Prompt Pay Acts deter late payment by general contractors (and owners) by giving subcontractors and suppliers rights in the event the general contractor does not timely pay. These rights generally include interest, attorney fees, and the right to suspend performance.
The Texas Private Prompt Pay Act requires the owner to pay the general contractor within 35 days of the submission date of an invoice. The general contractor, in turn, must pay the subcontractors for the portion of the owner’s payment that is attributable to the subcontractor’s work within 7 days of when the general contractor received payment from the owner. The same deadline is imposed on first tier subcontractors with respect to paying their second tier subcontractors. If the parties have a good faith dispute over the work, the party withholding payment can withhold no more than 100 percent (nonresidential) or 110 percent (residential) of the difference between the amounts each party believes is due. Interest accrues at the rate of 1.5 percent per month or 18 percent annually on overdue payments. The terms of the act cannot be waived or altered by contract. Any provisions that attempt to do so are void.
The public act has very similar terms to the private act. The owner must pay 31 days after receiving the invoice and the general contractor must pay the subcontractor no later than 10 days after the general contractor receives payment. Interest accrues at the sum of 1 percent plus the prime rate as published in the Wall Street Journal per month. Similar to the private act, payments for work subject to a bona fide dispute can be withheld. As is in the private act, the terms of the public act cannot be waived or altered by contract and attempts to do so are void.
Federal Prompt Pay Act
The federal act requires each construction contract awarded by a federal agency to include a clause that requires the prime contractor to include in each subcontract for labor or materials: (1) a payment clause which obligates the prime contractor to pay the subcontractor for satisfactory performance under its subcontract within 7 days out of such amounts as are paid to the prime contractor by the agency under such contract; and (2) an interest penalty clause which obligates the prime contractor to pay to the subcontractor an interest penalty using an interest rate established by the United States Treasury.