Texas Prompt Payment Guide & FAQs

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Texas-Prompt-Payment-FAQ

What is the Texas Prompt Payment Act?

Texas Prompt Payment Requirements


  • Private Jobs
  • Public Jobs
35
DAYS
Prime Contractors

On private construction projects, Texas property owners must make progress payments to prime contractors within 35 days of invoice.


7
DAYS
Subcontractors

Prime contractors on private projects in Texas must pay subcontractors within 7 days after receiving payment from the owner. The same 7-day deadline applies to parties down the chain.


7
DAYS
Suppliers

Suppliers on private construction projects in Texas are entitled to payment within 7 days after their hiring party receives payment.


1.5%
/ MONTH
Interest & Fees

On private projects, the Texas Prompt Payment Act assesses interest on late payments at 1.5% month. Attorney fees may be awarded by the court in a prompt payment claim.

31
DAYS
Prime Contractors

On public projects in Texas, the government agency must pay the prime contractor within 31 days of invoice or receipt of services, whichever is later.


10
DAYS
Subcontractors

Subcontractors on public construction projects in Texas are entitled to payment within 10 days of payment receipt by the hiring party.


10
DAYS
Suppliers

Suppliers on public construction projects in Texas must receive payment within 10 days after their hiring party receives payment.


1%
Interest & Fees

On public construction projects in Texas, interest for late payments is set at prime plus 1%. Attorney fees are also awarded to the prevailing party in a prompt payment claim.

The Texas Prompt Payment Act is actually a collection of laws that set a deadline for payment on construction projects. These laws ensure timely payments to contractors and suppliers to improve cash flow and working capital. Nearly all states have prompt payment laws that regulate the acceptable amount of time in which payments must be made to contractors and subs.

Projects Covered by the Texas Prompt Payment Act

The State of Texas has prompt payment laws that regulate payment on both private and public construction projects within the state.

Private Projects

Payments on private construction projects in Texas are governed by Property Code Chapter 28: Prompt Payment to Contractors and Subcontractors.

These statutes regulate the time limits and interest penalties on all private construction projects within the state.

Payment Deadlines for Private Projects

On private projects in Texas, the property owner must make payment to the prime contractor within 35 days of invoice receipt.

Once the prime contractor receives payment from the property owner, they must pay their subs and suppliers within 7 days.

This same 7-day turnaround period applies to all payments down the next tier.

Reasons for Withholding Payment

Retainage laws in Texas requires the property owner to retain 10% of the contract amount.

In addition to retainage, prompt payment laws provide specific reasons that a party is allowed to withhold payment. If there is a good faith dispute regarding whether the work was performed in a proper manner, payments may be withheld.

On Texas residential projects or four units or less, the maximum amount that can be withheld is 110% of the difference between what the party claims is owed  and what the paying party thinks is owed. For all other private projects, this is reduced to 100% of the difference.

Interest & Penalties on Private Projects

If payment of an undisputed amount is late or wrongfully withheld on a private project in Texas, interest will begin accruing on the overdue payment at an interest rate of 1.5% per month. In addition to that, if the dispute goes to court or arbitration, the court may award costs, a reasonable amount of attorney fees, and any interest due to the prevailing party.

Public Projects

Payments on public construction projects in Texas are governed by Government Code Chapter §2251: Payment for Goods and Services.

Payment Deadlines for Public Projects

Payment from the government entity to the prime contractor is due within 30 days of the later of:

  • the date the entity receives goods under the contract
  • the date performance is completed
  • when the invoice is received

If the payment request is disputed by the public entity, they must notify the contractor within 21 days of receipt.

Once the prime contractor receives payment, they are required to pay any subcontractor or supplier they hired within 10 days. The same 10-day deadline applies to payments from subcontractors down the payment chain.

Penalties for Late Payment on Public Projects

Texas allows retainage to be withheld on public construction projects, though the law does not specify a maximum amount.

In addition, if there is a bona fide dispute concerning the goods or services performed, there are specific reasons allowed for nonpayment. If payment is late or wrongfully withheld, interest will accrue the day after payments become due.

