August 2024

• The Texas Prompt Payment Act governs payments and retainage between owners, contractors, and subcontractors.
• There are a lot of detailed rules expressly laid out in the Act that the parties have to follow.
• As a result, its essential to be familiar with what the Act dictates if you have a construction project.

In addition to being your favorite real estate lawyer, I am also a commercial real estate investor. In that realm, my business partners and I have bought some fixer upper multifamily buildings and … fixed them up. In doing so, we worked with a lot of contractors and subs. And in doing that, it became clear that not everyone knows that paying contractors is regulated in Texas. I guess that’s not too surprising. Not everyone is a lawyer. Thank goodness.

The Texas Prompt Payment Act (TPPA) is a vital piece of legislation designed to protect the interests of contractors and subcontractors involved in construction projects within the state. Its really a collection of parts of the Real Estate Code that regulate when and how much a contractor is paid. By establishing specific timelines for payment, the TPPA aims to prevent late payments and financial hardships that can often arise in the construction industry. So what does all that mean? Lets talk about it.

Key Provisions of the Texas Prompt Payment Act

The TPPA outlines several key provisions that govern payment obligations between contractors and subcontractors. These provisions include:

• Timely Payment of Progress Payments: Contractors are required to make progress payments to subcontractors within a specified timeframe after receiving payment from the owner. The exact timeframe varies depending on the type of project and the terms of the contract.
• Retention of Payments: The TPPA also sets the amount that the owner can withhold from the contractor and the contractor from the subcontractor. Retention is a portion of the contract price that is held back until the project is completed to ensure performance and protect against defects.
• Interest on Late Payments: If a contractor or owner fails to make timely payments, the TPPA allows for the accrual of interest on the overdue amount. This interest rate is typically higher than the prime rate, providing a financial incentive for prompt payment.
• Subcontractors’ Right to Lien: If a contractor fails to pay a subcontractor within the required timeframe, the subcontractor may have the right to file a lien against the property. A lien is a legal claim on the property that can be used to enforce payment.

If an owner or a contractor does not follow the steps set out in the TPPA, there can be pretty significant penalties. As a result, its important to know what those steps are.

Understanding the Importance of the TPPA

The TPPA is an important piece of legislation that is in place to try to avoid disputes between contractors and owners. It does so by: 

• Protecting the Financial Stability of Contractors and Subcontractors: By ensuring timely payments, the TPPA helps to prevent financial hardships that can lead to business failures and job losses.
• Promoting Fair Business Practices: The TPPA promotes fair business practices by discouraging late payments and encouraging prompt payment of invoices.
• Encouraging Economic Growth: The TPPA can contribute to economic growth by fostering a more stable and predictable construction industry.
• Preventing Disputes and Litigation: The TPPA can help to prevent disputes and litigation between contractors and subcontractors by providing clear guidelines for payment obligations.

Tips for Compliance with the Texas Prompt Payment Act

So now we know what it is and why it exists. But how do you comply with the Act? By hiring a terrific real estate lawyer, of course. But also, to ensure compliance with the TPPA, it is important for owners, contractors, and subcontractors to:

• Understand the Specific Requirements: Familiarize yourself with the specific provisions of the TPPA that apply to your project.
• Maintain Accurate Records: Keep detailed records of all payments, invoices, and contracts to document compliance.
• Communicate Effectively: Maintain open communication with all parties involved in the project to address any payment issues promptly.
• Seek Legal Advice: If you have questions or concerns about the TPPA, consult with an experienced construction attorney.

Conclusion

The Texas Prompt Payment Act is a valuable tool for protecting the interests of contractors and subcontractors in the Texas construction industry. By understanding the key provisions of the TPPA and taking steps to ensure compliance, you can help to prevent financial hardships and promote fair business practices. If you are involved in a construction project in Texas, it is essential to be familiar with the TPPA and its requirements.

• The Department of Labor announced that it is restating jobs numbers because of a massive overestimation.
• This shows that the overall economy is not doing as well as we thought it was.
• As a result, the Fed has signaled that it intends to lower interest rates in September.

The government made a pretty massive restatement of some important job numbers last week that kind of went a little under the radar. But it should not. Because what it says about our economy could have pretty big ramifications. 

Last week the Department of Labor stated that the U.S. job market has been overstated by 818,000 jobs in the last year. As a result, the economy is not nearly as strong as we assumed. So what does this mean? Will the Fed take it into account when they meet in September? Lets talk about it.

Labor Department Restates Jobs Numbers

Last Wednesday, the Labor Department said that the jobs numbers have been overstated by approximately 818,000 jobs in the year that ended in March 2024. That suggests employers added about 174,000 jobs per month during that period, down from the previously reported pace of about 242,000 jobs — a downward revision of about 28 percent. The original numbers were estimates taken from surveys. This revision, though, comes from hard data from state unemployment numbers. Those numbers are more accurate but slower to report. 

