CHAPTER 56. AGREEMENT FOR PAYMENT OF CONSTRUCTION SUBCONTRACTOR
BUSINESS AND COMMERCE CODE
TITLE 4. BUSINESS OPPORTUNITIES AND AGREEMENTS
CHAPTER 56. AGREEMENT FOR PAYMENT OF CONSTRUCTION SUBCONTRACTOR
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 56.001. DEFINITIONS. In this chapter:
(1) "Contingent payee" means a party to a contract with a
contingent payment clause, other than an architect or engineer,
whose receipt of payment is conditioned on the contingent payor's
receipt of payment from another person.
(2) "Contingent payment clause" means a provision in a contract
for construction management, or for the construction of
improvements to real property or the furnishing of materials for
the construction, that provides that the contingent payor's
receipt of payment from another is a condition precedent to the
obligation of the contingent payor to make payment to the
contingent payee for work performed or materials furnished.
(3) "Contingent payor" means a party to a contract with a
contingent payment clause that conditions payment by the party on
the receipt of payment from another person.
(4) "Improvement" includes new construction, remodeling, or
repair.
(5) "Obligor" means the person obligated to make payment to the
contingent payor for an improvement.
(6) "Primary obligor" means the owner of the real property to be
improved or repaired under the contract, or the contracting
authority if the contract is for a public project. A primary
obligor may be an obligor.
Added by Acts 2009, 81st Leg., R.S., Ch.
87, Sec. 4.001(a), eff. September 1, 2009.
Sec. 56.002. INAPPLICABILITY OF CHAPTER TO CERTAIN CONTRACTS.
This chapter does not apply to a contract that is solely for:
(1) design services;
(2) the construction or maintenance of a road, highway, street,
bridge, utility, water supply project, water plant, wastewater
plant, water and wastewater distribution or conveyance facility,
wharf, dock, airport runway or taxiway, drainage project, or
related type of project associated with civil engineering
construction; or
(3) improvements to or the construction of a structure that is
a:
(A) detached single-family residence;
(B) duplex;
(C) triplex; or
(D) quadruplex.
Added by Acts 2009, 81st Leg., R.S., Ch.
87, Sec. 4.001(a), eff. September 1, 2009.
Sec. 56.003. EFFECT OF CHAPTER ON TIMING OF PAYMENT PROVISIONS.
This chapter does not affect a provision that affects the timing
of a payment in a contract for construction management or for the
construction of improvements to real property if the payment is
to be made within a reasonable period.
Added by Acts 2009, 81st Leg., R.S., Ch.
87, Sec. 4.001(a), eff. September 1, 2009.
Sec. 56.004. WAIVER OF CHAPTER PROHIBITED. A person may not
waive this chapter by contract or other means. A purported
waiver of this chapter is void.
Added by Acts 2009, 81st Leg., R.S., Ch.
87, Sec. 4.001(a), eff. September 1, 2009.
SUBCHAPTER B. CONTINGENT PAYMENT CLAUSE
Sec. 56.051. ENFORCEMENT OF CLAUSE PROHIBITED TO EXTENT CERTAIN
CONTRACTUAL OBLIGATIONS NOT MET. 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.
Added by Acts 2009, 81st Leg., R.S., Ch.
87, Sec. 4.001(a), eff. September 1, 2009.
Sec. 56.052. ENFORCEMENT OF CLAUSE PROHIBITED FOLLOWING NOTICE
FROM CONTINGENT PAYEE. (a) Except as provided by Subsection
(d), a contingent payor or its surety may not enforce a
contingent payment clause as to work performed or materials
delivered after the contingent payor receives written notice from
the contingent payee objecting to the further enforceability of
the contingent payment clause as provided by this chapter and the
notice becomes effective as provided by Subsection (b). The
contingent payee may send written notice only after the 45th day
after the date the contingent payee submits a written request for
payment to the contingent payor that is in a form substantially
in accordance with the contingent payee's contract requirements
for the contents of a regular progress payment request or an
invoice.