If payment of the undisputed amount is improperly withheld on a public project in Texas, the contractor may suspend performance until they are paid the amount including any demobilization and remobilization costs.

In addition, penalties will begin to incur if payment isn’t made within the specified timeframes. Interest will accrue on the unpaid amount at the prime rate published by the Wall Street Journal plus 1% per year. Interest will stop accruing once the payment is mailed/postmarked. Additionally, if the dispute goes to court or arbitration, the prevailing party will be awarded the interest due, and reasonable attorney’s fees.

Texas quick guide to prompt payment

Texas Prompt Payment FAQs

Frequently asked questions about prompt payment laws in Texas, with answers written by construction attorneys and payment experts in Texas.

How do I qualify for prompt payment penalties in Texas?

In order for the provisions of the Texas prompt pay statutes to apply, the party requesting payment must be entitled to payment pursuant to the terms of the contract, and must submit a pay request. In order for attorneys’ fees to be awarded, a claimant must be successful in a prompt payment claim.

How long does a contractor have to pay a subcontractor in Texas?

The payment deadline in Texas depends on the type of project, since the prompt payment rules for private and public construction projects differ. On a residential or commercial project, the General Contractor has 7 days to pay their subcontractors and suppliers after they receive payment from the property owner.

On a state or municipal project, the General Contractor has 10 days to pay their subs after receiving payment from the public agency in charge.

Read the guide to Texas prompt payment deadlines and penalties

Does the Prompt Payment Act apply to subcontractors?

Yes. Everyone on a construction project is subject to the deadline requirements in Texas’ Prompt Payment Act. On a private construction project in Texas, a subcontractor has 7 days to pay their subs and suppliers after receiving payment from their hiring party. On a public construction project, subcontractors have 10 days to pay.

Read the guide to Texas prompt payment deadlines and penalties

What can I do if I'm not paid on time on a Texas construction project?

Contractors and suppliers who aren’t paid on time according to Texas prompt payment laws have several options.

  1. Stop work until you are paid
  2. Make a claim under the prompt payment laws
  3. File a Texas mechanics lien (on a private project)
  4. Make a bond claim (on a public project)

Can I include prompt payment penalties in a Texas mechanics lien or bond claim?

Texas doesn’t allow miscellaneous amounts, including prompt payment interest penalties, to be included in a mechanics lien or bond claim. In order to recover interest, you’ll need to make a prompt payment claim in court.

When does prompt payment interest begin to accrue in Texas?

Texas does not specifically define when interest begins to accrue on late payments or in what amount, other than requiring the payment to actually be late according to the prompt pay statutes before it may begin accruing interest.

Read more about the prompt payment penalties in Texas

How do I recover interest or other prompt payment penalties in Texas?

Recovering interest penalties for late payment in Texas typically requires filing a prompt payment claim.

However, sending a Prompt Payment Demand Letter or a Notice of Intent to Make a Prompt Payment Claim can be an effective way to spur payment on a construction project in Texas. The hiring party may choose to include the interest penalty in order to avoid the expense and time required for dispute resolution.

Learn how to demand faster payment using the Texas Prompt Payment Act

Are there reasons for which payment may be withheld past the general deadline?

Texas allows the withholding of retainage on both private and public projects.

On private construction projects, Texas prompt payment laws allow payments to be withheld for the following specific reasons:

  1. Reasonable evidence showing that the completion date set forth by contract will not be met due to unsatisfactory job progress;
  2. Third-party claims filed or reasonable evidence thereof with respect to contract work;
  3. Failure to make timely payments for labor, equipment, subcontractors, or materials.

On public construction projects in Texas, payments can be withheld pursuant to a bona-fide dispute over the amount due, the paying party is prohibited from making a timely payment of federal funds pursuant to a federal grant or regulation, or the invoice is not properly mailed to the person to whom it is addressed in accordance with instructions on the purchase order.

If payments are late or withheld wrongfully, unpaid parties can make a prompt payment claim to collect the unpaid amount plus interest.

