Payment Disputes and Remedies in Texas Construction
Payment disputes are among the most common and disruptive issues in Texas construction projects. Whether due to project delays, disputed invoices, or financial mismanagement, unpaid parties face significant risks. On the other side, property owners and general contractors must protect themselves from exaggerated or improper claims.
This page outlines how payment disputes arise in Texas construction, what legal remedies are available, and how both claimants and defendants can manage these conflicts effectively.
1. Common Causes of Payment Disputes
Construction payment problems often stem from issues related to project performance, documentation, or changes in scope. Common causes include:
• Incomplete or defective work
• Unapproved change orders
• Project delays or acceleration costs
• Retainage disputes
• Owner financing issues
• Payment disputes with subcontractors or suppliers
• Poor contract documentation
Many disputes can be avoided by maintaining proper records, using clear contracts, and communicating frequently throughout the project.
2. Who Can Make a Payment Claim?
Parties who provide labor or materials for the improvement of real property typically have a right to seek payment. These include:
• General contractors
• Subcontractors
• Material suppliers
• Equipment lessors
• Design professionals (in some cases)
• Laborers and tradespeople
Texas law provides both contractual and statutory remedies depending on the claimant’s role and relationship to the project owner.
3. Remedies for Unpaid Contractors and Subcontractors
Several legal tools are available to pursue unpaid amounts on a construction project. These include:
• Mechanic’s lien – A statutory lien filed against the property
• Breach of contract – A lawsuit to recover damages under the contract
• Prompt Payment Act claims – For delayed payments in both private and public projects
• Trust fund claims – Against contractors who misuse funds meant for subcontractors
• Bond claims – For public or bonded projects
• Quantum meruit – Recovery for work performed when no valid contract exists
Selecting the right remedy depends on the contract terms, the status of the project, and the relationships between parties.
4. The Texas Prompt Payment Acts
Texas has two Prompt Payment Acts—one for private construction (Chapter 28 of the Property Code) and one for public works (Chapter 2251 of the Government Code).
Key provisions include:
• Owners must pay contractors within 35 days after receiving a proper invoice
• Contractors must pay subcontractors within 7 days of receiving payment
• Interest penalties apply to late payments
• Improper withholding can result in legal liability
To benefit from these statutes, the claimant must have submitted a correct and timely payment request.
5. Trust Fund Violations
Texas law requires that certain construction payments be held in trust for the benefit of subcontractors and suppliers. Under the Texas Construction Trust Fund Act:
• General contractors are fiduciaries of funds paid by the property owner
• Using these funds for other purposes may result in personal liability
• Beneficiaries (e.g., subcontractors) can bring a claim for misappropriation
Trust fund claims are serious and can lead to civil damages and even criminal liability in extreme cases.
6. Defenses Against Payment Claims
Property owners and contractors facing a payment demand may have valid defenses. These include:
• Work was not performed or was defective
• The amount claimed exceeds the contract value
• No written change order was approved
• Missed lien or notice deadlines
• Payment was already made
• The claimant waived lien rights
Well-documented records and consistent communication are key to defending against exaggerated or fraudulent claims.
7. Resolving Payment Disputes
Most payment disputes can be resolved without court intervention if handled early and professionally. Options include:
• Direct negotiation between the parties
• Mediation with a neutral third party
• Binding arbitration if required by contract
• Filing a lawsuit in state court
• Enforcing a lien through foreclosure
The best course depends on the size of the dispute, time sensitivity, and prior efforts to resolve the issue informally.
8. Retainage Disputes
Retainage is the practice of withholding a percentage of payment until the project is complete. Under Texas law:
• Property owners may withhold 10% of the contract price
• Retainage must be held for 30 days after final completion
• Contractors must file lien claims within strict deadlines to recover unpaid retainage
Improper retainage or failure to release funds can give rise to additional claims.
9. Tips to Avoid Payment Problems
Proactive steps can prevent many payment disputes. Consider these practices:
• Use written contracts with clear payment terms
• Track invoices, change orders, and approvals
• Send payment reminders and follow up promptly
• Document all communications and site visits
• Send required lien notices on time
• Work with legal counsel early when signs of dispute arise
Preventing disputes is always less costly than resolving them after the fact.
10. When to Get Legal Help
You should consult a Texas construction attorney if:
• You are owed money and have not received payment
• A subcontractor is threatening a lien or lawsuit
• There is a dispute over work quality or scope
• You suspect a trust fund violation
• You received a notice of intent to file lien or suit
Early legal guidance can help protect your rights and steer the issue toward resolution.
Conclusion
Payment disputes are common but manageable when the right legal tools and documentation are in place. Whether you are a contractor seeking compensation or a property owner defending against a claim, knowing your rights and obligations under Texas law is the first step.
Guerra Days Law Group represents clients on both sides of construction payment disputes. If you are dealing with a nonpayment issue or want to avoid future claims, contact us today for a consultation.