Prompt Payment

Joint Checks on Construction Projects

joint check texas construction project lawWhat are joint checks? How are they used on construction projects? Are they a perfect solution?

A joint check is a check made payable to two or more payees in the conjunctive, e.g. “Jane Doe Masonry, Inc. and Good Brick, Inc.” A financial institution should only honor the check if both payees have correctly endorsed it.

A joint check may provide the parties on a construction project an additional level of security. For example, an owner may issue a joint check payable to both the general contractor and the subcontractor. By endorsing this check, both the general contractor and subcontractor will be admitting receipt of payment: the general contractor from the owner, and the subcontractor from the general contractor. By virtue of this fact, the owner has some assurance that the general contractor has paid the subcontractor at least some portion of what the subcontractor is properly owed. Furthermore, the subcontractor will know when and how much the general contractor has been paid.

Joint checks are not foolproof. People and financial institutions can intentionally or carelessly circumvent the security joint checks may offer.

In our Law 101 posts, we define terms, phrases, or concepts with the goal of conveying core information in order to set the stage for more complex discussions.

Overview of Prompt Payment to Contractors on State Governmental Construction Projects

Texas state agencies and political subdivisions (counties, municipalities, public school districts, and special-purpose districts/authorities) must pay general contractors within 30 days of the later of the date the governmental authority receives (a) goods under the construction contract; (b) services under the construction contract; or (c) an invoice for the goods/services.prompt payment contractors texas governmental projects

The general contractors, in turn, must pay their subcontractors within 10 days after the general contractors receive payment.

These time frames do not apply if there is a bona fide dispute about the goods delivered or the service performed that causes the payment to be late.

More details in future posts. For information on prompt payment on private projects, click here.

In our Law 101 posts, we define terms, phrases, or concepts with the goal of conveying core information in order to set the stage for more complex discussions.

Prompt Payment to Contractors on Private Projects

Texas law generally requires the owner of a private construction, improvement, or demolition project to promptly pay the contractor for the contractor’s work. Specifically, upon receipt of a written payment request from the contractor for an amount owed under the contract for properly performed work (or suitably stored or specially fabricated materials), the owner must pay the amount to the contractor, less any amount withheld as authorized by statute, not later than the 35th day after the date the owner receives the request.texas prompt payment act

However, an exception to timely and full payment arises when a good faith dispute exists concerning the amount owed for a payment requested, including whether the work was performed in a proper manner. In this situation, the amount that may be withheld from payment is statutorily prescribed and varies based on the type of project at issue.

Disagreements frequently arise as to whether work was properly performed and whether, therefore, a contractor is entitled to prompt payment, in whole or in part.

A contractor may have the right to claim additional interest, suspend work, and bring suit under the Prompt Payment Act to enforce payment.

A party to a lawsuit under the Prompt Payment Act may ask to recover from the opposing party its reasonable, equitable, and just legal fees.

In our Law 101 posts, we define terms, phrases, or concepts with the goal of conveying core information in order to set the stage for more complex discussions.