(b) For purposes of Subsection (a), the written notice becomes
effective on the latest of:
(1) the 10th day after the date the contingent payor receives
the notice;
(2) the eighth day after the date interest begins to accrue
against the obligor under:
(A) Section 28.004, Property Code, under a contract for a
private project governed by Chapter 28, Property Code; or
(B) 31 U.S.C. Section 3903(a)(6), under a contract for a public
project governed by 40 U.S.C. Section 3131; or
(3) the 11th day after the date interest begins to accrue
against the obligor under Section 2251.025, Government Code,
under a contract for a public project governed by Chapter 2251,
Government Code.
(c) A notice given by a contingent payee under Subsection (a)
does not prevent enforcement of a contingent payment clause if:
(1) the obligor has a dispute under Chapter 28, Property Code,
Chapter 2251, Government Code, or 31 U.S.C. Chapter 39 as a
result of the contingent payee's failure to meet the contingent
payee's contractual requirements; and
(2) the contingent payor gives notice in writing to the
contingent payee that the written notice given under Subsection
(a) does not prevent enforcement of the contingent payment clause
under this subsection and the contingent payee receives the
notice under this subdivision not later than the later of:
(A) the fifth day before the date the written notice from the
contingent payee under Subsection (a) becomes effective under
Subsection (b); or
(B) the fifth day after the date the contingent payor receives
the written notice from the contingent payee under Subsection
(a).
(d) A written notice given by a contingent payee under
Subsection (a) does not prevent the enforcement of a contingent
payment clause to the extent that the funds are not collectible
as a result of a primary obligor's successful assertion of a
defense of sovereign immunity, if the contingent payor has
exhausted all of its rights and remedies under its contract with
the primary obligor and under Chapter 2251, Government Code.
This subsection does not:
(1) create or validate a defense of sovereign immunity; or
(2) extend to a primary obligor a defense or right that did not
exist before September 1, 2007.
(e) On receipt of payment by the contingent payee of the unpaid
indebtedness giving rise to the written notice provided by the
contingent payee under Subsection (a), the contingent payment
clause is reinstated as to work performed or materials furnished
after the receipt of the payment, subject to the provisions of
this chapter.
Added by Acts 2009, 81st Leg., R.S., Ch.
87, Sec. 4.001(a), eff. September 1, 2009.
Sec. 56.053. ENFORCEMENT OF CLAUSE PROHIBITED IF EXISTENCE OF
SHAM RELATIONSHIP. A contingent payor or its surety may not
enforce a contingent payment clause if the contingent payor is in
a sham relationship with the obligor, as described by the sham
relationships in Section 53.026, Property Code.
Added by Acts 2009, 81st Leg., R.S., Ch.
87, Sec. 4.001(a), eff. September 1, 2009.
Sec. 56.054. ENFORCEMENT OF CLAUSE PROHIBITED IF UNCONSCIONABLE.
(a) A contingent payor or its surety may not enforce a
contingent payment clause if the enforcement would be
unconscionable. The party asserting that a contingent payment
clause is unconscionable has the burden of proving that the
clause is unconscionable.
(b) The enforcement of a contingent payment clause is not
unconscionable if the contingent payor:
(1) proves that the contingent payor has exercised diligence in
ascertaining and communicating in writing to the contingent
payee, before the contract in which the contingent payment clause
has been asserted becomes enforceable against the contingent
payee, the financial viability of the primary obligor and the
existence of adequate financial arrangements to pay for the
improvements; and
(2) has done the following:
(A) made reasonable efforts to collect the amount owed to the
contingent payor; or
(B) made or offered to make, at a reasonable time, an assignment
by the contingent payor to the contingent payee of a cause of
action against the obligor for the amounts owed to the contingent
payee by the contingent payor and offered reasonable cooperation
to the contingent payee's collection efforts, if the assigned
cause of action is not subject to defenses caused by the
contingent payor's action or failure to act.
