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What Is the Texas Prompt Payment Act?

Late payments have plagued the construction industry for several years. This has become a toxic “norm” in construction, which is why nearly every state has prompt payment laws to help minimize those instances. Texas is one of those states.

The Texas Prompt Payment Act is a set of laws that regulate and enforce payment deadlines on public and private construction projects. As such, the Act applies to property owners, general contractors, subcontractors, suppliers, material fabricators, designers, and anyone who otherwise earns money in Texas’ construction industry.

What happens if a payment isn’t received on time? For private projects, a 1.5% interest rate per month is added to the amount owed, totaling 18% interest per year. Under the Texas Prompt Payment Act, payment deadlines for private projects include the following:

  • The property owner must pay the prime contractor within 35 days of receiving an invoice
  • The prime contractor must pay their subcontractors and suppliers after receiving payment from the owner
  • The subcontractors pay their second-tier contractors within 7 days after getting paid from the prime contractor

Deadlines for public projects are a little bit different, requiring the government to pay the prime contractor within 30 days of:

  • Receiving the contracted goods
  • The completion of the project
  • Receiving the invoice

Note that a payment is considered late on the 31st day. Once the prime contractor is paid by the government on a public project, they must pay their subcontractors or suppliers within 10 days. For late payments on public projects, a 1% interest rate per month is added to the prime rate published in the Wall Street Journal on July 1st of the preceding fiscal year that does not fall on a Saturday or Sunday.

However, if there’s a bona fide dispute about the contracted work, the government entity may get away with not paying the contractor under limited circumstances. But if the government improperly withholds payment on a public project in Texas, the contractor may suspend their work until they are paid.

With this in mind, you may wonder how contractors and suppliers can get paid for their work. The answer? Filing a mechanics lien to secure payment.

How Long Do You Have to File a Mechanic’s Lien in Texas?

A mechanics lien is a legal claim filed against the title of a property that allows unpaid construction workers such as prime contractors, subs, and suppliers to get a security interest in a property until they get paid. A mechanic’s lien ensures construction workers are paid on time for projects and applies to both real and personal property.

While mechanic’s liens do not guarantee payment, they certainly incentivize property owners to pay construction workers on time. One reason is that property cannot be sold until all mechanic’s liens are handled.

So, when should you use a mechanic’s lien for a construction project? See below:

  • You give a preliminary notice, and the party is slow to pay
  • You give a notice of intent to lien and the party still doesn’t pay
  • You demand payment by using a mechanic lien

If a preliminary notice is issued by the appropriate deadline and the party doesn’t pay, prime contractors, subcontractors, suppliers, and others involved in a construction project must file a mechanic’s lien according to very specific statutorydeadlines.

Unfortunately, a mechanic’s lien doesn’t always convince the other party to pay up. If that is the case, the claimant can initiate enforcement or a lien foreclosure action, which is a lawsuit. The deadlines for enforcing a mechanic’s lien in Texas include:

  • Residential projects: Enforcement must be initiated either 1 year after the last date that the claimant could file the lien or 1 year after the project was done or abandoned, whichever comes later.
  • Non-residential projects: The claimant must enforce the lien either 2 years after the last date they could file the lien or 1 year after the project was done or abandoned, whichever comes later.

As you can see, legal options are available for construction workers to demand payment. These actions are enforceable under the law. Thus, if you are working to secure an overdue payment on a public or private project in Texas, or learned that a mechanic’s lien was filed against your property, our lawyer at Cramer Law Group can be your trusted choice of representation.

To discuss your situation and learn about your next steps, contact our firm at (972) 833-8330! We proudly serve all of Texas.