Texas Construction Contracts Overview
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Lien Rights Can't Be Waived by Contract
No-lien clauses are strictly prohibited in Texas as against public policy.
Pay-If-Paid is Enforceable
Pay if paid clauses can be valid and enforceable in Texas, provided that the clause sets forth unequivocal and express agreement that the clause create a "condition precedent" to payment.
Pay-When-Paid is Enforceable
Texas allows pay when paid clauses to be enforceable with respect to time and manner of payment, but not payment itself. Sheldon L. Pollack Corp. v. Falcon Industries, Inc..
Payment Timing Cannot Be Modified By Contract
Texas prompt pay requirements for private projects cannot be modified. Payments by owners must be made within 35 days of an invoice, and once received, payment must be made to subs and suppliers within 7 days.
Retainage Cannot Be Modified By Contract
Texas strictly regulates retainage, including both limiting (and setting) the amount that may be withheld, and specifying strict rules and requirements regarding providing notice and making a claim for retained funds.
Pay-If-Paid is Enforceable
Pay if paid clauses can be valid and enforceable in Texas, provided that the clause sets forth unequivocal and express agreement that the clause create a "condition precedent" to payment.
Pay-When-Paid is Enforceable
In Texas, pay when paid clauses work as timing mechanisms for payment, but does not control payment itself unless the clause is explicitly clear it intends to shift risk and create condition precedent for payment, and the contractual language will not possibly allow it to be otherwise interpreted.
Payment Timing Cannot Be Modified By Contract
Texas prompt pay requirements for public projects cannot be modified. Payments by the public entity must be made within 30 days of an invoice or receipt of goods (whichever is later), and once received, payment must be made to subs and suppliers within 10 days.
Retainage Cannot Be Modified By Contract
Texas strictly regulates retainage, including both limiting (and setting) the amount that may be withheld, and specifying strict rules and requirements regarding providing notice and making a claim for retained funds.
A construction contract outlines each party’s obligations, rights, and remedies on a project. But although the language in specific contract clauses is typically negotiable, Texas has certain rules that govern what the agreement must include — and what is prohibited.
Keep in mind that, while Texas’ rules for construction contract terms are written into state law, the courts determine how strictly those laws should be interpreted — and those interpretations can change.
On this page, you’ll find resources, legal information, and answers to frequently asked questions about Texas’ construction contract and payment terms requirements.
Texas construction contract provisions
While Texas generally allows construction parties to set the terms of their agreement, there are some laws that regulate specific types of contract provisions. Any contract clause that contradicts the law is invalid and unenforceable.
“No lien” clauses
Texas’ mechanics lien laws strictly prohibit no-lien clauses, i.e. the ability to waive the right to file a mechanics lien by contract as against public policy.
Contingent payment clauses
There are two types of contingent payment clauses: pay-if-paid and pay-when-paid; both of which are enforceable under Texas law.
Pay-if-paid clauses will only be enforceable if clearly, expressly, and unequivocally shifts the risk of nonpayment. Even if the clause meets these requirements, there are certain types of contracts and circumstances in which an otherwise valid pay-if-paid clause will be unenforceable. Pay-if-paid clauses are unenforceable in contracts solely for design services, civil engineering projects, and residential projects of 4 units or fewer. Additionally, Texas courts will not enforce such clauses if contractual obligations aren’t met, notice objecting the enforceability is provided, or as a defense to invalidate a lien, to name a few.
Lastly, pay-when-paid clauses are also enforceable, but will only affect the timing of payment. The obligation to pay still remains, regardless if the owner fails to pay.
Payment timing clauses
Texas’ prompt payment laws on both public and private projects are strictly enforced. The deadlines and timing of payments on any project covered under the Texas prompt pay laws cannot be modified by an agreement between the parties.
Retainage clauses
On private projects, Texas owners must withhold 10% as retainage. This cannot be altered or modified by contract. On Texas public works projects, retainage is capped at 10% for projects valued at less than $5M, and on projects valued at $5M or more, retainage is capped at no more than 5% of the contract price. These amounts cannot be increased by the contract between the parties.
Texas home improvement construction contract requirements
Texas contracts for the improvement of residential properties have a few required disclosures and notices that must be included. This includes a Residential Disclosure Statement outlining the homeowner’s rights in case of a dispute, a list of any subcontractors and suppliers the contractor intends to use on the project, and a disclosure concerning construction defects and the notice and opportunity to repair.
