Texas Prompt Payment Act for Contractors

The Texas Prompt Payment Act establishes mandatory payment timelines, interest penalties, and enforcement mechanisms governing commercial construction contracts across the state. It applies to owners, general contractors, and subcontractors operating on both public and private projects, with distinct rules for each relationship in the payment chain. Understanding the Act's structure is essential for contractors navigating delayed payment situations, lien rights, and dispute resolution in Texas commercial construction.

Definition and scope

The Texas Prompt Payment Act is codified in Chapter 28 of the Texas Property Code (Tex. Prop. Code § 28.001–28.012) and in Chapter 2251 of the Texas Government Code for public contracts (Tex. Gov't Code § 2251.001–2251.046). These two statutes operate in parallel — Chapter 28 governs private construction projects, while Chapter 2251 governs contracts with governmental entities in Texas.

Private contracts (Chapter 28):
- Applies to owners, contractors, and subcontractors involved in construction or repair of private real property.
- Requires owners to pay contractors within 35 days of receiving a payment request.
- Requires contractors to pay subcontractors within 7 days of receiving payment from the owner.

Public contracts (Chapter 2251):
- Applies to contracts with state agencies, municipalities, counties, and other political subdivisions.
- Requires governmental entities to pay contractors within 30 days of receiving a complete invoice.
- Requires contractors to pay subcontractors within 10 days of receiving payment from a public entity.

Scope limitations and coverage boundaries:

This page addresses Texas state law exclusively. Federal construction contracts — including those governed by the federal Prompt Payment Act (31 U.S.C. §§ 3901–3907) and the Miller Act (40 U.S.C. § 3131) — fall outside this coverage. Projects located outside Texas, or contracts with the federal government as the primary obligor, are not covered by either Chapter 28 or Chapter 2251. Residential construction governed separately by the Texas Residential Construction Commission Act is also outside this page's scope. For a broader overview of how payment obligations intersect with lien rights, see Texas Contractor Lien Laws.

How it works

The Act creates a tiered obligation running from owner to general contractor to subcontractor. Each tier carries its own deadline, and the failure to meet any deadline triggers automatic statutory interest.

Interest rate: Under Chapter 28, unpaid amounts accrue interest at 1.5% per month (18% annually) once a payment deadline is missed (Tex. Prop. Code § 28.004). Under Chapter 2251, the interest rate is tied to the rate published by the Texas Comptroller, calculated at the prime rate plus 1% (Tex. Gov't Code § 2251.025).

Payment request requirements:
1. The payment request must be submitted in the form and manner specified by the contract.
2. Disputed amounts must be identified in writing within the applicable review period.
3. Undisputed amounts must be paid on time even if other portions of the invoice are contested.

Pay-when-paid vs. pay-if-paid clauses: Texas courts have recognized both clause types in subcontracts, but Chapter 28's 7-day downstream payment rule creates a structural floor. A pay-if-paid clause may shift risk of owner non-payment downward, but it cannot override the statutory obligation to pay once funds are received. This distinction is addressed further at Texas Commercial Construction Contracts.

Retainage rules: Separate retainage obligations exist under Chapter 53 of the Texas Property Code (Tex. Prop. Code § 53.101 et seq.), which requires owners to withhold and then release retainage on a defined schedule. The Prompt Payment Act and the retainage statute operate concurrently on the same project.

Common scenarios

Scenario 1 — Owner delays payment on private project:
A general contractor submits a pay application on Day 1. The owner has 35 days to pay under Chapter 28. If the owner fails to pay by Day 35 without identifying a written dispute, interest begins accruing at 1.5% per month on the unpaid balance. The contractor may pursue statutory interest and attorney's fees in a breach of contract action.

Scenario 2 — Contractor holds subcontractor payment:
After receiving full payment from the owner, a general contractor withholds a subcontractor's share beyond 7 days. The subcontractor is entitled to the withheld amount plus 1.5% monthly interest from Day 8 forward. This scenario arises frequently in projects involving Texas General Contractor vs. Subcontractor disputes over scope credits.

Scenario 3 — Public project invoice dispute:
A county rejects an invoice submitted by a contractor, claiming the work is incomplete. Under Chapter 2251, the governmental entity must notify the contractor of the dispute within 21 days of receiving the invoice. Failure to issue timely written notice of dispute can constitute a waiver, and the invoice may be deemed accepted.

Scenario 4 — Cascading delay through the payment chain:
Owner pays the general contractor on Day 40 (5 days late on a private project). The general contractor then has 7 days from receipt to pay the subcontractor, not 7 days from the original due date. The sub-chain payment clock resets at each receipt event, not at the original invoice deadline.

For dispute escalation pathways beyond interest accrual, Texas Contractor Payment Dispute Resolution covers mediation, arbitration, and lien-based remedies in detail.

Decision boundaries

When the Act applies vs. does not apply:

Attorney's fees: Both Chapter 28 and Chapter 2251 authorize recovery of reasonable attorney's fees by a prevailing contractor or subcontractor. The fee-shifting provision applies only when a payment claim is brought in litigation or binding arbitration — not in informal demand contexts.

When interest stops accruing: Interest ceases to accrue on the date full payment is tendered. If a payment is made but disputed amounts remain outstanding, interest continues accruing only on the unpaid portion.

Interaction with lien rights: Filing a lien claim under Chapter 53 does not substitute for a Prompt Payment Act claim, and the two remedies are pursued independently. Contractors and subcontractors who miss lien deadlines do not lose their Prompt Payment Act interest rights. The Texas Commercial Construction Contracts framework governs which disputes may be resolved by contract terms and which are controlled by statute, irrespective of what the parties agreed.

For contractors navigating public sector procurement and payment rules, Texas Public Works Contractor Requirements addresses bonding, prevailing wage intersections, and agency-specific payment procedures. The full landscape of contractor compliance obligations in Texas is indexed at texascommercialcontractorauthority.com.

References

• Texas Property Code Chapter 28 — Prompt Payment to Contractors and Subcontractors — Texas Legislature Online
• Texas Government Code Chapter 2251 — Payment of Vendors — Texas Legislature Online
• Texas Property Code Chapter 53 — Mechanic's, Contractor's, or Materialman's Lien — Texas Legislature Online
• Texas Comptroller of Public Accounts — Prompt Payment Rules — Texas Comptroller
• Federal Prompt Payment Act, 31 U.S.C. §§ 3901–3907 — U.S. House Office of the Law Revision Counsel (federal scope reference)