Does the Texas prompt-payment law for government contracts cover construction projects?

Texas AG Opinion DM-0088: Prompt-Payment Law and Construction Contracts

Plain-English summary

A House committee chairman asked, on behalf of the City of San Antonio, whether the state's prompt-payment statute, article 601f of the Civil Statutes, applies to construction contracts. The backdrop was a concern from minority- and women-owned construction companies in San Antonio that slow payment from prime contractors to their subcontractors was hurting their businesses.

Article 601f sets payment deadlines along the chain of a government contract. A political subdivision generally has to pay a vendor within 30 days of receiving the goods or services or the invoice, whichever is later; a vendor has to pay its subcontractors within 10 days of being paid; and a subcontractor has to pay its suppliers within 10 days. Late payments draw interest at one percent per month, applied automatically. Section 7 carves out exemptions, for example when the contract itself sets different payment terms, when there is a bona fide dispute, or when federal funding rules prevent timely payment.

The hard part was that the statute did not define "goods" or "services," so its text did not say outright whether construction work counted. The Attorney General turned to the legislative history of the bill that became article 601f, House Bill 275 of the 69th Legislature. That history pointed firmly toward coverage: construction contractors and subcontractors testified at the committee hearings; a bill analysis said the law would help reduce construction-project delays by encouraging prompt payment to subcontractors and noted the special burden of late payment on construction contractors who borrow heavily; and the bill's author told a senate committee that it reaches private transactions between vendors and subcontractors "only on public projects" involving public construction, not purely private deals. On that record, the opinion concluded that article 601f applies to construction contracts, covering payments from governmental entities to construction contractors, from contractors to subcontractors, and from subcontractors to suppliers on public construction projects, subject to the section 7 exemptions.

Currency note

This opinion was issued in 1992. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. The prompt-payment provisions then in article 601f, V.T.C.S., have since been amended and recodified into the Government Code, and the deadlines, interest rate, and exemptions may differ today. Verify current law before relying on any specific deadline or rate mentioned here.

Common questions

Does the Texas prompt-payment law apply to public construction jobs?
Yes, under this opinion. Even though the statute's text did not clearly define "goods" and "services," the Attorney General found from the legislative history that the Legislature meant article 601f to cover construction contracts on public projects.

Who has to pay whom, and how fast?
The statute sets a chain of deadlines: the government generally pays the vendor within 30 days; the vendor pays subcontractors within 10 days of being paid; the subcontractor pays suppliers within 10 days. Missing a deadline triggers interest at one percent per month.

Does it cover private construction work too?
No. The bill's author said it reaches the contractor-subcontractor relationship only on public construction projects, not purely private transactions. The trigger is a public project funded by a governmental entity.

Are there exceptions?
Yes. Section 7 lists exemptions, including when the contract specifies other payment terms or dispute-resolution methods, when there is a bona fide dispute over the goods or services, when federal funding rules block timely payment, or when the invoice was not mailed as instructed. Article 601f also does not amend the separate bond statute, article 5160.

Background and statutory framework

Article 601f, V.T.C.S., established prompt-payment deadlines and one-percent-per-month interest for late payment by state agencies and political subdivisions to vendors, by vendors to subcontractors, and by subcontractors to suppliers. The statute defined "vendor" as an entity that supplies "goods and/or services" to a governmental entity but did not define "goods" or "services," which is why the opinion looked to legislative history. The exemptions are in section 7, and section 7(b) provides that article 601f does not amend article 5160, V.T.C.S. (contractors' performance and payment bonds). The opinion noted that the comptroller's regulations (34 T.A.C. § 5.55) did not resolve the question, but that the General Services Commission, acting under section 5.26 of article 601b, V.T.C.S., had incorporated article 601f into the uniform general conditions for state building construction contracts. The dispositive legislative history was that of House Bill 275, 69th Legislature (Acts 1985, 69th Leg., ch. 82; later amended by ch. 614).

Citations

Statutory and regulatory provisions:

• V.T.C.S. art. 601f (prompt-payment deadlines and interest), including the section 7 exemptions
• V.T.C.S. art. 5160 (contractors' performance and payment bonds; not amended by article 601f)
• V.T.C.S. art. 601b, § 5.26 (General Services Commission uniform general conditions)
• 34 T.A.C. § 5.55 (comptroller's prompt-payment regulations)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/dan-morales/dm-0088
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1992/dm0088.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain — the linked PDF is authoritative.

Office of the Attorney General
State of Texas

DAN MORALES
Attorney General

February 6, 1992

Honorable George Pierce
Chairman
Committee on Urban Affairs
Texas House of Representatives
P. O. Box 2910
Austin, Texas 78768-2910

Opinion No. DM-88

Re: Whether article 601f, V.T.C.S., pertaining to payments for goods and services contracted for by state agencies or political subdivisions, applies to construction contracts (RQ-256)

Dear Representative Pierce:

You have submitted a request on behalf of the City of San Antonio regarding payment of construction contracts. The materials you have submitted to this office suggest that minority- and women-owned construction companies in the San Antonio area have expressed concern that their economic success has been impaired due to lack of prompt payment by construction contractors to subcontractors. With this concern in mind, you ask whether article 601f, V.T.C.S., a statute pertaining to the payment of goods and services contracted for by state agencies and political subdivisions, applies to construction contracts. For the reasons stated below, we conclude that it does.