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Texas Prompt Payment Statutes

Texas has two Prompt Payment Acts: One regulates payments on private construction projects (<a href=”https://statutes.capitol.texas.gov/Docs/PR/htm/PR.28.htm”>Tex. Prop. Code §§ 28.001 to 28.010</a>). The other governs payments on public construction jobs (<a href=”https://texreg.sos.state.tx.us/public/readtac$ext.TacPage?sl=R&app=9&p_dir=&p_rloc=&p_tloc=&p_ploc=&pg=1&p_tac=&ti=34&pt=1&ch=20&rl=488″>Tx. Govt. Code §§ 2251.001 -2251.043</a>). The text of each statute is reproduced below for your reference.

Prompt Payment Statute on Private Projects

§ 28.001: Definitions

(1)  “Contractor” means a person who contracts with an owner to improve real property or perform construction services for an owner.

(2)  “Improve” means to:

(A)  build, construct, effect, erect, alter, repair, or demolish any improvement on, connected with, or beneath the surface of real property;

(B)  excavate, clear, grade, fill, or landscape real property;

(C)  construct a driveway or roadway;

(D)  furnish any material, including trees or shrubbery, for the purpose of taking any action described by Paragraphs (A)–(C) of this subdivision; or

(E)  perform any labor on or in connection with an improvement.

(3)  “Improvement” includes all or any part of:

(A)  a building, structure, erection, alteration, demolition, or excavation on, connected with, or beneath the surface of real property; and

(B)  the act of clearing, grading, filling, or landscaping real property, including constructing a driveway or roadway or furnishing trees or shrubbery.

(4)  “Owner” means a person or entity, other than a governmental entity, with an interest in real property that is improved, for whom an improvement is made, and who ordered the improvement to be made.

(5)  “Real property” includes lands, leaseholds, tenements, hereditaments, and improvements placed on the real property.

                        (6)  “Subcontractor” means a person who contracts to furnish labor or material to, or has performed labor or supplied materials for, a contractor or another subcontractor in connection with a contract to improve real property 

§ 28.002: Prompt Payment Required

(a)  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 shall pay the amount to the contractor, less any amount withheld as authorized by statute, not later than the 35th day after the date the owner receives the request.

(b)  A contractor who receives a payment under Subsection (a) or otherwise from an owner in connection with a contract to improve real property shall 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. The payment required by this subsection must be made not later than the seventh day after the date the contractor receives the owner’s payment.

(c)  A subcontractor who receives a payment under Subsection (b) or otherwise from a contractor in connection with a contract to improve real property shall 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. The payment required by this subsection must be made not later than the seventh day after the date the subcontractor receives the contractor’s payment.

§ 28.003: Exception for Good Faith Dispute

(a)  If a good faith dispute exists concerning the amount owed for a payment requested or required by this chapter 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.

(b)  If a good faith dispute exists concerning the amount owed for a payment requested or required by this chapter 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.

§ 28.004: Interest on Overdue Payment

(a)  An unpaid amount required under this chapter begins to accrue interest on the day after the date on which the payment becomes due.

(b)  An unpaid amount bears interest at the rate of 1- 1/2 percent each month.

(c)  Interest on an unpaid amount stops accruing under this section on the earlier of:

(1)  the date of delivery;

(2)  the date of mailing, if payment is mailed and delivery occurs within three days; or

(3)  the date a judgment is entered in an action brought under this chapter.

§ 28.005: Action to Enforce Payment

(a)  A person may bring an action to enforce the person’s rights under this chapter.

(b)  In an action brought under this chapter, the court may award costs and reasonable attorney’s fees as the court determines equitable and just.

§ 28.006: No Waiver

(a)  Except as provided by Subsection (b), an attempted waiver of a provision of this chapter is void.

(b)  A written contract between an owner and a contractor for improvements to or construction of a single-family residence may provide that the payment required under Section 28.002(a) be made not later than a date that occurs before the 61st day after the date the owner receives the payment request. Notwithstanding Section 28.004(b), an unpaid amount under contract subject to this subsection that allows payment later than the date otherwise required under Section 28.002(a) bears interest at the rate of 1- 1/2 percent each month.

