The General Contractor Was Paid but Did Not Pay Me. Subcontractor Rights in Texas

Why does it matter that the general contractor was already paid?

Because it changes who owes you and what laws apply. When the owner has paid the general contractor for your work, the money you are owed has left the owner's hands and sits with the contractor. That triggers the seven-day payment rule in the Prompt Payment Act and the trust fund rules in Property Code chapter 162. But it also means the owner may have little left to withhold, so your lien notice is racing the next draw. The first thing to find out is how much the owner still owes the general contractor and when the next payment is scheduled.

Step one: put the owner on notice

Send the statutory notice of claim to the owner and the original contractor. The notice must be in substantially the form Property Code § 53.056 prints, identify the project, your company, the work, the party that hired you and the amount, and be sent by certified mail or a traceable delivery service by the 15th day of the third month after each month of unpaid work (the second month on a residential project). The notice does two things at once:

• It authorizes the owner to withhold the amount you claim from the next payment to the general contractor (§ 53.081). An owner who pays the contractor anyway after receiving your notice becomes liable to you for that payment if you secure your lien and reduce the claim to judgment (§ 53.084).
• It is the first step toward a lien on the property, completed by filing the lien affidavit by the 15th day of the fourth month after your last month of work (third month residential) and mailing copies within five days.

Separately from your notice, the owner was required to reserve ten percent of the contract price during the work and for 30 days after completion (§ 53.101). Those reserved funds are available to subcontractors who perfect their claims, even if the owner paid every draw. The complete calendar is in Texas mechanic's lien deadlines.

Example

Suppose a Garland framing subcontractor is owed $85,000 for work performed in May and June on a commercial project. The owner funded both draws in full. The subcontractor sends a combined notice of claim to the owner and the general contractor on August 10, before the August 15 deadline for the May work. The owner still owes the contractor two more draws totaling $300,000 and begins withholding $85,000 from them. The subcontractor records its lien affidavit before October 15, the fourth month after June. Whether or not the general contractor ever pays, the subcontractor now has a claim against the withheld funds and a lien on the property.

Step two: the Prompt Payment Act

On a private project, a contractor who receives a payment from the owner must pay each subcontractor its share, including any interest, not later than the seventh day after receiving the owner's payment, and each subcontractor must pay its own subcontractors within seven days of that (Tex. Prop. Code § 28.002). An unpaid amount accrues interest at 1.5 percent each month beginning the day after it was due (§ 28.004), and a court may award costs and reasonable attorney's fees in a suit to enforce the chapter (§ 28.005).

The contractor may withhold only in a good faith dispute about your work, and then only up to 100 percent of the disputed difference on commercial work or 110 percent on a house (§ 28.003). A contractor who says nothing about your work until you ask for payment has a hard time showing a good faith dispute. The Texas Prompt Payment Act covers the mechanics and the right to suspend work.

Step three: the Construction Trust Fund Act

Payments an owner makes to a contractor for improvements to real property are trust funds under Property Code chapter 162, the contractor is the trustee, and the subcontractors and suppliers who furnished the work are the beneficiaries. A trustee who intentionally or knowingly retains, uses or diverts those funds before paying the beneficiaries' current or past-due obligations has misapplied them (§ 162.031(a)). The statute gives the contractor a defense if the funds were used to pay actual expenses directly related to that project, which is why the fight is usually about where the money went.

Two features make this claim valuable. It reaches the individuals who controlled the funds, not only the company, so an officer who moved your draw to another job or to payroll on a different project can be personally liable. And misapplication is also a criminal offense, which gives a demand letter weight. The Texas Construction Trust Fund Act explains the elements and defenses.

What if the subcontract makes my payment contingent on the GC being paid?

If the general contractor has been paid for your work, a contingent payment clause does not help it. A pay-when-paid or pay-if-paid clause ties your payment to the owner's payment; once the owner's payment arrives, the condition is satisfied and the seven-day clock runs. Texas also limits these clauses by statute: a contractor cannot enforce one to the extent the owner's nonpayment resulted from the contractor's own failures, and the subcontractor can send a notice that stops the clause from applying to later work (Tex. Bus. & Com. Code ch. 56). A contingent payment clause never defeats your lien rights (§ 56.055). Pay-when-paid and pay-if-paid clauses in Texas covers the detail.

Does the owner owe me directly?

Only in the ways the lien statute provides. There is no contract between you and the owner, so the owner's liability is limited to the ten percent reserved funds, the amounts the owner should have withheld after your notice, and the property itself if your lien is perfected (§§ 53.084, 53.101). An owner who followed the statute and paid out everything before your notice arrived is liable only for the reserved funds. That is why a late notice usually means your only recourse is the general contractor.

On a public project the rules are different: there is no lien on government property, and the unpaid subcontractor claims against the general contractor's payment bond under Government Code chapter 2253, with its own notice deadlines. Payment bond claims on Texas public projects covers that path.

What should I do this week?

1. Write down the month of each unpaid invoice and calculate the notice and affidavit deadlines.
2. Ask the owner's representative, in writing, when the draws covering your work were funded and how much remains unpaid on the prime contract.
3. Send the notice of claim to the owner and the general contractor by certified mail, in the statutory form, with the invoices attached.
4. Send the general contractor a demand that cites the seven-day rule, the interest rate, and chapter 162, and ask where the owner's payment went.
5. Do not sign an unconditional lien waiver until the funds have cleared, and do not stop sending notices because the contractor promises next week.

When to involve a litigator

When the amount is significant, when the general contractor is showing signs of insolvency, or when a deadline is inside the next 30 days. The sequence matters: a notice sent a day late or an affidavit missing a required element costs you the owner's funds, and a trust fund claim is only as good as the records that show where the money went. Tina Wysk represents subcontractors, suppliers and general contractors in payment disputes in Dallas–Fort Worth.