PAYMENT UNDER PUBLIC CONTRACTS
10-10 Sec. 28.101. PROMPT PAYMENT REQUIRED. (a) A contractor who
10-11 receives a payment from a contracting governmental entity in
10-12 connection with a contract to improve real property shall pay each
10-13 of its subcontractors the portion of the payment, including
10-14 interest, if any, that is attributable to work properly performed
10-15 or materials suitably stored or specially fabricated as provided
10-16 under the contract by that subcontractor, to the extent of that
10-17 subcontractor's interest in the payment received by the contractor.
10-18 The payment required by this subsection must be made not later than
10-19 the seventh day after the date the contractor receives the payment.
10-20 (b) A subcontractor who receives a payment under Subsection
10-21 (a) or otherwise from a contractor in connection with a contract to
10-22 improve real property shall pay each of its subcontractors the
10-23 portion of the payment, including interest, if any, that is
10-24 attributable to work properly performed or materials suitably
10-25 stored or specially fabricated as provided under the contract by
10-26 that subcontractor, to the extent of that subcontractor's interest
10-27 in the payment. The payment required by this subsection must be
11-1 made not later than the seventh day after the date the
11-2 subcontractor receives the contractor's payment.
11-3 Sec. 28.102. EXCEPTION FOR GOOD FAITH DISPUTE; WITHHOLDING.
11-4 If a good faith dispute exists concerning the amount owed for a
11-5 payment required by this subchapter under a contract for
11-6 construction of or improvements to real property, the contracting
11-7 governmental entity, contractor, or subcontractor that is disputing
11-8 its obligation to pay or the amount of payment may withhold from
11-9 the payment owed not more than 100 percent of the difference
11-10 between the amount the obligee claims is due and the amount the
11-11 obligor claims is due. A good faith dispute includes a dispute
11-12 regarding whether the work was performed in a proper manner.
11-13 (Sections 28.103-28.150 reserved for expansion
11-14 SUBCHAPTER D. REMEDIES AND ENFORCEMENT
11-15 Sec. 28.151 [28.004]. INTEREST ON OVERDUE PAYMENT. (a) An
11-16 unpaid amount required under this chapter begins to accrue interest
11-17 on the day after the date on which the payment becomes due.
11-18 (b) An unpaid amount bears interest at the rate of 1 1/2
11-19 percent each month.
11-20 (c) Interest on an unpaid amount stops accruing under this
11-21 section on the earlier of:
11-22 (1) the date of delivery;
11-23 (2) the date of mailing, if payment is mailed and
11-24 delivery occurs within three days; or
11-25 (3) the date a judgment is entered in an action
11-26 brought under this chapter.
11-27 Sec. 28.152 [28.005]. ACTION TO ENFORCE PAYMENT. (a) A
12-1 person may bring an action to enforce the person's rights under
12-2 this chapter.
12-3 (b) In an action brought under this chapter, the court may
12-4 award costs and reasonable attorney's fees as the court determines
12-5 equitable and just.
12-6 SECTION 2. Section 162.004, Property Code, is amended to read
12-7 as follows:
12-8 Sec. 162.004. APPLICATION. (a) This chapter applies only to
12-9 a contractor who enters into a written contract for an amount
12-10 exceeding $5,000 with:
12-11 (1) a property owner to construct improvements to a
12-12 residential homestead; or
12-13 (2) a governmental entity to construct improvements on
12-14 public property.
12-15 (b) This chapter does not apply to:
12-16 (1) a bank, savings and loan, or other lender;
12-17 (2) a title company or other closing agent; or
12-18 (3) a corporate surety who issues a payment bond
12-19 covering the contract for the construction or repair of the
12-20 improvement.
12-21 (c) [(b)] The Texas Trust Act (Chapters 111 through 115)
12-22 does not apply to any trust created under this chapter, nor does
12-23 this chapter affect any provision of the Texas Trust Act.
12-24 SECTION 3. Section 162.006(a), Property Code, is amended to
12-25 read as follows:
12-26 (a) A contractor who is subject to this chapter [enters into
12-27 a written contract with a property owner to construct improvements
13-1 to a residential homestead for an amount exceeding $5,000] shall
13-2 deposit [the] trust funds received under this chapter in a
13-3 construction account in a financial institution.
13-4 SECTION 4. (a) This Act takes effect September 1, 2001.
13-5 (b) The changes in law made by this Act apply only to a
13-6 construction contract entered into on or after the effective date
13-7 of this Act and funds received under a construction contract
13-8 entered into on or after the effective date of this Act.
13-9 (c) A construction contract entered into before the
13-10 effective date of this Act or funds received under a construction
13-11 contract entered into before the effective date of this Act are
13-12 governed by the law as it existed immediately before the effective
13-13 date of this Act, and that law is continued in effect for that
13-14 purpose.