HBA-DMD H.B. 1522 76(R) BILL ANALYSIS Office of House Bill AnalysisH.B. 1522 By: Siebert Business & Industry 3/3/1999 Introduced BACKGROUND AND PURPOSE Contractors, subcontractors, and suppliers of construction companies often complain that they have not been paid for work already performed. Typically, the reason for nonpayment is not defective or incomplete work. Rather, it is due to the general contractor not receiving payment from the owner. After receiving the initial payment from the owner, the general contractor pays the contractors, subcontractors, and suppliers. However, in the event that payment is not received, the subcontractors, who may be responsible for more than 80 percent of the work, are still required to pay for labor and materials even if payment has not been received from the general contractor, which can force the subcontractor to borrow from a lender in order to pay workers and suppliers. H.B. 1522 seeks to increase the cash flow on construction projects by requiring monthly billings and authorizes contractors or subcontractors to withhold work performance if they have not yet been paid 10 days after notifying the owner or contractor of such. The bill requires the owner to pay the contractors or subcontractors the amount requested within five days after receiving loan proceeds if the loan was not received within 30 days after the contractor's request for payment. The bill also authorizes contractors or subcontractors to begin legal proceedings to recover the payment 10 days after giving written notice concerning the intent to seek legal action. The bill requires a vendor or subcontractor to submit to a governmental entity monthly invoices for goods and services that were provided. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that this bill does not expressly delegate any additional rulemaking authority to a state officer, department, agency, or institution. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 28.002, Property Code, as follows: Sec. 28.002. PROMPT PAY REQUIRED. (a) Requires a contractor to submit invoices to the owner at least monthly for goods or services that were provided for the owner including those goods and services that were provided to the contractor by a subcontractor. Requires a subcontractor to submit invoices to the contractor at least monthly for goods or services provided to the subcontractor by another subcontractor. Redesignates existing Subsections (a)-(c) to Subsections (b)-(d), respectively. (b) Requires an owner to pay for the amount allowed under the contract for specially fabricated materials minus any amount that is authorized by statute to be withheld, rather than statutory offsets, no later than 30, rather than 45, days after the owner or person authorized to act on behalf of the owner receives the request. (c) Requires a contractor to pay a subcontractor a portion of the owner's payment that is attributable for work that is properly performed or specially fabricated as provided under the contract, rather than if payment for stored materials is provided for in the contract. Makes conforming changes. (d) Makes conforming changes. SECTION 2. Amends Section 28.003, Property Code, to decrease the amount that an owner, contractor, or subcontractor (obligor) is authorized to withhold in a discrepancy between what an obligor claims is due and what an obligee claims is due, from 110 to 100 percent of the disputed difference. Makes a nonsubstantive change. SECTION 3. Amends Section 28.006(b), Property Code, to make conforming changes. SECTION 4. Amends Section 28.008, Property Code, to require the date of payment required of the owner under Section 28.002(b), rather than 28.002(a), to be changed from 30, rather than 45, days after receiving the payment request to the fifth, rather than 5th, day after the owner receives loan proceeds in the event that the lender is legally obligated to disburse such proceeds to the owner, but has failed to do so within 30, rather than 45, days after the owner has received the contractor's payment request. SECTION 5. Amends Chapter 28, Property Code, by adding Sections 28.009 and 28.010, as follows: Sec. 28.009. RIGHT TO SUSPEND WORK. (a) Authorizes a contractor or any subcontractor, if an owner fails to pay the contractor the undisputed amount within the time limits provided by this chapter, to suspend the contractually required performance 10 days after the contractor or subcontractor gives the owner written notice informing the owner that payment has not been received and stating the intent of the contractor or subcontractor to suspend performance for nonpayment. (b) Sets forth that a contractor or any subcontractor who suspends performance is not 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 is not responsible for damages resulting from the work stoppage if the contractor or subcontractor has not been notified in writing before the work stoppage that payment has been made or that a good faith dispute for payment exists. (c) Provides that a notification that a good faith dispute for payment exists provided under Subsection (b) must include a list of specific reasons for nonpayment. Entitles the subcontractor, if a specified reason for nonpayment includes labor, services, or materials that were provided by a subcontractor that are not provided in compliance with the contract, to a reasonable opportunity to cure the listed items or offer a reasonable amount to compensate for listed items that cannot be promptly cured. (d) Establishes that the rights and remedies provided by this section are in addition to rights and remedies provided by this chapter or other law. Sec. 28.010. DIRECT CAUSE OF ACTION AGAINST OWNER. (a) Entitles the contractor or subcontractor to a direct cause of action against the owner, if an owner fails to pay the contractor the disputed amount within the time limits provided by this chapter, 10 days after the contractor or subcontractor gives the owner written notice stating the intent of the contractor or subcontractor to exercise its rights under this section. (b) Authorizes a contractor or subcontractor to bring a direct cause of action against the owner under this section to recover payment for labor, services, or materials provided under the contract, and all reasonable damages, including the reasonable cost of demobilization and remobilization. (c) Authorizes an owner to offset the payment, in a direct action brought under this section, that is required for damages for labor, services, and materials provided by the contractor that do not comply with the contract requirements. (d) Establishes that an agreement by a contractor to indemnify or defend the owner is unenforceable only to the extent that it applies to a direct cause of action by a subcontractor under this section. Establishes that an agreement by a subcontractor to indemnify or defend the owner, contractor, or another subcontractor is unenforceable only to the extent that it applies to a direct cause of action by a subcontractor under this section. (e) Establishes that the rights and remedies provided by this section are in addition to rights and remedies provided by this chapter or other law. SECTION 6. Amends Subchapter A, Chapter 2251, Government Code, by adding Sections 2251.004 and 2251.005, as follows: Sec. 2251.004. WAIVER PROHIBITED. Prohibits the provisions of this chapter from being waived by contract or otherwise. Sec. 2251.005. TIME FOR SUBMITTING INVOICES UNDER CERTAIN CONTRACTS. (a) Sets forth that this section applies only to the submission of invoices under a contract with a governmental entity to improve real property or to perform construction or maintenance services. (b) Requires a vendor to submit invoices to the governmental entity periodically, but no less than monthly, for all goods and services provided by or through the vendor for the governmental entity, including those goods and services provided to the vendor by a subcontractor. (c) Requires a subcontractor to submit invoices to the vendor periodically, but no less often monthly, for all goods and services provided by or through the subcontractor for the vendor, including those goods and services provided to the subcontractor by another subcontractor. SECTION 7.Effective date: September 1, 1999. Makes application of this Act prospective. SECTION 8.Emergency clause.