The Texas Prompt Payment Act: Interest and Deadlines on Construction Payments

What does the Act cover?

Contracts to improve real property in Texas that are private, meaning the owner is not a governmental entity. Government projects follow the separate prompt payment rules in Government Code chapter 2251, which has its own deadlines and interest rate. Within private work the chapter applies to owners, contractors and subcontractors at every tier, and to residential as well as commercial construction, with a few residential carve-outs noted below.

The Act supplements the contract rather than replacing it. The contract still decides what a proper pay request looks like, what work must be complete, and whether retainage may be held. The Act then fixes the outside date for payment of what is due and the price of lateness.

When is payment due?

Three deadlines, each triggered by a receipt (Tex. Prop. Code § 28.002):

The owner's 35 days run from receipt of the request, not from the invoice date, so a pay request sent by a method that proves delivery sets the clock reliably. The contractor's seven days run from receipt of the owner's money, which is why subcontractors ask the owner's representative when each draw was funded.

What may be withheld?

Only amounts in a good faith dispute, and only within a cap (§ 28.003). On a detached single-family residence, duplex, triplex or fourplex, an owner, contractor or subcontractor who disputes the amount owed may withhold up to 110 percent of the difference between what the payee claims and what the payor believes is due. On all other real property the cap is 100 percent of that difference. A good faith dispute includes a dispute about whether the work was performed in a proper manner.

The undisputed part of a pay request is still due on the normal schedule. An owner who withholds an entire draw because of a problem with one line item has overwithheld, and interest runs on the excess.

What does a late payment cost?

Interest at 1.5 percent each month, which is 18 percent a year, beginning the day after the payment was due (§ 28.004). Interest stops on the earliest of the date the payment is delivered, the date it is mailed if it is delivered within three days, or the date a judgment is entered in a suit under the chapter. A court in an action to enforce the chapter may award costs and reasonable attorney's fees as equitable and just (§ 28.005). The fee award is discretionary, so the contract's own fee clause and Civil Practice and Remedies Code § 38.001 remain relevant in a suit.

Example

Suppose a McKinney owner receives a $150,000 pay request on March 1 and disputes $20,000 of it in writing because a storefront was installed in the wrong finish. The owner may withhold up to $20,000, the full disputed difference on a commercial project, and must pay the remaining $130,000 by April 5, the 35th day. If the owner instead pays nothing until June 1, interest at 1.5 percent a month accrues on $130,000 from April 6, and the contractor can seek fees for enforcing the chapter.

When may a contractor stop work?

On a non-residential private project, when the owner fails to pay an undisputed amount on time. The contractor or any subcontractor may suspend contractually required performance on the tenth day after giving the owner, and in the circumstances the statute describes the owner's lender, written notice that payment has not been received and that the sender intends to suspend for nonpayment (§ 28.009). Notice to the lender is required only when the project is financed, the lender has disbursed funds, the loan is secured by a recorded deed of trust, and the statutory lender sign and notices were posted and mailed at the start of the job.

A party who suspends properly does not have to resume until paid the amount owed plus demobilization and remobilization costs, and is not liable for suspension damages unless it was notified in writing before suspending that payment had been made or that a good faith dispute existed. A good faith dispute notice from the owner must list the specific reasons for nonpayment and, where it concerns a subcontractor's work, give that subcontractor a reasonable chance to cure or to offer compensation for items that cannot be cured promptly. The suspension right does not apply to detached single-family homes, duplexes, triplexes or fourplexes, or to governmental projects.

What about unsigned change orders?

Since September 1, 2023, the chapter also addresses owner-directed extra work. A contractor or subcontractor may elect not to proceed with additional work directed by the owner if it has no written, fully executed change order for that work and the value of that work plus earlier unsigned owner-directed work exceeds ten percent of its original contract amount (§ 28.0091). A party that properly makes that election is not responsible for damages tied to it. Change order disputes covers how extra work gets paid.

How does the Act fit with liens and contract claims?

It is one layer. A contractor who is not paid typically uses the Act for interest and suspension, perfects a mechanic's lien for security, and sues for breach of contract for the principal and fees; the three are not exclusive. The Act's deadlines are payment deadlines that start interest, not lien deadlines, which are measured separately in months after the work. A contractor's options when the owner will not pay puts the tools in order, and how mechanic's liens work in Texas covers the security side.

Common mistakes under the Act

• Treating an email complaint about quality as a good faith dispute notice without stating specific reasons or an amount.
• Withholding the whole draw when only part is disputed.
• Suspending work without the ten-day written notice, or on a single-family house where the right does not exist.
• Forgetting that the contractor's seven days run from receipt of the owner's payment even if the contractor's own pay application to the owner was late.
• Assuming interest is automatic in a judgment; it must be pleaded and proved like any other element.

Tina Wysk represents owners, contractors and subcontractors in payment disputes under the Prompt Payment Act in Dallas–Fort Worth courts and arbitration.