HBA-ATS, DMD H.B. 1522 76(R)BILL ANALYSIS Office of House Bill AnalysisH.B. 1522 By: Siebert Business & Industry 6/3/1999 Enrolled BACKGROUND AND PURPOSE Contractors, subcontractors, and suppliers of construction companies often complain that they have not been paid for work already performed. Typically, the reason for nonpayment is not defective or incomplete work. Rather, it is due to the general contractor not receiving payment from the owner. After receiving the initial payment from the owner, the general contractor pays the contractors, subcontractors, and suppliers. However, in the event that payment is not received, the subcontractors, who may be responsible for more than 80 percent of the work, are still required to pay for labor and materials even if payment has not been received from the general contractor, which can force the subcontractor to borrow from a lender in order to pay workers and suppliers. H.B. 1522 seeks to increase the cash flow on construction projects by requiring monthly billings and authorizes contractors or subcontractors to withhold work performance if they have not been paid 10 days after notifying the owner or contractor of such. This bill requires the owner to pay the contractors or subcontractors the amount requested within five days after receiving loan proceeds if the loan was not received within 35 days after the contractor's request for payment. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that this bill does not expressly delegate any additional rulemaking authority to a state officer, department, agency, or institution. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 28.002, Property Code, as follows: Sec. 28.002. PROMPT PAY REQUIRED. (a) Requires an owner to pay for the amount allowed under the contract for specially fabricated materials minus any amount that is authorized by statute to be withheld, rather than statutory offsets, no later than 35, rather than 45, days after the owner or person authorized to act on behalf of the owner receives the request. (b) Requires a contractor to pay a subcontractor a portion of the owner's payment that is attributable for work that is properly performed or materials that are specially fabricated as provided under the contract, rather than if payment for stored materials is provided for in the contract. (c) Makes conforming changes. SECTION 2. Amends Section 28.003, Property Code, as follows: (a) Authorizes the owner, contractor, or subcontractor, if a good faith dispute exists concerning the amount owed for a payment requested or required under a contract for construction of or improvements to a detached single-family residence, duplex, triplex, or quadruplex, to withhold from the payment owed not more than 100 percent of the difference between what the obligee claims is due and what the obligor claims is due. Makes a nonsubstantive change. (b) Authorizes the owner, contractor, or subcontractor, if a good faith dispute exists concerning the amount owed for a payment requested or required under a contract for construction of or improvements to real property, excluding a detached single-family residence, duplex, triplex, or quadruplex, to withhold from the payment owed not more than 100 percent of the difference between what the obligee claims is due and what the obligor claims is due. Sets forth that a good faith dispute includes a dispute regarding whether the work was performed in a proper manner. SECTION 3. Amends Section 28.008, Property Code, to require the date of payment required of the owner under Section 28.002(a), to be changed from 35, rather than 45, days after receiving the payment request to the fifth day after the owner receives loan proceeds in the event that the lender is legally obligated to disburse such proceeds to the owner, but has failed to do so within 35, rather than 45, days after the owner has received the contractor's payment request. Makes nonsubstantive changes. SECTION 4. Amends Chapter 28, Property Code, by adding Sections 28.009 and 28.010, as follows: Sec. 28.009. RIGHT TO SUSPEND WORK. (a) Authorizes a contractor or any subcontractor, if an owner fails to pay the contractor the undisputed amount within the time limits provided by this chapter (Prompt Payment to Contractors and Subcontractors), to suspend the contractually required performance 10 days after the contractor or subcontractor gives the owner and the owner's lender written notice informing the owner that payment has not been received and stating the intent of the contractor or subcontractor to suspend performance for nonpayment. (b) Provides that for the purposes of Subsection (a), the contractor or subcontractor must give the owner's lender the written notice only in certain circumstances. (c) Sets forth that a contractor or any subcontractor who suspends performance is not required to supply further labor, services, or materials until the person is paid the amount provided by this chapter, plus costs for demobilization and remobilization or is not responsible for damages resulting from the work stoppage if the contractor or subcontractor has not been notified in writing before the work stoppage that payment has been made or that a good faith dispute for payment exists. (d) Provides that a notification that a good faith dispute for payment exists provided under Subsection (c) must include a list of specific reasons for nonpayment. Entitles the subcontractor, if a specified reason for nonpayment includes labor, services, or materials that were provided by a subcontractor that are not provided in compliance with the contract, to a reasonable opportunity to cure the listed items or offer a reasonable amount to compensate for listed items that cannot be promptly cured. (e) Sets forth that this section does not apply to a contract for the construction of or improvements to a detached single-family residence, duplex, triplex, or quadruplex, or a contract to improve real property for a governmental entity. (f) Establishes that the rights and remedies provided by this section are in addition to rights and remedies provided by this chapter or other law. Sec. 28.010. EXEMPTION FOR MINERAL DEVELOPMENT AND OILFIELD SERVICES. (a) Provides that this chapter does not apply to any agreement to explore, produce, or develop oil, natural gas, natural gas liquids, synthetic gas, sulphur, ore, or other mineral substances; for any well or mine services; to purchase, sell, gather, store, or transport oil, natural gas, natural gas liquids, synthetic gas, or other hydrocarbon substances by pipeline or by a fixed, associated facility. (b) Defines "agreement" and "well or mine services" for purposes of this section. SECTION 5.Effective date: September 1, 1999. Makes application of this Act prospective to a contract or agreement involving work performed on real property by a contractor or subcontractor. SECTION 6.Emergency clause.