Diren Singhe: Welcome to the next installment of the VLF Video Educational series. My name is Diren Singhe.
Robert Peterson: And my name is Robert Peterson.
Diren: We’re here to talk about the top three laws contractors and especially sub-contractors can use to get paid on their projects. Now Robert, one of the things we’ve seen most commonly is the use of a lien.
Robert: A lien, especially a mechanic’s lien is a great tool contractors can use to get paid. It’s especially good for the contractor who has a contract with the property owner. You need to make sure that you have the owner’s— especially if it’s residential, the husband and wife. But you get a constitutional lien and it is very easy to establish. It happens automatically. Subcontractors have a lot more problems. There is a third month notice and other documents that need to be sent out. These are very tricky. You have specific statutory language. Sometimes the problem doesn’t necessarily develop until after you were supposed to send out that notice. Contractors can often— sub-contractors can often lose that mechanic’s lien because when the problem develops, the problem develops and they’re not being paid, it’s already too late.
Diren: That’s right. The Texas Construction Trust Fund Act provides a— what we like to think of as a Plan B for sub-contractors. Now, like the constitutional lien for a general contractor the trust fund relationship is automatic. There’s nothing the sub-contractor needs to necessarily do to create this relationship but the question might be for what is this relationship? The key issue here though is that fiduciary relationship. The right that the sub-contractor has is based on fiduciary duty law. We cover that elsewhere on our website but the fiduciary obligation in this case is quite limited, it’s still quite powerful. The take away for a sub-contractor, remember is that the Texas Construction Trust Fund Act is a Plan B way to get paid from the general contractor. The Texas Prompt Pay Act, the powerful thing about it is that it gives downstream people, let’s say general contractor or a sub-contractor or supplier. It gives them certain rights in the event that the general contractor or even the owner wrongfully withholds payment or starts slow paying. Generally, in broad terms, the unpaid party can withhold part of its performance and it can start to claim interests, attorney’s fees under the act itself.
Robert: The Prompt Pay Act requires a ten-day notice. That notice is to inform the owner and the lender of the non-payment. You also have to state the intent that you are going to suspend performance. The Prompt Pay Act as its name suggests acts quickly. If you are the general contractor and the owner doesn’t pay you, you can start taking action within 35 days. The sub-contractors to the general contractor have additional seven days on top of that so they can take action pretty quickly if they’re not being paid. At the lower tiers have an additional seven days going on.
Diren: The interesting thing about the Prompt Pay Act is it does a lot for disputes. For example, the higher to your person, the prime, or the owner, disputes any part of the payment, it does allow them an avenue to withhold a certain amount but depending on what type of contract you are talking about. You can’t necessarily hold back the entire month’s due payment. You can only hold back that amount which you showed to be in good faith dispute. The interesting thing about the Prompt Pay Act is it doesn’t matter what the contract says. You cannot waive this. It’s a public policy by the state of Texas to protect suppliers, sub-contractors and other people providing valuable goods and services on a Texas project. With that, that’s our top three issues that a contractor or especially a sub-contractor can use to get paid here in Texas. We talked a little bit about liens. We talked a little bit about the Texas Trust Fund Act and we talked a little bit about the Prompt Pay Act. But if you have any further questions, do not hesitate to give us a call or check out our website at www.vethanlaw.com.