H.B. No. 692
 
 
 
 
AN ACT
  relating to retainage requirements for certain public works
  construction projects.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  The heading to Subchapter B, Chapter 2252,
  Government Code, is amended to read as follows:
  SUBCHAPTER B. [INTEREST ON] RETAINED PUBLIC WORKS CONTRACT PAYMENTS
         SECTION 2.  Section 2252.031, Government Code, is amended by
  amending Subdivision (5) and adding Subdivision (6) to read as
  follows:
               (5)  "Retainage" means the percentage [part] of a
  public works contract payment withheld by a governmental entity to
  secure performance of the contract.
               (6)  "Warranty period" means the period of time
  specified in a contract during which certain terms applicable to
  the warranting of work performed under the contract are in effect.
         SECTION 3.  Section 2252.032, Government Code, is amended to
  read as follows:
         Sec. 2252.032.  RETAINAGE. (a) A governmental entity
  shall:
               (1)  include in each public works contract a provision
  that establishes the circumstances under which:
                     (A)  the public works project that is the subject
  of the contract is considered substantially complete; and
                     (B)  the governmental entity may release all or a
  portion of the retainage for:
                           (i)  substantially completed portions of the
  project; or
                           (ii)  fully completed and accepted portions
  of the project;
               (2)  maintain an accurate record of accounting for:
                     (A)  [deposit in an interest-bearing account] the
  retainage withheld on [of a public works contract that provides for
  retainage of more than five percent of the] periodic contract
  payments; and
                     (B)  the retainage released to the prime
  contractor for a public works contract [payment]; and
               (3)  for a public works contract described by
  Subsection (c), [(2)] pay any remaining retainage described by
  Subdivision (2)(A) and the interest earned on the retainage to the
  prime contractor on completion of the work required to be performed
  under the contract.
         (b)  Except as provided by Subsection (i):
               (1)  if the total value of a public works contract is
  less than $5 million, a governmental entity may not withhold
  retainage in an amount that exceeds 10 percent of the contract price
  and the rate of retainage may not exceed 10 percent for any item in a
  bid schedule or schedule of values for the project, including
  materials and equipment delivered on site to be installed;
               (2)  if the total value of a public works contract is $5
  million or more, a governmental entity may not withhold retainage
  in an amount that exceeds five percent of the contract price and the
  rate of retainage may not exceed five percent for any item in a bid
  schedule or schedule of values for the project, including materials
  and equipment delivered on site to be installed; and
               (3)  if a public works contract relates to the
  construction or maintenance of a dam, as that term is defined by
  Section 423.0045, regardless of the total value of the contract, a
  governmental entity may not withhold retainage in an amount that
  exceeds 10 percent of the contract price and the rate of retainage
  may not exceed 10 percent for any item in a bid schedule or schedule
  of values for the project, including materials and equipment
  delivered on site to be installed.
         (c)  For a competitively awarded contract with a value of $10
  million or more, and for a contract that was awarded using a method
  other than competitive bidding, a governmental entity and prime
  contractor may agree to deposit in an interest-bearing account the
  retainage withheld on periodic contract payments.
         (d)  If, for the purpose of fulfilling an obligation of a
  prime contractor under a public works contract, the prime
  contractor enters into a subcontract:
               (1)  the prime contractor may not withhold from a
  subcontractor a greater percentage of retainage than the percentage
  that may be withheld from the prime contractor by the governmental
  entity under the contract; and
               (2)  a subcontractor who enters into a contract with
  another subcontractor to provide labor or materials under the
  contract may not withhold from that subcontractor a greater
  percentage of retainage than the percentage that may be withheld
  from the subcontractor as determined under Subdivision (1).
         (e)  A governmental entity may not withhold retainage:
               (1)  after completion of the work required to be
  performed under the contract by the prime contractor, including
  during the warranty period; or
               (2)  for the purpose of requiring the prime contractor,
  after completion of the work required to be performed under the