§ 28.008: Exception for Failure of Lenders to Disburse Funds

The date of payment required of the owner pursuant to Section 28.002(a) shall change from the 35th day after the date the owner receives the payment request to the fifth day after the date the owner receives loan proceeds, in the event that:

                        (1)  the owner has obtained a loan intended to pay for all or part of a contract to improve real property;

(2)  the owner has timely and properly requested disbursement of proceeds from that loan; and

(3)  the lender is legally obligated to disburse such proceeds to the owner, but has failed to do so within 35 days after the date the owner received the contractor’s payment request.

§ 28.009: Right to Suspend Work

(a)  If an owner fails to pay the contractor the undisputed amount within the time limits provided by this chapter, the contractor or any subcontractor may suspend contractually required performance the 10th day after the date the contractor or subcontractor gives the owner and the owner’s lender written notice:

(1)  informing the owner and lender that payment has not been received; and
(2)  stating the intent of the contractor or subcontractor to suspend performance for nonpayment.

(b)  For purposes of Subsection (a), the contractor or subcontractor must give the owner’s lender the written notice only if:

(1)  the owner has obtained a loan intended to pay for all or part of the construction project;
(2)  the lender has remitted funds, including acquisition funds, for construction purposes;
(3)  the loan obtained:
(A)  is evidenced by a promissory note secured by a deed of trust recorded in the real property records of the county in which the real property that is the subject of the contract is located; and
(B)  is not only for the acquisition of personal property or secured only by a security instrument;
(4)  the owner or lender, at the lender’s option:
(A)  securely posts not later than the 10th day after the date construction commences a sign on the project site in a prominent place accessible to each contractor, subcontractor, and supplier that states the lender’s name, address, and the person to whom any notice should be sent; and
(B)  maintains the sign during the pendency of the construction project;
(5)  not later than the 10th day after the date construction commences, the owner or lender, at the lender’s option, provides a written copy of the notice prescribed by Subdivision (4) to the contractor and any subcontractor or supplier identified by the contractor by depositing the notice properly addressed in the United States mail, first class, postage paid; and
(6)  not later than the 10th day after the date a subcontractor or supplier performs labor or furnishes materials or equipment for the construction project, the owner, contractor, or subcontractor provides a written copy of the notice prescribed by Subdivision (4) to the subcontractor or supplier.

(c)  A contractor or subcontractor who suspends performance as provided by this section is not:

(1)  required to supply further labor, services, or materials until the person is paid the amount provided by this chapter, plus costs for demobilization and remobilization; or
(2)  responsible for 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.

(d)  A notification that a good faith dispute for payment exists provided under Subsection (c) 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:

(1)  cure the listed items; or
(2)  offer a reasonable amount to compensate for listed items that cannot be promptly cured.

(e)  This section does not apply to:

(1)  a contract for the construction of or improvements to a detached single-family residence, duplex, triplex, or quadruplex; or
(2)  a contract to improve real property for a governmental entity.

(f)  The rights and remedies provided by this section are in addition to rights and remedies provided by this chapter or other law.

§ 28.010: Exemption for Mineral Development and Oilfield Services

(a)  This chapter does not apply to any agreement:

(1)  to explore, produce, or develop oil, natural gas, natural gas liquids, synthetic gas, sulphur, ore, or other mineral substances, including any lease or royalty agreement, joint interest agreement, production or production-related agreement, operating agreement, farmout agreement, area of mutual interest agreement, or other related agreement;
(2)  for any well or mine services; or
(3)  to purchase, sell, gather, store, or transport oil, natural gas, natural gas liquids, synthetic gas, or other hydrocarbon substances by pipeline or by a fixed, associated facility.

(b)  In this section:

(1)  “Agreement” includes a written or oral agreement or understanding:
(A)  to provide work or services, including any construction, operating, repair, or maintenance services; or
(B)  to perform a part of the services covered by Paragraph (A) or an act collateral to those services, including furnishing or renting equipment, incidental transportation, or other goods and services furnished in connection with those services.

