Payment Disputes for Specialty Contractors: Electrical, HVAC, Plumbing

Why trades are in a different position

An electrical, mechanical or plumbing contractor almost never contracts with the owner. It works for a general contractor, sometimes for another subcontractor, and the owner who holds the money may not know it exists. Its scope interfaces with every other trade, so when something is late or wrong it is blamed for coordination failures it did not cause. It carries high material costs that are billed before they are paid for. And it is licensed, which gives the other side one more thing to check. Each of those facts shapes the payment fight.

The notice calendar for a trade subcontractor

On a private project the lien is the pressure point, and it depends on notices the trade must send even while the relationship is still cordial. The current rules apply to projects whose original contract was signed on or after January 1, 2022.

Texas mechanic's lien deadlines covers the counting rules and the one-year suit deadline. The point for a trade is simpler: a notice for every unpaid month, sent by a method that proves mailing, starting with the first month that is late, costs almost nothing and preserves everything.

When must the general contractor pay me?

Within seven days of being paid. Under the Prompt Payment Act a contractor that receives payment from the owner must pay each subcontractor its share not later than the seventh day after receipt, and each subcontractor must pass payment down on the same schedule (Prop. Code § 28.002). Late amounts earn interest at 1.5 percent a month and a court may award attorney's fees. The general contractor may withhold only for a good faith dispute, and no more than 100 percent of the disputed difference on commercial property or 110 percent on a single-family residence, duplex, triplex or fourplex (§ 28.003); the undisputed balance is still due in seven days. On a private non-residential project an unpaid trade may also suspend work ten days after giving written notice of nonpayment and intent to suspend (§ 28.009). The Texas Prompt Payment Act sets out each of these.

The practical problem is knowing when the owner paid. Ask the owner's representative or the lender's inspector which draws have funded; on many projects the owner's pay application record is available for the asking, and it starts the seven-day clock. The general contractor was paid but did not pay me covers the trust fund claim against the contractor's principals when the money went elsewhere.

Back-charges and set-offs

A back-charge is the general contractor's claim that it incurred cost because of the trade's work, deducted from the trade's payment. Three questions decide whether it sticks. Does the subcontract allow it, and on what conditions, such as prior written notice and a chance to correct the work? Was the notice given before the cost was incurred? And can the general contractor prove the cost with invoices, time records and photographs, rather than a round number? A back-charge first disclosed when the final payment is withheld, with no earlier notice and no backup, is a weak set-off, and the trade should demand the documentation in writing and dispute the amount in writing within whatever period the subcontract allows.

A back-charge is also a good faith dispute under the Prompt Payment Act only to the extent of the amount reasonably in dispute. Withholding the entire draw over a back-charge worth a fraction of it is over-withholding, and interest runs on the excess.

Example

Suppose an HVAC subcontractor on a Richardson medical office building is owed its final two draws plus retainage. The general contractor's closeout letter deducts a back-charge for a controls subcontractor it hired to finish commissioning, with no earlier notice and a single-line amount. The HVAC contractor responds in writing within the subcontract's dispute period, requests the controls invoices and daily tickets, sends its lien notices for both unpaid months by certified mail to the owner and the general contractor, sends the retainage notice within 30 days of finishing, and records the lien affidavit on time. The general contractor now has to prove the cost it incurred and explain why it gave no notice, while the owner is holding reserved funds against a perfected lien. Most such disputes resolve once both facts are on the table.

Verbal extras and scope creep

Trades do more extra work than any other participant: added circuits, relocated equipment, resequencing to accommodate other trades, repairs to work others damaged. The subcontract almost always requires a written change order before extra work is paid, and the general contractor almost always directs the work verbally and promises paperwork later. The answers are procedural. Get a time-and-material ticket signed on site the same day. Confirm every verbal direction by email that evening, stating that the work is extra and will be billed. Send the written change request the subcontract requires, within its deadline. Keep separate cost codes for each extra. Since 2023, Property Code § 28.0091 also lets a subcontractor decline to proceed with owner-directed extra work that lacks a signed change order once the unsigned extras exceed ten percent of its contract amount, without liability for the refusal. Change order disputes covers how unsigned extras are recovered when the paperwork never came.

Pay-if-paid and pay-when-paid clauses

Many subcontracts say the trade is paid only when, or only if, the general contractor is paid by the owner. Texas limits these clauses. Under Business and Commerce Code chapter 56 a contingent payment clause cannot be enforced to the extent the owner's nonpayment results from the general contractor's own failure to meet its contractual obligations, and in other situations the statute lists. Pay-when-paid and pay-if-paid clauses in Texas explains when the clause shifts the owner's credit risk to the trade and when it does not. The lien and the bond claim exist regardless of the clause; the owner's property secures the trade's work whether or not the general contractor has been paid.

Licensing

Electrical work in Texas may be performed or offered only by a person or business holding the appropriate license under Occupations Code chapter 1305 (§ 1305.151). Plumbing is licensed under chapter 1301 and air conditioning and refrigeration contracting under chapter 1302. In a payment dispute, expect the other side to check that the license was current, in the correct name, and that permits were pulled under it. A lapse or a mismatch between the licensed entity and the contracting entity becomes a defense to payment and a complaint to the licensing agency, so the license, the contracting entity and the permits should match before the first invoice goes out.

Public and bonded projects

On a Texas public project the trade cannot lien the property and claims against the prime contractor's payment bond instead, with the notices in the table above and suit within one year after the notice is mailed. A trade working under another subcontractor is a second-tier claimant and has the extra second-month notice to the prime. On federal projects the Miller Act bond and its 90-day notice apply. Private projects sometimes carry a payment bond too, which gives the trade a bond claim alongside the lien.

Common mistakes by trade contractors

• Waiting for the final pay application before sending any lien notice, when each unpaid month has its own deadline.
• Sending the retainage notice when the project ends rather than within 30 days of the trade's own completion.
• Signing an unconditional lien waiver for a draw that has not cleared.
• Accepting back-charges in silence, or disputing them by phone.
• Performing extras on a handshake without a signed ticket or a same-day email.
• Contracting under a trade name while the license sits with a different entity.

Tina Wysk represents electrical, mechanical, plumbing and other specialty contractors, and the general contractors and owners on the other side, in payment disputes in Dallas–Fort Worth.