  contract, to perform work on manufactured goods or systems that
  were:
                     (A)  specified by the designer of record; and
                     (B)  properly installed by the contractor.
         (f)  On application to a governmental entity for final
  payment and release of retainage, the governmental entity may
  withhold retainage if there is a bona fide dispute between the
  governmental entity and the prime contractor and the reason for the
  dispute is that labor, services, or materials provided by the prime
  contractor, or by a person under the direction or control of the
  prime contractor, failed to comply with the express terms of the
  contract or if the surety on any outstanding surety bond executed
  for the contract does not agree to the release of retainage. The
  governmental entity must provide to the prime contractor written
  notice of the basis on which the governmental entity is withholding
  retainage under this subsection. If there is no bona fide dispute
  between the governmental entity and the prime contractor and
  neither party is in default under the contract, the prime
  contractor is entitled to:
               (1)  cure any noncompliant labor, services, or
  materials; or
               (2)  offer the governmental entity a reasonable amount
  of money as compensation for any noncompliant labor, services, or
  materials that cannot be promptly cured.
         (g)  A governmental entity is not required to accept a prime
  contractor's offer of compensation under Subsection (f)(2).
         (h)  Subsection (f) may not be construed to limit either the
  governmental entity's or prime contractor's right to pursue any
  remedy available under the express terms of the public works
  contract or other applicable law.
         (i)  For purposes of this subsection, a project is considered
  formally approved if the project is the subject of a resolution
  approving an application for financial assistance adopted by the
  Texas Water Development Board before September 1, 2019, for any
  part of the project's financing. Subsection (b) of this section
  does not apply to a governmental entity that receives financial
  assistance under Section 15.432 or 15.472, Water Code, for a
  project that is formally approved by the Texas Water Development
  Board or to a governmental entity that is a wholesale water supplier
  that supplies water to customers in 10 or more counties and is
  governed by Chapter 49, Water Code. A governmental entity
  described by this subsection shall deposit in an interest-bearing
  account the retainage withheld under a public works contract that
  provides for retainage that exceeds five percent of the periodic
  contract payments.
         (j)  This section may not be construed as affecting a
  governmental entity's ability to retain certain amounts due under a
  contract as required by Chapter 2258.
         SECTION 4.  Section 2252.033, Government Code, is amended to
  read as follows:
         Sec. 2252.033.  EXEMPTIONS. This subchapter does not apply
  to:
               (1)  a public works contract executed before August 31,
  1981;
               (2)  a public works contract in which the total
  contract price estimate at the time of execution of the contract is
  less than $400,000; or
               (3)  a public works contract made by the Texas
  Department of Transportation under [Subchapter A,] Chapter 223,
  Transportation Code.
         SECTION 5.  The changes in law made by this Act apply only to
  a contract to which Subchapter B, Chapter 2252, Government Code,
  applies that is entered into on or after the effective date of this
  Act. A contract to which Subchapter B, Chapter 2252, Government
  Code, applies that is entered into before the effective date of this
  Act is governed by the law in effect when the contract was entered
  into, and the former law is continued in effect for that purpose.
         SECTION 6.  This Act takes effect immediately if it receives
  a vote of two-thirds of all the members elected to each house, as
  provided by Section 39, Article III, Texas Constitution.  If this
  Act does not receive the vote necessary for immediate effect, this
  Act takes effect September 1, 2021.
 
 
  ______________________________ ______________________________
     President of the Senate Speaker of the House     
 
 
         I certify that H.B. No. 692 was passed by the House on May 11,
  2021, by the following vote:  Yeas 145, Nays 0, 1 present, not
  voting; and that the House concurred in Senate amendments to H.B.
  No. 692 on May 28, 2021, by the following vote:  Yeas 145, Nays 0, 2
  present, not voting.
 
  ______________________________
  Chief Clerk of the House   
 
         I certify that H.B. No. 692 was passed by the Senate, with
  amendments, on May 21, 2021, by the following vote:  Yeas 31, Nays
  0.
 
  ______________________________
  Secretary of the Senate   
  APPROVED: __________________
                  Date       
   
           __________________
                Governor