(2)  “Well or mine services” includes:
(A)  drilling, deepening, reworking, repairing, improving, testing, treating, perforating, acidizing, logging, conditioning, purchasing, gathering, storing, or transporting oil or natural gas, brine water, fresh water, produced water, condensate, petroleum products, or other liquid commodities, or otherwise rendering services in connection with a well drilled to produce or dispose of oil, gas, or other minerals or water; and
(B)  designing, excavating, constructing, improving, or otherwise rendering services in connection with an oil, gas, or other mineral production platform or facility, mine shaft, drift, or other structure intended directly for use in exploring for or producing a mineral.

Prompt Payment Statute on Public Projects

§ 225.001: Definitions

Except as otherwise provided by this chapter, in this chapter:

(1)  “Distribution date” means:

(A)  if no payment law prohibits the comptroller from issuing a warrant, the date the comptroller makes the warrant available:
(i)  for mailing directly to its payee under Section 2155.382(c); or
(ii)  to the state agency that requested issuance of the warrant;

(B)  if no payment law prohibits the comptroller from initiating an electronic funds transfer, the date the comptroller initiates the transfer;

(C)  if a payment law prohibits the comptroller from issuing a warrant, the date the comptroller would have made the warrant available, in the absence of the payment law:
(i)  for mailing directly to its payee under Section 2155.382(c); or
(ii)  to the state agency that requested issuance of the warrant; or

(D)  if a payment law prohibits the comptroller from initiating an electronic funds transfer, the date the comptroller would have made the warrant prepared under Section 403.0552(b) available, in the absence of the payment law:

(i)  for mailing directly to its payee under Section 2155.382(c); or
(ii)  to the state agency that requested initiation of the transfer.

(2)  “Goods” includes supplies, materials, or equipment.

(3)  “Governmental entity” means a state agency or political subdivision of this state.

(4)  “Payment” means money owed to a vendor.

(5)  “Payment law” means:

(A)  Section 57.48 or 57.482, Education Code;

(B)  Section 231.007, Family Code;

(C)  Section 403.055 or 2107.008; or

(D)  any similar statute.

(6)  “Political subdivision” means:

(A)  a county;

(B)  a municipality;

(C)  a public school district; or

(D)  a special-purpose district or authority.

(7)  “Service” includes gas and water utility service.

(8)  “State agency” means:

(A)  a board, commission, department, office, or other agency in the executive branch of state government that is created by the constitution or a statute of this state, including a river authority and an institution of higher education as defined by Section 61.003, Education Code;

(B)  the legislature or a legislative agency; or

(C)  the Supreme Court of Texas, the Court of Criminal Appeals of Texas, a court of appeals, a state judicial agency, or the State Bar of Texas.

(9)  “Subcontractor” means a person who contracts with a vendor to work or contribute toward completing work for a governmental entity. The term does not include a state agency. The term includes an officer or employee of a state agency when the officer or employee contracts with a vendor in a private capacity.

(10)  “Vendor” means a person who supplies goods or a service to a governmental entity or another person directed by the entity. The term does not include a state agency, except for Texas Correctional Industries. The term includes an officer or employee of a state agency when acting in a private capacity to supply goods or a service.

§ 225.002: Exceptions

(a)  Except as provided by Subchapter D, Subchapter B does not apply to a payment made by a governmental entity, vendor, or subcontractor if:

(1)  there is a bona fide dispute between the political subdivision and a vendor, contractor, subcontractor, or supplier about the goods delivered or the service performed that causes the payment to be late;

(2)  there is a bona fide dispute between a vendor and a subcontractor or between a subcontractor and its supplier about the goods delivered or the service performed that causes the payment to be late;

(3)  the terms of a federal contract, grant, regulation, or statute prevent the governmental entity from making a timely payment with federal funds; or

(4)  the invoice is not mailed to the person to whom it is addressed in strict accordance with any instruction on the purchase order relating to the payment.

(b)  This chapter does not affect Chapter 2253.

