Texas Contingency Pay Bill Goes to Governor

Texas Governor Rick Perry has signed a contingency pay bill into law that allows glazing contractors to take legal recourse if a general contractor gets paid but does not pay them. The Prompt Pay Act (Senate Bill 324) was signed into law by Gov. Perry on June 15.

"This bill is an important, common sense measure that ensures subcontractors are compensated fairly and properly for their work," says Krista Moody, deputy press secretary for Gov. Perry.

According to the Texas House of Representatives, SB 324 "governs the enforceability of contingent payment clauses in construction contracts and defines the rights and duties of the parties involved - the contingent payor (general contractor), the contingent payee (subcontractor) and the obligor (project owner)."

The Prompt Pay Act details circumstances in which a contingent payment clause may or may not be enforced when working with subcontractors, including glazing subcontractors. The strength of the bill lies in the following clause that prohibits a contractor to withhold payment from a subcontractor based on the initial contractor not receiving payment:

"A contingent payor or its surety may not enforce a contingent payment clause to the extent that the obligor's nonpayment to the contingent payor is the result of the contractual obligations of the contingent payor not being met, unless the nonpayment is the result of the contingent payee's failure to meet the contingent payee's contractual requirements."

The Prompt Pay Act also enables both contractors and subcontractors to cease work after a reasonable period of nonpayment, and during which they have given notice to the owner, until they are paid for the project. The Act provides circumstances under which a contingent payment clause may be enforced or disputed, and the steps necessary to take those actions.

According to Virginia Lee, executive director of the Texas Glass Association, the progress of the bill realizes the founding principle of the local organization. "This was the reason we founded the association … it has taken from 1990 to 2007 to get this accomplished," says Lee. "We are really tickled that it has gone to the governor to sign."