Texas Prompt Payment Act

The Texas Prompt Payment Act is two parallel statutes mandating timely payment on construction projects: Tex. Prop. Code Ch. 28 for private projects and Tex. Gov't Code Ch. 2251 for public projects. On private projects, the owner must pay the prime contractor within 35 days of receiving a proper payment request; the prime contractor must pay subcontractors within 7 days of receiving payment from the owner; and the same 7-day downstream rule applies at each lower tier. On private projects, late payments accrue interest at 1.5% per month, and the court may award costs and reasonable attorney's fees as it determines equitable and just.

Private project payment timing

Under § 28.002, the owner must pay the prime contractor within 35 days of receiving a written payment request for properly performed work or suitably stored or specially fabricated materials. The prime contractor then has 7 days from receipt of owner payment to pay subcontractors, materialmen, and suppliers their proportionate share. Each lower tier in the contract chain has 7 days from receipt of upper-tier payment to pay its own downstream parties. The chain operates as a series of cascading 7-day deadlines triggered by actual receipt, not by the original invoice date.

Public project payment timing

Under Tex. Gov't Code § 2251.021, a payment by a governmental entity is overdue on the 31st day after the later of receipt of the goods, completion of the services, or receipt of the invoice, or on the 46th day for a political subdivision whose governing body meets only once a month or less often. A vendor must pay its subcontractors their share within 10 days of receiving payment from the governmental entity (§ 2251.022).

Interest, attorney's fees, and right to suspend

On private projects, an unpaid amount accrues interest at 1.5% per month (Property Code § 28.004), and the court may award costs and reasonable attorney's fees as it determines equitable and just (§ 28.005). On public contracts, interest accrues at the rate in effect on September 1 of the fiscal year in which the payment becomes overdue, which equals one percent plus a published prime rate (Government Code § 2251.025), and the prevailing party in a formal action to collect is entitled to reasonable attorney fees (§ 2251.043). On private projects other than a detached single-family residence, duplex, triplex, or fourplex, if the owner fails to pay the contractor an undisputed amount on time, the contractor or a subcontractor may suspend performance on the 10th day after giving written notice to the owner (and, in some cases, the owner's lender) (§ 28.009). Vendors and subcontractors on public contracts have a similar 10-day-notice suspension right (§§ 2251.051-2251.052).

Good-faith dispute exception

An owner or upper-tier contractor may withhold payment for a "good-faith dispute", which under § 28.003 includes a dispute over whether the work was performed in a proper manner. The party disputing payment may withhold up to 110% of the disputed difference on a detached single-family residence, duplex, triplex, or fourplex, and up to 100% on other projects. On public contracts, the entity must give notice of a disputed invoice within 21 days and may withhold up to 110% of the disputed amount (Gov't Code § 2251.042). The "good faith" requirement is fact-intensive; pretextual withholding to obtain commercial leverage does not qualify and exposes the withholding party to interest, attorney's fees, and the right to suspend performance.

Anti-waiver

Section 28.006 makes an attempted waiver of the private-project act void. The single exception allows a written owner-contractor contract for a single-family residence to set the owner's payment date at any time before the 61st day after the owner receives the payment request, with 1.5%/month interest on amounts unpaid after that date. The non-waiver rule means standard subcontract pay-when-paid clauses cannot extend the 7-day downstream payment requirement once funds are received.

Full entry: Texas Prompt Payment Act