(c)  [Repealed by Acts 2001, 77th Leg., ch. 1158, § 94(4), effective June 15, 2001.]

§ 225.003: Rules

The comptroller shall establish procedures and adopt rules to administer this chapter. Before adopting a rule under this section, the comptroller must conduct a public hearing regarding the proposed rule regardless of whether the requirements of Section 2001.029(b) are met.

§ 225.004: Waiver

A person may not waive any right or remedy granted by this chapter. A purported waiver of any right or remedy granted by this chapter is void.

§ 225.021: Time for Payment by Government Entity

(a)  Except as provided by Subsection (b), a payment by a governmental entity under a contract executed on or after September 1, 1987, is overdue on the 31st day after the later of:

(1)  the date the governmental entity receives the goods under the contract;

(2)  the date the performance of the service under the contract is completed; or

(3)  the date the governmental entity receives an invoice for the goods or service.

(b)  A payment under a contract executed on or after September 1, 1993, owed by a political subdivision whose governing body meets only once a month or less frequently is overdue on the 46th day after the later event described by Subsections (a)(1) through (3).

(c)  For a contract executed on or after July 1, 1986, and before September 1, 1987, a payment by a governmental entity under that contract is overdue on the 46th day after the later event described by Subsections (a)(1) through (3).

(d)  For purposes of this section, the renewal, amendment, or extension of a contract executed on or before September 1, 1993, is considered to be the execution of a new contract.

§ 225.022: Time for Payment by Vendor

(a)  A vendor who receives a payment from a governmental entity shall pay a subcontractor the appropriate share of the payment not later than the 10th day after the date the vendor receives the payment.

(b)  The appropriate share is overdue on the 11th day after the date the vendor receives the payment.

§ 225.023: Time for Payment by Subcontractor

(a)  A subcontractor who receives a payment from a vendor shall pay a person who supplies goods or a service for which the payment is made the appropriate share of the payment not later than the 10th day after the date the subcontractor receives the payment.

(b)  The appropriate share is overdue on the 11th day after the date the subcontractor receives the payment.

§ 225.024: Mailing of Payment

A payment is considered to be mailed on the date the payment is postmarked.

§ 225.025: Interest on Overdue Payment

(a)  A payment begins to accrue interest on the date the payment becomes overdue.

(b)  The rate of interest that accrues on an overdue payment is the rate in effect on September 1 of the fiscal year in which the payment becomes overdue. The rate in effect on September 1 is equal to the sum of:

(1)  one percent; and
(2)  the prime rate as published in the Wall Street Journal on the first day of July of the preceding fiscal year that does not fall on a Saturday or Sunday.

(c)  Interest on an overdue payment stops accruing on the date the governmental entity or vendor mails or electronically transmits the payment. In this subsection, “governmental entity” does not include a state agency.

(d)  This subsection applies only if the comptroller is not responsible for issuing a warrant or initiating an electronic funds transfer to pay the principal amount owed by a state agency to a vendor. The accrual of interest on an overdue payment to the vendor:

(1)  stops on the date the agency mails or electronically transmits the payment; and
(2)  is not suspended during any period that a payment law prohibits the agency from paying the vendor.

(e)  This subsection applies only if the comptroller is responsible for issuing a warrant or initiating an electronic funds transfer to pay the principal amount owed by a state agency to a vendor. Interest on an overdue payment to the vendor:

(1)  stops accruing on its distribution date; and
(2)  does not stop accruing during any period that a payment law prohibits the comptroller from issuing the warrant or initiating the transfer.

§ 225.026: Payment of Interest by State Agency

(a)  A state agency is liable for any interest that accrues on an overdue payment under this chapter and shall pay the interest from funds appropriated or otherwise available to the agency at the same time the principal is paid.

(b)  The comptroller shall issue a warrant or initiate an electronic funds transfer on behalf of a state agency to pay any interest that the agency must pay under Subsection (a) if the comptroller is responsible for issuing a warrant or initiating an electronic funds transfer to pay the principal amount on behalf of the agency.

