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.