Prompt payment statutes are laws that require the payment of contractors and subcontractors within a certain period of time, and prescribe interest and penalties for late payments. In some states these laws only apply to public works construction projects that are funded by the government—and sometimes only to public works projects over a certain dollar amount. There is also a federal Prompt Payment Act for federal construction projects.
In Texas, prompt payment statutes are designed to ensure that contractors and subcontractors are paid in a timely manner for their work on construction projects. The Texas Property Code outlines the specific regulations for prompt payment on both public and private projects. For public projects, the Texas Government Code stipulates that a governmental entity must pay a contractor within 31 days after receiving a request for payment. If payment is late, interest accrues at the rate of 1.5% per month. For private projects, the owner must pay the contractor within 35 days after the owner receives a request for payment, and the contractor must pay its subcontractors within seven days of receiving payment from the owner. Late payments on private projects also incur interest at 1.5% per month. These statutes apply regardless of the project size and are intended to protect the cash flow to businesses involved in construction. Additionally, the federal Prompt Payment Act applies to federal construction projects, requiring federal agencies to pay contractors within a specific timeframe and to pay interest on late payments.
