Pursuant to Texas Property Code, Chapter 28, referred to as the “Prompt Payment Act”, a Property Owner must pay its Contractor within no later than 35 days from receipt of a written payment request in 2026. In turn, the Contractor is required to pay its Subcontractors and Suppliers that portion of the payment attributable to their labor/material/equipment within no later than 7 days from receipt of the payment. Those Subcontractors and Suppliers are then required to pay their downstream Subcontractor and Suppliers within no later than 7 days as well. An unpaid party is entitled to interest at 1.5% a month (18% annually) on the unpaid amount and reimbursement of reasonable attorneys’ fees/cost incurred to recover the amount owed.
The Prompt Payment Act allows the unpaid party to suspend work on the Project if it has not received payment within 10 days from providing the Property Owner (and Lender if applicable) with written notice of nonpayment and its intent to cease work. The unpaid party is not required to return to the Project until it has received the payment and has been reimbursed for the costs associated with demobilizing and remobilizing to the Project. Additionally, the unpaid party is not responsible for any damage caused by the suspension.
If the Payor can identify a legitimate reason, referred to as a “Good Faith Dispute”, as to why some or all the amount claimed owed should not be paid, then the Payor may withhold 100% (on commercial projects) and 110% (on residential projects) of that amount from the overall payment until the dispute is resolved.
To invoke the Good Faith Exception, the party asserting the defense must serve the unpaid party with written notice expressly identifying the specific reasons for withholding payment. If a reason specified includes nonconforming or defective work, then the unpaid party is entitled to a reasonable opportunity to cure the defects or to offer a sum of money in which to compensate the other party for the items that cannot be promptly cured.