PROMPT PAYMENT TO CONTRACTORS AND SUBCONTRACTORS

Construction workers.jpgIf you hire a contractor to do improvements to real property or you are a subcontractor hired to work on real property, you should be aware that the contractor and the subcontractor is entitled to prompt payment for their services. Prompt payment to contractors is required by law in Chapter 28 of the Texas Property Code.

Chapter 28 provides that if an owner or a person authorized to act on behalf of the owner receives a written payment request from a contractor for an amount that is allowed to the contractor under the contract for properly performed work or suitably stored or specially fabricated materials, the owner must pay the amount to the contractor, less any amount withheld as authorized by law, not later than the 35th day after the date the owner receives the request for payment.

Additionally, a contractor who receives a payment from an owner in connection with a contract to improve real property must pay each of its subcontractors the portion of the owner’s payment, including interest, if any, that is attributable to work properly performed or materials suitably stored or specially fabricated as provided under the contract by that subcontractor, to the extent of that subcontractor’s interest in the owner’s payment. This payment required must be made not later than the seventh day after the date the contractor receives the owner’s payment.

Furthermore, a subcontractor who receives a payment from a contractor in connection with a contract to improve real property must pay each of its subcontractors the portion of the payment, including interest, if any, that is attributable to work properly performed or materials suitably stored or specially fabricated as provided under the contract by that subcontractor, to the extent of that subcontractor’s interest in the payment. This payment must be made not later than the seventh day after the date the subcontractor receives the contractor’s payment.

However, if a good faith dispute exists concerning the amount owed for a payment requested or required under a contract for construction of or improvements to a detached single-family residence, duplex, triplex, or quadruplex, the owner, contractor, or subcontractor that is disputing its obligation to pay or the amount of payment may withhold from the payment owed not more than 110 percent of the difference between the amount the obligee claims is due and the amount the obligor claims is due. A good faith dispute includes a dispute regarding whether the work was performed in a proper manner.

If a good faith dispute exists concerning the amount owed for a payment requested or required under a contract for construction of or improvements to real property, excluding a detached single-family residence, duplex, triplex, or quadruplex, the owner, contractor, or subcontractor that is disputing its obligation to pay or the amount of payment may withhold from the payment owed not more than 100 percent of the difference between the amount the obligee claims is due and the amount the obligor claims is due. A good faith dispute includes a dispute regarding whether the work was performed in a proper manner.

A notification that a good faith dispute for payment exists must include a list of specific reasons for nonpayment. If a reason specified includes labor, services, or materials provided by a subcontractor that are not provided in compliance with the contract, the subcontractor is entitled to a reasonable opportunity to cure the listed items or offer a reasonable amount to compensate for listed items that cannot be promptly cured.

An unpaid amount required under Chapter 28 begins to accrue interest on the day after the date on which the payment becomes due. The unpaid amount bears interest at the rate of 1-1/2 percent per month. Interest on an unpaid amount stops accruing on the earlier of the date of delivery; the date of mailing, if payment is mailed and delivery occurs within three days; or the date a judgment is entered in a legal action brought under Chapter 28. In any legal action brought under Chapter 28, the court may award costs and reasonable attorney’s fees as the court determines equitable and just.

If an owner fails to pay the contractor the undisputed amount within the time limits provided by Chapter 28, the contractor or any subcontractor may suspend contractually required performance the 10th day after the date the contractor or subcontractor gives the owner written notice informing the owner that payment has not been received and stating the intent of the contractor or subcontractor to suspend performance for nonpayment.

A contractor or subcontractor who suspends performance as is not required to supply further labor, services, or materials until the person is paid the amount due under Chapter 28, plus the costs for demobilization and remobilization and is responsible for any damages resulting from suspending work if the contractor or subcontractor has not been notified in writing before suspending performance that payment has been made or that a good faith dispute for payment exists.

At the Law Office of Stephen O’Rear, P.C. we help property owners, contractors and subcontractors with payment disputes.