The revised job numbers paint a less rosy picture than previously believed. While the economy has undoubtedly shown resilience in recent months, the overestimation suggests that the labor market may be more fragile than initially thought. This could have implications for consumer spending, business investment, and overall economic growth.

A less robust job market could also impact inflation. When unemployment is low, there is often upward pressure on wages, which can contribute to inflation. With the revised numbers, the inflationary pressures might be slightly less intense than anticipated.

What Will this Mean for the Fed?

We are commercial real estate folks. So lets talk about what we care about the most. Will this affect the Federal Reserve’s decision in September on whether to lower rates? Theoretically, the Fed has been closely monitoring economic indicators to determine the appropriate course of action for interest rates. Obviously its stated goal is to manage inflation. The revised job data, therefore, could influence the central bank’s decision-making. If the Fed believes that the economy is slowing down more than previously estimated, and this affects inflation, it could look to lower rates.

In fact, the Federal Reserve has already started to signal a potential pause in its rate hikes. Indeed, while I was writing this blog entry, it came across that Chairman Powell said its time for a rate cut. That is good news. The revised  job numbers probably reinforced this stance, along with other economic factors, such as inflation and consumer spending,.

Interest Rate Trends

We have seen a general downward trajectory in recent months for interest rates. This trend is partly due to concerns about economic growth and the possibility of a recession. The revised job data further exacerbates these concerns to this downward pressure on rates.

Depending on how much the Fed lowers rates in September, it would be a significant shift in monetary policy. Obviously this move would be very welcome in the real estate world. That combined with the certainty and clarity an election brings could lead to positive outlook and more transactions in the commercial real estate world.

Conclusion

The Department of Labor’s revised job numbers have introduced a new layer of complexity into the economic landscape. While the overall picture remains positive, the recalculation highlights the importance of careful analysis and interpretation of economic data. The Fed has already indicated that it will be lowering rates in September. No doubt these numbers influenced that decision.

As the economy continues to evolve, it is essential to stay informed about the latest economic indicators and their potential implications. The revised job numbers serve as a reminder that the economic outlook can change rapidly, and it is crucial to adapt to these shifts.

• Austin Creative Alliance is a non-profit that supports the Austin arts community. It is currently housed in an historic building in East Austin.
• It presented a plan to City Council to purchase the historic building and help out the arts community.
• But for some unknown reason, a City Staff memo has torpedoed this plan.

Ok full disclosure right up front – I am on the board of Austin Creative Alliance. I am relatively new to it – I think almost a year now. But I joined it for a reason – I believe in its mission. Anyone reading this knows that housing and commercial real estate prices have skyrocketed in recent years. As a result, we are losing artists. For a city that prides itself on its artistic roots, that’s a disaster. So when John Riedie, ACA’s CEO asked me to join the board, I was very happy and honored to do so.

So why am I writing about this this week? Because we’ve had a hiccup that will hurt not only ACA but a lot of the Austin arts community. And I want to talk about it.

The Historic Building that Houses ACA

ACA’s office have been in an historic building on 81 San Marcos since approximately 2013. It is a great space that is a converted church. It not only houses ACA’s offices, it has a stage on which there are performances. And it also has studio spaces that local artists can use. And ACA leases out the stage and studio space at far below market rates to local artists. It is a great space that artists can use at discount rates. 

But, as with many other art spaces around town, the property taxes are extremely onerous and on the rise. The owner of the property, therefore, needs to do something soon about them. And that means either raise the rental rates on ACA – and thus have ACA raise its rates to artists. Or he needs to sell it. 

To that end, ACA came up with a very creative solution. Austin has a Preservation Acquisition Fund through which the City can acquire historic buildings that it wants to preserve. It has more than enough money in the fund to purchase this building and hotel occupancy taxes fund the Preservation Acquisition Fund. As a result, the money the Fund uses to purchase the building would be more than made up for in one year. And if the City buys the building and gives it to Rally Austin (formerly Austin Economic Development Corporation), then ACA could continue to lease the space. And could continue to provide excellent services to the Austin arts community.

City Staff Stops Plan

This plan seemed like a great idea and a way for the City to not only preserve an historic building, but also promote the arts. ACA had a lot of fruitful conversations with Councilmember Jose Velásquez, in whose district the building is, as well as many other councilmembers. ACA was confident that this no brainer plan was going to succeed.

That’s when the City Staff stepped in to pour cold water on the whole idea. For some reason that is not clear to me, the Staff sent a letter to Councilmember Velásquez explaining four reasons why the City could not go through with the plan to purchase the building. Those reasons, though, were inaccurate and faulty. Frankly, they just are not correct. 

I sent a response letter to Councilmember Velasquez (and other members) explaining how each point that the City Staff raised in its memo was wrong. A link to that letter is below. I encourage you to read it. 

I do not understand why the City Staff sent this memo to Council. But its very frustrating because this is a great opportunity for Austin to put its money where its mouth is and step up and actually support the arts. And yet, for some reason they do not want to move forward with it. This is a huge missed opportunity to help the arts community – and it appears Austin is going to let it pass by because of an inaccurate memo from the City Staff.