By Brimer                                             H.B. No. 2850
         77R5522 PAM-F                           
                                A BILL TO BE ENTITLED
 1-1                                   AN ACT
 1-2     relating to retainage payments under certain construction
 1-3     contracts.
 1-4           BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
 1-5           SECTION 1. Section 35.52, Business & Commerce Code, is
 1-6     amended to read as follows:
 1-7           Sec. 35.52.  LAW APPLICABLE TO CONSTRUCTION CONTRACTS.
 1-8     (a)  In this section:
 1-9                 (1)  "Prime rate" means the prime rate as published in
1-10     the Wall Street Journal on the date a contract is signed, or if no
1-11     rate is published on that date, the last rate published before the
1-12     date the contract is signed.
1-13                 (2)  "Retainage" means an amount representing part of a
1-14     contract payment that is not required to be paid to a person who
1-15     performs labor, furnishes material, or delivers specially
1-16     fabricated material within the month following the month in which
1-17     the labor is performed, the material is furnished, or the specially
1-18     fabricated material is delivered.
1-19                 (3)  "Subcontractor" means a person who furnishes
1-20     labor, materials, or specially fabricated materials to fulfill an
1-21     obligation to an original contractor or a subcontractor to perform
1-22     all or part of the work required under an original contract.
1-23           (b)  If a contract is principally for the construction or
1-24     repair of improvements to real property located in this state and
 2-1     the contract contains a provision that makes the contract or any
 2-2     conflict arising under it subject to the law of another state, to
 2-3     litigation in the courts of another state, or to arbitration in
 2-4     another state, that provision is voidable by the party that is
 2-5     obligated by the contract to perform the construction or repair.
 2-6           (c) [(b)]  A contract is principally for the construction or
 2-7     repair of improvements to real property located in this state if
 2-8     the contract obligates a party, as its principal obligation under
 2-9     the contract, to provide labor, material, or labor and materials,
2-10     for the construction or repair of improvements to real property
2-11     located in this state as a general contractor, [or] subcontractor,
2-12     or material supplier.
2-13           (d) [(c)]  A contract is not principally for the construction
2-14     or repair of improvements to real property located in this state
2-15     if:
2-16                 (1)  the contract is a partnership agreement or other
2-17     agreement governing an entity or trust;
2-18                 (2)  the contract provides for a loan or other
2-19     extension of credit and the party promising to construct or repair
2-20     improvements does so as part of its agreements with the lender or
2-21     other extender of credit; or
2-22                 (3)  the contract is for the management of real
2-23     property or improvements and the obligation to construct or repair
2-24     is part of that management.
2-25           (e) [(d)]  Subsections (c) [(b)] and (d) [(c)] of this
2-26     section are not an exclusive list of situations in which a contract
2-27     is or is not principally for the construction or repair of
 3-1     improvements to real property located in this state.
 3-2           (f)  Except as provided by Subsection (g), retainage withheld
 3-3     under a contract principally for the construction or repair of
 3-4     improvements to real property located in this state accrues
 3-5     interest at the prime rate.  Interest on retainage begins accruing
 3-6     on the date payment is due for the labor performed, material
 3-7     furnished, or specially fabricated material delivered.
 3-8           (g)  Any retainage withheld after the 45th day after the date
 3-9     work is completed accrues interest at 1-1/2 percent each month.
3-10     For purposes of this subsection, work is completed on the date:
3-11                 (1)  an affidavit or notice of completion is filed and
3-12     delivered; or
3-13                 (2)  the work is actually completed, if an affidavit or
3-14     notice of completion is not filed and delivered.
3-15           (h)  Interest stops accruing on retainage owed by the owner
3-16     of the real property on the earlier of the date:
3-17                 (1)  the retained funds are delivered;
3-18                 (2)  the retained funds are mailed, if the funds are
3-19     delivered not later than the third day after the date the funds are
3-20     mailed; or
3-21                 (3)  a judgment is entered in an action brought to
3-22     recover retained funds.
3-23           (i)  Interest on retainage owed by a person other than an
3-24     owner stops accruing on the later of the date:
3-25                 (1)  the owner's interest on retainage stops accruing
3-26     under Subsection (h) if payment of the retained funds is made to
3-27     the party owed the funds on or before the seventh day after the
 4-1     date the person received the funds; or
 4-2                 (2)  the person pays the funds.
 4-3           (j)  For purposes of Subsection (i), payment of the retained
 4-4     funds is considered made on the earlier of the date:
 4-5                 (1)  the retained funds are delivered;
 4-6                 (2)  the retained funds are mailed, if the funds are
 4-7     delivered not later than the third day after the date the funds are
 4-8     mailed; or
 4-9                 (3)  a judgment is entered in an action brought to
4-10     recover the retained funds.
4-11           (k)  A provision of this section may not be waived by
4-12     contract or otherwise.
4-13           SECTION 2. (a)  This Act takes effect September 1, 2001.
4-14           (b)  The changes in law made by this Act apply only to a
4-15     contract executed on or after September 1, 2001. A contract
4-16     executed before September 1, 2001, is governed by the law as it
4-17     existed on the date the contract was executed, and the former law
4-18     is continued in effect for that purpose.