Article 601f establishes time limitations within which state agencies and political subdivisions must pay vendors for goods and services, and vendors who receive payment from such governmental entities must pay their subcontractors.[1] For example, a political subdivision must generally pay a vendor not later than the 30th calendar day after the day on which it receives the goods or services, or the date it receives the invoice for the goods or services, whichever is later. V.T.C.S. art. 601f, § 2(b).[2] Article 601f imposes interest at the rate of one percent per month, which shall be paid automatically as payments become overdue. Id. §§ 2(c), 5. A vendor is required to pay subcontractors not later than the 10th calendar day after the day on which the vendor receives payment from the governmental entity, and a vendor who does not make timely payments to subcontractors must also pay interest at the rate of one percent per month. Id. §§ 4(a), 5. A subcontractor must in turn pay his or her suppliers no later than the 10th calendar day after the day on which the subcontractor receives payment, or pay interest at the same rate. Id. §§ 4(b), 5.

Section 7 of article 601f sets forth certain exemptions to the above requirements. In particular, section 7(a) provides that article 601f does not apply when the terms of a contract specify other times and methods of payment or methods of resolving disputes or interest owed on delinquent payments, when there is a bona fide dispute between a vendor and a subcontractor or a subcontractor and a supplier concerning goods or services which causes payment to be late, when the terms of a federal contract, grant, law, or regulation prevent a governmental entity from making timely payment with federal funds, or when the invoice has not been mailed to the addressee in strict accordance with instructions on the purchase order. In addition, section 7(b) provides that article 601f does not amend article 5160, V.T.C.S., which deals with contractors' performance and payment bonds.

It is not clear from the face of article 601f whether it applies to construction contracts. First, a vendor is defined as "a person, corporation, association, partnership, or other legal entity that supplies goods and/or services to a governmental entity." Id. § 1(6) (emphasis added). Other provisions require governmental entities to pay upon receipt of the invoice for "supplies, materials, equipment or services." Id. §§ 2, 3. The terms "goods" and "services" are not defined, however, and thus it is not clear whether those terms embrace construction work.[3] Given that the terms "goods" and "services" are not defined in article 601f, we turn to the legislative history for guidance.

Article 601f was enacted by the 69th Legislature as House Bill 275.[4] It is abundantly clear from the legislative history of House Bill 275 that the legislature intended for it to apply to construction contracts. The witnesses who testified at hearings on House Bill 275 before the House Committee on Business and Commerce included construction contractors and subcontractors. Hearings on H.B. 275 Before the House Comm. on Bus. & Com., 69th Leg. (February 18, 1985). It is clear from their testimony that House Bill 275 was intended to apply to construction contracts. Id. In addition, a house study group bill analysis states that the legislation "will also help minimize the construction-project delays that result from disputes between contractor and subcontractor, by encouraging contractors to pay subcontractors promptly." House Study Group, Bill Analysis, H.B. 275, 69th Leg. (1985) at 2. The analysis also notes that the bill's opponents contended that many state agencies actually pay in less than 30 days, and the new deadlines "would look like" a mandate for delay at the expense of vendors, especially construction contractors, who generally borrow heavily and end up owing their lenders a lot more interest if they do not get paid on time. Id. at 3 (emphasis added). Furthermore, when House Bill 275 was considered by a senate committee, Representative Jackson, the author of the bill, was asked how it would affect transactions between vendors and subcontractors. He replied, "It does reach those private transactions only on public projects where there is a subcontractor for public construction projects. It does not go into the purely private transactions." Hearings on H.B. 275 Before the Senate Comm. on State Affairs, 69th Leg. (April 3, 1985).

Based on the legislative history, we conclude that the legislature intended article 601f, V.T.C.S., to apply to payments by governmental entities to construction contractors under construction contracts. As a result, we conclude that article 601f applies to payments by construction contractors to construction subcontractors, and by construction subcontractors to suppliers, for work on such public construction projects. Of course, a particular construction contract may be exempt from article 601f if it falls within one of the exemptions set forth in section 7.

SUMMARY

Article 601f, V.T.C.S., a statute pertaining to the payment of goods and services contracted for by state agencies and political subdivisions, applies to construction contracts.

DAN MORALES
Attorney General of Texas

WILL PRYOR
First Assistant Attorney General

MARY KELLER
Deputy Assistant Attorney General

JUDGE ZOLLIE STEAKLEY (Ret.)
Special Assistant Attorney General

RENEA HICKS
Special Assistant Attorney General

MADELEINE B. JOHNSON
Chair, Opinion Committee

Prepared by Mary R. Crouter
Assistant Attorney General

[1] Article 601f defines a "state agency" to include a board, commission, or other agency of the executive branch, as well as the legislature or a legislative agency, and certain state courts and judicial agencies. V.T.C.S. art. 601f, § 1(1). It defines "political subdivision" to mean a county, an incorporated city or town, a public school district, or a special purpose district or authority. Id. § 1(2). For purposes of article 601f, the term "governmental entity" embraces both state agencies and political subdivisions. See id. § 1(3).

[2] A political subdivision must pay for goods and services provided pursuant to a contract executed between July 1, 1986, the statute's effective date, and September 1, 1987, within 45 days. Id. § 2(a). Similar requirements for state agencies are set forth in section 3 of article 601f.

[3] The comptroller has issued regulations pursuant to article 601f. See 34 T.A.C. § 5.55. These regulations shed no light on the question at issue here. The General Services Commission (the "commission"), however, has interpreted article 601f to apply to construction contracts. Section 5.26 of article 601b, V.T.C.S., requires the commission to adopt uniform general conditions to be incorporated into all state building construction contracts. These uniform general conditions state that "[t]he provisions of Article 601f of Texas Civil Statutes . . . apply to payments under this Contract." See Uniform General Conditions art. 7.2.1.1 (copies available through the commission).

[4] Acts 1985, 69th Leg., ch. 82, at 257 (eff. July 1, 1986); see also Acts 1985, 69th Leg., ch. 614, § 2, at 2293 (amending section 7(a) to exempt contracts which specify other methods of payment or methods of resolving disputes or interest owed on delinquent payments).