Texas Prompt Payment Act for Construction
Texas law establishes specific deadlines and penalty mechanisms governing when owners, contractors, and subcontractors must pay for completed construction work. The Texas Prompt Payment Act, codified primarily in Chapter 28 of the Texas Property Code, applies across private commercial construction and interacts with related statutes covering public projects. Understanding these payment timelines, interest penalties, and scope boundaries is essential for any party operating under a Texas construction contract.
Definition and scope
The Texas Prompt Payment Act (Texas Property Code, Chapter 28) sets mandatory payment deadlines for private construction projects in Texas. The statute applies to the payment chain running from owner to contractor and from contractor to subcontractor, including sub-subcontractors and suppliers at lower tiers.
Key definitional boundaries established by the statute:
- Owner obligations: An owner must pay the general contractor no later than 35 days after receiving a written payment request (Texas Property Code § 28.002).
- Contractor obligations: A general contractor must pay each subcontractor no later than 7 days after receiving payment from the owner (Texas Property Code § 28.003).
- Sub-tier obligations: Each subcontractor must pay sub-subcontractors and suppliers within 7 days of receiving their own payment from the tier above.
Scope limitations: Chapter 28 applies to private construction contracts. Public projects — including state agency contracts, county projects, and municipal construction — are governed by separate statutes. Texas Government Code Chapter 2251 establishes prompt payment rules for governmental entities. Federal projects in Texas involving U.S. agencies fall under the federal Prompt Payment Act (31 U.S.C. § 3901 et seq.) and are not covered by state Chapter 28 rules. Residential homestead construction also carries different treatment under Texas law. The Act does not apply to disputes about the quality of work where the owner has formally lodged a written objection within the statutory period.
How it works
The Chapter 28 payment cycle initiates when a contractor or subcontractor submits a written payment request. The statute then triggers a sequential chain of deadlines and, upon breach, an automatic interest penalty.
Payment cycle — numbered breakdown:
- Written payment request submitted by the contractor or subcontractor to the party immediately above in the contract chain.
- Owner review period: The owner has 35 days from receipt to pay or deliver a written explanation identifying the disputed portion (Texas Property Code § 28.002).
- Contractor-to-subcontractor payment: Within 7 days of receiving owner payment, the general contractor must transmit the subcontractor's share downward.
- Sub-tier payment: Each subcontractor follows the same 7-day rule to its sub-subcontractors and material suppliers.
- Interest accrual: Any payment not made within the statutory deadline accrues interest at 1.5 percent per month on the unpaid balance (Texas Property Code § 28.004).
- Attorney's fees: A party that prevails in an action to enforce Chapter 28 may recover reasonable attorney's fees and court costs.
The 1.5 percent monthly rate translates to an annualized rate of 18 percent, making delayed payment financially significant on large commercial contracts. This penalty structure interacts directly with Texas construction retainage rules, since retainage withheld beyond statutory limits can also trigger Chapter 28 interest.
Common scenarios
Scenario 1 — Owner delays payment without written dispute
An owner receives a contractor's pay application but withholds payment for 50 days without issuing a written objection. Under Chapter 28, interest begins accruing on day 36 at 1.5 percent per month. The contractor may pursue the unpaid balance plus interest and attorney's fees.
Scenario 2 — Contractor holds subcontractor funds after owner pays
An owner pays the general contractor in full on day 30. The contractor does not release the subcontractor's portion for 21 days — 14 days beyond the 7-day deadline. Interest accrues on the withheld amount from day 8 post-owner-payment. This scenario is among the most frequently litigated patterns under Chapter 28.
Scenario 3 — Legitimate written dispute
An owner serves written notice within 35 days that 15 percent of a pay application is disputed due to documented incomplete work. The undisputed 85 percent remains subject to the 35-day deadline; only the contested 15 percent may be held pending resolution. Withholding the full amount would expose the owner to interest on the undisputed portion.
Chapter 28 vs. Chapter 2251 comparison:
| Feature | Chapter 28 (Private) | Chapter 2251 (Public) |
|---|---|---|
| Owner type | Private entities | Governmental entities |
| Owner payment deadline | 35 days | Typically 30 days |
| Interest rate on late payment | 1.5%/month | 1%/month (simple) |
| Attorney's fees available | Yes | Subject to sovereign immunity rules |
This distinction matters when a project involves a public-private structure. Contractors should identify the controlling statute before submitting the first pay application. Related filing mechanisms are addressed under Texas mechanic lien filing process and Texas construction lien law.
Decision boundaries
Determining whether Chapter 28 applies and which tier's obligations are at issue requires clear classification of the parties and project type.
Applicability checklist:
- Private project: Chapter 28 applies.
- Governmental owner (city, county, TxDOT, state agency): Chapter 2251 governs; Chapter 28 does not apply.
- Federal project on Texas soil: Federal Prompt Payment Act (31 U.S.C. § 3901) controls.
- Residential homestead: Separate Texas Property Code provisions govern; standard Chapter 28 timelines may differ.
Written objection as a boundary condition: The statute creates a hard boundary between disputed and undisputed amounts. An owner or upstream contractor who fails to provide a timely written objection loses the right to withhold payment without incurring the 1.5 percent monthly penalty. The objection must identify the specific basis for withholding.
Retainage interaction: Texas Property Code Chapter 53 governs retainage rules and caps withholding at 10 percent for the first half of a project and 0 percent thereafter under certain conditions. Retainage held beyond these caps can independently trigger Chapter 28 interest obligations.
Permit and inspection timing: Payment applications tied to milestone completions — such as foundation, framing, or mechanical rough-ins verified by inspection — should reference Texas construction permits overview timelines to ensure pay applications align with documented inspection approvals, reducing the risk of legitimate written disputes that pause the 35-day clock.
References
- Texas Property Code Chapter 28 — Prompt Payment — Texas Legislature Online
- Texas Government Code Chapter 2251 — Payment of Claims — Texas Legislature Online
- Federal Prompt Payment Act, 31 U.S.C. § 3901 — U.S. Government Publishing Office
- Texas Property Code Chapter 53 — Mechanic's, Contractor's, or Materialman's Lien — Texas Legislature Online
- Texas State Law Library — Construction Law — Texas State Law Library