(c) A cause of action brought on an assignment made under
Subsection (b)(2)(B) is enforceable by a contingent payee against
an obligor or a primary obligor.
(d) A contingent payor is considered to have exercised diligence
for purposes of Subsection (b)(1) under a contract for a private
project governed by Chapter 53, Property Code, if the contingent
payee receives in writing from the contingent payor:
(1) the name, address, and business telephone number of the
primary obligor;
(2) a description, legally sufficient for identification, of the
property on which the improvements are being constructed;
(3) the name and address of the surety on any payment bond
provided under Subchapter I, Chapter 53, Property Code, to which
any notice of claim should be sent;
(4) if a loan has been obtained for the construction of
improvements:
(A) a statement, furnished by the primary obligor and supported
by reasonable and credible evidence from all applicable lenders,
of the amount of the loan;
(B) a summary of the terms of the loan;
(C) a statement of whether there is foreseeable default of the
primary obligor; and
(D) the name, address, and business telephone number of the
borrowers and lenders; and
(5) a statement, furnished by the primary obligor and supported
by reasonable and credible evidence from all applicable banks or
other depository institutions, of the amount, source, and
location of funds available to pay the balance of the contract
amount if there is no loan or the loan is not sufficient to pay
for all of the construction of the improvements.
(e) A contingent payor is considered to have exercised diligence
for purposes of Subsection (b)(1) under a contract for a public
project governed by Chapter 2253, Government Code, if the
contingent payee receives in writing from the contingent payor:
(1) the name, address, and primary business telephone number of
the primary obligor;
(2) the name and address of the surety on the payment bond
provided to the primary obligor to which any notice of claim
should be sent; and
(3) a statement from the primary obligor that funds are
available and have been authorized for the full contract amount
for the construction of the improvements.
(f) A contingent payor is considered to have exercised diligence
for purposes of Subsection (b)(1) under a contract for a public
project governed by 40 U.S.C. Section 3131 if the contingent
payee receives in writing from the contingent payor:
(1) the name, address, and primary business telephone number of
the primary obligor;
(2) the name and address of the surety on the payment bond
provided to the primary obligor; and
(3) the name of the contracting officer, if known at the time of
the execution of the contract.
(g) A primary obligor shall furnish the information described by
Subsection (d) or (e), as applicable, to the contingent payor not
later than the 30th day after the date the primary obligor
receives a written request for the information. If the primary
obligor fails to provide the information under the written
request, the contingent payor, the contingent payee, and their
sureties are relieved of the obligation to initiate or continue
performance of the construction contracts of the contingent payor
and contingent payee.
Added by Acts 2009, 81st Leg., R.S., Ch.
87, Sec. 4.001(a), eff. September 1, 2009.
Sec. 56.055. USE OF CLAUSE TO INVALIDATE ENFORCEABILITY OR
PERFECTION OF MECHANIC'S LIEN PROHIBITED. A contingent payment
clause may not be used as a basis for invalidation of the
enforceability or perfection of a mechanic's lien under Chapter
53, Property Code.
Added by Acts 2009, 81st Leg., R.S., Ch.
87, Sec. 4.001(a), eff. September 1, 2009.
Sec. 56.056. ASSERTION OF CLAUSE AS AFFIRMATIVE DEFENSE. The
assertion of a contingent payment clause is an affirmative
defense to a civil action for payment under a contract.
Added by Acts 2009, 81st Leg., R.S., Ch.
87, Sec. 4.001(a), eff. September 1, 2009.
Sec. 56.057. ALLOCATION OF RISK PERMITTED. An obligor or a
primary obligor may not prohibit a contingent payor from
allocating risk by means of a contingent payment clause.
Added by Acts 2009, 81st Leg., R.S., Ch.
87, Sec. 4.001(a), eff. September 1, 2009.