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Following the lead of numerous states across the country, Texas is upping its commitment to major public infrastructure projects: A May 2022 release from the City of Austin laid out plans for $400 million in construction at the Austin-Bergstrom International Airport, while another announcement that month by the Texas Water Development Board laid out over $28 million in funding for infrastructure construction across the state. And with tentative buzz surrounding a proposed new interstate between Texas and northern New Mexico, there could be some serious construction projects underway in the state in the next year.
A huge focus point of the Biden administration’s Build Back Better plan, the federal government will be doling out over a trillion dollars in funding for public infrastructure construction projects over the course of the next decade — and a lot of that funding is going to go directly to individual states. With this much focus on infrastructure, contractors nationwide should be ready to take advantage of the opportunity to work on big government projects, which makes keeping on top of individual states’ requirements for payment protection an absolute necessity.
Even though public works construction often serves as a source of major benefit for contractors, these projects definitely aren’t exempt from the payment challenges that contractors often see on private projects. Contractors deal with payment issues on these projects just as much as they deal with them on private ones, and protecting your payment rights is just as imperative as on any private project.
Payment protection on Texas public projects
Even when the work done is similar, payment protection is very different between private and public work. The main difference? Contractors on public projects aren’t allowed to file mechanics liens when payment problems arise. The federal government (and most states) explicitly prohibits private entities from claiming an interest in public property. Instead, public construction projects need to secure a payment bond prior to the start of work. If payment problems come up, contractors file claims against this payment bond, not the property itself.
The Miller Act provides directly for this payment protection at the federal level, and most states have their own version of it — laws often referred to as “Little Miller Acts.” Texas indeed has its own Little Miller Act, which specifies that prime contractors need to secure payment bonds for any public works contract over $25,000 (for government entities other than municipalities or joint boards) or $50,000 (for specifically municipalities or joint boards). Additionally, performance bonds need to be secured if the contract is in excess of $100,000.
Like with many other states, the protections offered under the state’s Little Miller Act are fairly far-reaching. Contractors that provide labor and/or materials to a project’s general contractor, subcontractor, or sub-subcontractor are able to make a claim against the payment bond.
Working in nearby Louisiana? Check out How to Get Paid on Louisiana Public Projects.
Texas prompt payment laws
Same as many states do, public works projects in Texas have specific requirements for when contractors need to be paid — and penalties that follow if the requirements aren’t followed. For most public projects, the governmental entity in charge of the project must pay its prime contractors within 30 days of whichever comes last: Either the delivery of materials, the completion of the performance, or the date the invoice or pay application is received.
In a notable exception, if the contracting agency is a political subdivision that holds regular meetings only once a month or less, then the payments are due 45 days after the last meeting.
In turn, payments from the prime contractor to subcontractors have to be made no later than 10 days after receipt of payment from the government entity, and this same timeframe applies to payments from subs to their subs or suppliers. For all payments further down the contracting chain, the deadline is similarly 10 days from receipt of payment.
Texas monthly notices
Unlike some non-notice states, preliminary notices are required on state construction projects in Texas — but there’s a bit of a catch. Subcontractors and suppliers on state projects are required to send monthly notices in order to retain bond claim rights, to be sent to the project’s general contractor and/or surety.
There are slightly different requirements depending on the type of contractor. First-tier subcontractors and suppliers need to send notice by the 15th day of the 3rd month following each month work was performed and unpaid. Subcontractors or suppliers who contracted with someone other than the project’s prime contractor have to send a notice by both the 15th day of the 2nd month and the 15th day of the 3rd month following each month in which work was performed and unpaid.
Texas monthly notices should include:
- Project description/address
- Claimant’s name, contact person’s name, and address
- Description of labor/materials provided
- Original contractor’s name
- Hiring party’s name (if different from the original contractor)
- Claim amount
Texas bond claim law
As they’re tied to the process of submitting monthly notices, it shouldn’t be too surprising that bond claims in Texas aren’t made as one single claim the way they are in other states. Instead, Texas bond claims are made on a recurring, monthly basis.
Any parties furnishing labor and/or materials to the general contractor, subcontractor, or sub-subcontractor on a project are able to make a bond claim. The claim needs to be mailed no later than the 15th day of the 3rd month after each month in which the claimant furnished labor and/or materials for which there is an unpaid balance. Notice of claim must be given prior to the 15th of the month if the 15th falls on a Saturday, Sunday, or legal holiday.
Don’t Surprise the Surety – Streamline Getting Paid On Bond Claims
The requirements of a bond claim shift depending on whether or not there was a written contract. If there was a written contract, the claim requires a sworn statement of account, which states that the amount claimed is just and correct and that all applicable credits known to the claimant have been allowed.
Additionally, this needs to include any retainage that has not become due under the terms of the claimant’s contract. A copy of the written agreement or contract and a statement of the completion or the value of partial completion of the agreement may be attached.
If there wasn’t a written contract between the parties, the claim must include the name of the party for whom the labor and/or materials were furnished, the date of furnishing, a description of labor and/or materials furnished, the amount due, and itemization of the claim including invoices or other documents.
An action to enforce a claim on the contractor’s bond must be initiated more than 60 days after giving notice of the claim, but less than 1 year after giving the notice of the claim or the completion of the project, whichever is earlier.
Texas pay-if-paid clauses
Though many states have prohibited the use of these types of clauses, pay-if-paid clauses — which state that contractors will only have to pay their subcontractors if they receive payment from the project owner — are generally enforceable in Texas as long as the language in the clause is explicit and clear. However, if there’s an issue with the language used, these clauses can fall through in court.
Vagueness within the clause itself can actually result in a pay-if-paid provision being viewed instead as a pay-when-paid clause; rather than serving as a defense for nonpayment, pay-when-paid clauses establish that a subcontractor will be paid within a particular time frame, keeping payment theoretically intact for the subcontractor.
There are a handful of situations in which pay-if-paid clauses will end up as unenforceable beyond this, too. If the general contractor’s nonperformance is to blame for the nonpayment, the subcontractor challenges the clause, or the contract in question improperly represents the work done on the project, these clauses can be defeated outright.
Protect your payment rights on every public project
Though there are a number of guidelines that absolutely need to be followed in order to secure payment rights on public projects, going the extra mile can ensure that you’re completely protected from nonpayment on public projects.
Monthly notices are explicitly required to retain bond claim rights in Texas, but the reasons for sending preliminary notices on these projects go beyond legal responsibility. Sending a notice is a great way for contractors to increase visibility and communication on projects and encourage faster payment. Rather than going through the difficulty of filing a lawsuit to enforce a claim, sending a preliminary notice has a good chance of nudging contractors into payment.
When dealing with the necessary documentation for any project, proper document retention and management creates a beneficial situation for contractors as well. Especially when sending notices and maintaining the proper documents needed for claims, it can be incredibly beneficial for you to have an organized policy for document retention.
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