Construction project with overlay of Texas and mechanics lien

Mechanics lien protection is something that anyone working in the construction industry has heard something about, but where does that power come from? In every state, mechanics lien laws give contractors and suppliers the right to file a lien on the property if they aren’t paid. But these laws aren’t static — the rules and requirements change frequently. As a credit manager for a large material supplier that does business in Texas, I pay close attention to proposed legislation. When a bill was introduced that would change the lien rules and impact my business, I was ready to fight.

Why monitor lien law changes?

As in any state, the Texas mechanics lien rules and requirements can change via bills introduced in the state legislature. If you haven’t watched what bills get introduced and presented each term, I would strongly suggest changing that. 

Being a member of a group of suppliers called the Texas Statewide Construction Credit Group has been enormously helpful. In addition to providing customer insights and credit tools, the group has taught me how to watch legislative issues — and how to lobby and fight for (or against) potential bills. (Full disclosure: I was president of the group in 2017-18.)

The Texas lien bills — and why we fought them

In 2017, the Homebuilders and General Contractors Associations introduced 2 bills to the legislation that would dramatically rewrite Texas Mechanics Lien Law. HB3065 and Senate Bill 1506 were introduced to change the way contractors and suppliers protect our lien rights. These bills would drastically take away the protection we currently have to ensure we receive payment. 

Two of the main issues for us in these bills were changes to the retainage and notice requirements.

1: Retainage

The changes would remove the requirement for the owner of a contract to withhold 10% of the total contract price. 

Under existing Texas retainage rules, claimants and contractors count on the owner to withhold funds and not pay them out until the job is complete and all requirements are taken care of. However, if the owner of the job fails to withhold 10% of the construction contract retainage amount, then claimants are able to perfect their liens on the owner and the owner’s property to the extent of the statutory retainage amount.

Without this statute, claimants would be at more risk of not getting paid as the owner essentially could do whatever they wanted with the money.

2: Making Texas a Preliminary Notice State

Currently, unpaid contractors and suppliers are required to send Texas monthly notices after a payment is past due. The proposed change would require businesses to send notices on all customers, all jobs, within ten days of first labor and/or material delivered. 

These changes would take away extra protections that we have to obtain payment from those that may otherwise not pay. They take away any “hammer” that we have when noticing people, as well as require hundreds more notices to be sent out. 

The notice change alone could force construction businesses to spend more money on salaries and benefits by having to add one or more new positions to their credit departments for specific people to only send out preliminary notices. For example, I currently send out 20-40 monthly notices a month (Texas law only requires us to send notices on past due jobs). With the change, I would have to send over 300 notices each month to protect my rights. 

Presenting our case to the Texas Legislature 

In January 2017, forty-five members of our Texas Statewide Construction Credit Group headed to the state capital to testify at the legislative hearing to vote “against” this change. 

We arrived at the capital around 8am to register to testify. Due to the amount of people that showed up to testify (both for and against), the committee moved our committee hearing to the end of the day. At about 5:30pm, the committee started calling people to testify. 

They started with all those that would vote “for” the bill. There were only six people there to testify “for” the bill, of which two were with the General Contractors and Homebuilders Associations. After a short break, they started calling those who would vote “against” the bill. 

I was called to testify at 11:32pm. When I was called up, I stood before 7 legislators on an elevated platform. I addressed the committee members and thanked them for the opportunity to testify. Then I spoke with them about the issues and problems these bills would directly cause to my company. The committee asked a few questions in regards to how many notices I send out each month, volume of our sales and amount of liens we tend to file each month. After I finished testifying, I thanked the committee again and returned to my seat. 

There were two more members to be called to testify after me, one of them being Shelley Sampson, Corporate Credit Manager for Airtron Inc, a Direct Energy Company.

I asked Mrs. Sampson “Why did you feel it was so important to stay, all day, until your time was called?” She responded, “We need the committee to realize who would be affected by the changes and the problems they would unintentionally impose on all businesses, sub-contractors, and homeowners in Texas”. When asked “How do you think your testimony was received?” she stated, “The committee was engaged and concerned with my arguments.” 

After a month or so we finally heard that the bills were buried in the house. We WON! When a bill gets buried, it won’t make it to the Senate or become law. 

Keep watching the lien law

We believe we had a great effect in stopping these bills in their tracks. While we won this battle, we were certain the associations would reintroduce their bills with revisions and changes the next term, which they did in 2019. The bills were shut down again! 

Taking part in legislation and watching things that could potentially affect you or those around you, proves to be a valuable and important thing. We will continue watching and lobbying for all, and would love for you to join us.

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