(c)  The comptroller shall determine the amount of interest that accrues on an overdue payment by a state agency under this chapter if the comptroller is responsible for issuing a warrant or initiating an electronic funds transfer to pay the principal amount on behalf of the agency.

(d)  A state agency shall determine the amount of interest that accrues on an overdue payment by the agency under this chapter if the comptroller is not responsible for issuing a warrant or initiating an electronic funds transfer to pay the principal amount on behalf of the agency.

(e)  The comptroller or state agency shall submit the interest payment with the net amount due for the goods or services.

(f)  Neither the comptroller nor a state agency may require a vendor to request payment of the interest that accrues under this chapter before the interest is paid to the vendor.

(g)  The comptroller may require a state agency to submit any information the comptroller determines necessary to administer and comply with Subsections (b) and (c). The information must be submitted at the time and in the manner required by the comptroller.

(h)  The comptroller may require a state agency to change its accounting systems or procedure as the comptroller determines necessary to administer and comply with Subsections (b) and (c). Any changes must conform with the comptroller’s requirements.

(i)  The comptroller may establish procedures and adopt rules to administer Subsections (b), (c), (g), and (h).

(j)  No interest accrues or may be paid under this section on a payment if the total amount of interest that would otherwise have accrued is equal to or less than $ 5 and the payment is made from the institutional funds of an institution of higher education as defined by Section 61.003, Education Code.

§225.027: Payment of Interest by Political Subdivision

(a)  A political subdivision shall compute interest imposed on the political subdivision under this chapter.

(b)  The political subdivision shall pay the interest at the time payment is made on the principal.

(c)  The political subdivision shall submit the interest payment with the net amount due for the goods or service.

(d)  The political subdivision may not require a vendor to petition, bill, or wait an additional day to receive the interest due.

(e)  The political subdivision may not require a vendor or subcontractor to agree to waive the vendor’s or subcontractor’s right to interest under this chapter as a condition of the contract between the parties.

§ 225.028: Payment of Interest by Vendor or Subcontractor

A vendor or subcontractor shall pay interest as a payment is overdue.

§ 225.029:Partial Payment

(a)  The unpaid balance of a partial payment made within the period provided by this chapter accrues interest as provided by Section 2251.025 unless the balance is in dispute.

(b)  Section 2251.042 applies to a disputed balance.

§ 225.030:Prompt or Early Payment Discount

(a)  The intent of the legislature is that a governmental entity should take advantage of an offer for an early payment discount. A state agency shall when possible negotiate a prompt payment discount with a vendor.

(b)  A governmental entity may not take an early payment discount a vendor offers unless the governmental entity makes a full payment within the discount period.

(c)  If a governmental entity takes an early payment discount later, the unpaid balance accrues interest beginning on the date the discount offer expires.

(d)  A state agency, when paying for the goods or service purchased under an agreement that includes a prompt or early payment discount, shall submit the necessary payment documents or information to the comptroller sufficiently in advance of the prompt or early payment deadline to allow the comptroller or the agency to pay the vendor in time to obtain the discount.

§ 225.041: Claim for Interest Imposed Against State Agency

Repealed by Acts 1997, 75th Leg., ch. 634 (H.B. 1209), § 4(a), effective September 1, 1999.

§ 225.042: Disputed Payment

(a)  A governmental entity shall notify a vendor of an error in an invoice submitted for payment by the vendor not later than the 21st day after the date the entity receives the invoice.

(b)  If a dispute is resolved in favor of the vendor, the vendor is entitled to receive interest on the unpaid balance of the invoice submitted by the vendor beginning on the date under Section 2251.021 that the payment for the invoice is overdue.

(c)  If a dispute is resolved in favor of the governmental entity, the vendor shall submit a corrected invoice that must be paid in accordance with Section 2251.021. The unpaid balance accrues interest as provided by this chapter if the corrected invoice is not paid by the appropriate date.

§ 225.043: Attorney Fees

In a formal administrative or judicial action to collect an invoice payment or interest due under this chapter, the opposing party, which may be the governmental entity or the vendor, shall pay the reasonable attorney fees of the prevailing party.

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