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What is best practice for oil and gas projects in Texas?

We're aware that the statutes are different for oil and gas projects in the state of Texas. We've recently started experiencing payment problems specifically on projects like this. We want to make sure that we're following the proper procedures for promoting visibility and protecting ourselves in the long run. What notice process would be best practice to do that?

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Mar 12, 2019

That's a bit of a loaded question. Every business is different, and different processes might work for one company, while another company may take a different route. However, with construction equipment, utilizing a notice process that both promotes transparency and collaboration while also preserving lien rights can be an effective solution. Most parties who provide labor, material, or equipment to a construction project will have the right to later file a lien if they go unpaid for that work. That is, as long as the underlying property is permanently improved by the work being performed (more on that in a moment). But, in order to preserve the right to lien, certain notices must be sent. Specifically, Texas requires monthly notices that must be sent in order to preserve the right to later file a mechanics lien. Plus, each notice puts on display exactly what amounts are owed and unpaid at the time the notice is sent. You can learn more about the Texas monthly notice requirements here: Texas Lien & Notice FAQs. But, before some payment issue pops up, it's often a good idea to send a preliminary notice or a project awareness letter from the start of the job. By doing so, a company can be sure they're setting up a transparent project from the jump and encouraging collaboration on the job. When jobs are transparent and collaborative from the get-go, there tend to be less payment disputes. If push comes to shove, though, filing a mechanics lien may be a good tool to enforce payment. Of course, when the project involves oil and gas work, there are a few considerations to keep in mind. For one, Texas has legislation that's specifically designed for securing liens against oil and gas or pipeline projects. That doesn't necessarily mean that mechanics liens won't be an available remedy, though. If the property is permanently improved by the work that's performed, the right to file a mechanics lien will generally still be available. Of course, with oil and gas projects, determining whether the property is being "improved" and whether that improvement is "permanent" will be important - and that will depend on the work being performed on each, individual project. In Texas, pursuant to § 53-021 of the Texas Property Code, a person will have a lien if "(1) the person labors, specially fabricates material, or furnishes labor or materials for construction or repair in this state of: (A) a house, building, or improvement..." among other activities, including demolition. The Texas Property Code defines an "improvement" to include "(A) abutting sidewalks and streets and utilities in or on those sidewalks and streets; (B) clearing, grubbing, draining, or fencing of land; (C) wells, cisterns, tanks, reservoirs, or artificial lakes or pools made for supplying or storing water; (D) pumps, siphons, and windmills or other machinery or apparatuses used for raising water for stock, domestic use, or irrigation; and (E) planting orchard trees, grubbing out orchards and replacing trees, and pruning of orchard trees." So, if the project clearly fits into one of these categories, lien rights will likely exist (so long as they're properly preserved). Of course, regardless of whether lien rights are or are not available, sending a mere warning or threat of a lien filing will often go a long way to compel payment. Mechanics liens are a powerful tool, and owners, GCs, and customers want to avoid mechanics lien filings if at all possible. So, they might not be willing to call a claimant's bluff, and a document like a Notice of Intent to Lien could lien to payment even in a situation where a claimant does not intend to file a lien. Finally, it's worth mentioning that even where lien rights might not be available, there are always other options for recovery.

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