- 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.
