Picture this: You’ve been hired as a contractor or subcontractor on a large renovation project, and after completion, you find yourself still waiting on the check. Even after checking in with the general contractor (GC) or property owner, you haven’t heard back on your pay. Does this situation sound familiar? Unfortunately, the answer for many construction professionals is going to be yes. Luckily for Texas contractors, there is actually a set of laws that are meant to protect you and allow you to collect payment on jobs you have completed in a reliable and timely fashion. For a subcontractor to collect and combat not receiving payment after the work has already been completed, you need to follow the steps in the Texas Prompt Payment Act to the letter.
Let’s look at the facts. The State of Texas Prompt Payment Act, found in Chapter 28 of the Texas Property Code, calls for prompt payment for work performed on private, residential, and commercial projects. The requisite for prompt payment on public works jobs can be found in Texas Government Code Section 2251. But what exactly does prompt payment mean, and how do you enforce the Prompt Payment Act in Texas? Here, we’ll list out the details you need to know about the Act and how it differs between private projects and public works projects.
Are You Owed for a Private Project?
So, you’re working on a private project and haven’t been paid. As a Texas contractor, there are a couple of precautions you can take to set yourself up for financial success and ensure you are paid properly and promptly. You can ensure your team is especially communicative and invest in an air-tight contract, but above all else, you must establish a timeline. Your timeline will make these laws enforceable, so be sure you clearly detail your schedule in your construction contract. Under the Texas Prompt Payment Act, once an owner receives a request for payment, the contractor has a right to be paid within thirty-five (35) days. This regulation is only valid if the work conforms to the contract and the amount requested is allowed under the contract. From there, the subcontractor is entitled to payment within seven (7) days of the general contractor’s receipt of payment. This means that, after the general contractor receives payment, the subcontractor retains the right to payment within that time frame. The contractor’s/subcontractor’s right to payment cannot be waived, so as long as a timeline is established early on these rights are not flexible.
Next, you need to send a demand letter stating that your payment is overdue. In this written letter, a contractor can provide a ten (10) day notice to suspend work for non-payment. After the ten (10) day notice, the contractor does not have to return to work until they are paid for the unpaid balance and the costs for demobilization and remobilization. Additionally, the contractor/subcontractor may be entitled to interest after the thirty-sixth (36) day. Learn below how to calculate demobilization, remobilization, and interest on a past-due payment.
Lastly, you will need to file a lien on the property if you still have not received payment after the owner or GC has received your demand letter. To learn more about the lien process in Texas, refer to this podcast episode or check out the lien laws in the Lone Star State.
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Are You Owed for a Public Works Project?
In many cases, rules vary between Private and Public projects. However, the Prompt Payment Act is an all-encompassing set of laws, making it easy for contractors and subcontractors to consistently implement the requirements on both kinds of projects. The same steps above apply to public projects, as well; The largest difference is in the timelines that need to be followed. Government entities must make prompt payments to contractors as well. On the timeline for a Public Works project, there are three essential dates to be conscious of (1) The date goods are received under the contract; (2) the date services called for under the contract are completed; or (3) the date the invoice is presented to the governmental entity. Payment must be made by the thirty-first (31st) day after the latest of these three dates. After that, a contractor must pay their subcontractors no later than the tenth (10th) day after the contractor’s receipt of payment.
Bringing in Backup!
Now that you know how to apply pressure and encourage your client to pay you in full and on time, it’s important to know what your backup plan looks like. Luckily for Texas contractors, the Prompt Payment Act accounts for follow-up, as well. Under the Texas Prompt Payment Act, you can include interest after the 36th day of past-due payment. You can also include costs for demobilization and remobilization in the fees that build up after the due date of your compensation. Here’s what you need to know:
- First, it’s important that you know what to cite if you get any pushback. Interest begins to build on any unpaid amounts required to be paid under the Prompt Payment Act Sections 28.001 et seq. of the Texas Property Code. , and interest begins to accumulate the day after the date on which the payment becomes due, at the rate of 1.5% each month.
- “Demobilization Costs” means all costs and expenses incurred for suspending or terminating the work due to not being paid on time, including travel expenses, penalties, fees, and other costs associated with terminating, suspending, or making change orders to contracts.
- “Remobilization” occurs when a construction business must undertake additional mobilization activities after its team has already mobilized.
While this article is meant to help you better understand some of the legislative tools you have to help defend against non-payment and to ensure you are properly paid, there are still statutes that contain some exceptions. Having a skilled Texas construction attorney on hand to help you navigate this is highly recommended. Connect with a construction lawyer on our team to ensure the entire process is followed correctly and the proper notices are sent to receive the prompt payment you deserve! Prioritize your pay and start taking advantage of the State of Texas Prompt Payment Act today!
This article is intended as a general educational overview of the subject matter and is not intended to be a comprehensive survey of recent jurisprudence, nor a substitute for legal advice for a specific legal matter. If you have a legal issue, please consult an attorney.