Subcontractor and Supplier Disputes in Texas
Subcontractors and suppliers are critical to every construction project, but disagreements between general contractors, subcontractors, and vendors are one of the most common sources of legal disputes in Texas construction. These conflicts can lead to payment delays, project disruptions, mechanic’s liens, and even lawsuits.
This page covers the causes of subcontractor and supplier disputes, applicable Texas laws, and strategies for resolving them effectively.
1. Common Causes of Disputes
Subcontractor and supplier conflicts often arise from breakdowns in communication, unclear expectations, or financial stress. Common causes include:
• Late or nonpayment
• Disagreements over scope of work
• Defective or non-conforming materials
• Missed deadlines or delays
• Poor workmanship
• Jobsite coordination problems
• Termination or substitution without cause
Addressing these issues early is key to avoiding litigation or delays to project completion.
2. Contractual Relationships and Privity
In Texas construction, subcontractors and suppliers typically contract with the general contractor, not the property owner. This contractual relationship, or privity, limits who may bring direct claims against whom.
• Subcontractors cannot usually sue the owner unless privity exists
• Owners may still be subject to lien claims from downstream parties
• General contractors are responsible for managing subcontracts and ensuring payment
Contracts should clearly define each party’s responsibilities, scope of work, payment terms, and dispute resolution methods.
3. Payment Rights and Remedies
Subcontractors and suppliers who are not paid for their work or materials may pursue several remedies under Texas law:
• Mechanic’s lien – Filing a statutory lien against the property
• Bond claims – If the project is bonded (especially for public work)
• Breach of contract – Enforcing terms against the hiring party
• Prompt Payment Act claims – For delay in payment without valid justification
• Quantum meruit – For recovery in the absence of a written contract
Lien and bond rights are subject to strict deadlines and notice requirements.
4. Notice and Lien Deadlines
To preserve lien rights, subcontractors and suppliers must:
• Send pre-lien notices by the 15th day of the second month after each month labor or materials were provided
• File a lien affidavit with the county clerk by the 15th day of the third month
• Serve a copy of the affidavit on the property owner and general contractor
Missing these steps will usually forfeit lien rights.
5. Disputes Over Scope and Change Orders
Disagreements about the scope of work and change orders are a frequent cause of disputes. Issues may include:
• Performing extra work without written authorization
• Owner or general contractor refusing to approve or pay for changes
• Lack of clarity in the original scope description
• Disputes about pricing for additions or deletions
Best practices include documenting all changes in writing, using signed change orders, and keeping detailed daily logs.
6. Material Defects and Delivery Issues
Suppliers may face liability if materials delivered to the jobsite are defective, delayed, or fail to meet specifications. Disputes may involve:
• Wrong products or grades
• Damaged or late deliveries
• Failures in performance or installation
• Rejection or refusal to pay by the contractor or owner
Material supply contracts should define quality standards, acceptance procedures, and liability for nonconforming goods.
7. Indemnity and Risk Allocation
Subcontracts often include indemnity provisions, requiring subcontractors to defend and hold harmless the general contractor or owner from certain claims.
• Texas law prohibits broad-form indemnity clauses in construction contracts for residential and commercial projects
• Parties may only indemnify for their own negligence to a limited extent
• Contracts should clearly define the scope and limits of indemnification and insurance requirements
Careful drafting can prevent one party from unfairly shifting risk to another.
8. Insurance and Bonding
Subcontractors should carry proper insurance to limit liability exposure. Requirements may include:
• Commercial general liability (CGL) coverage
• Workers’ compensation
• Auto liability
• Umbrella or excess liability
• Performance or payment bonds
General contractors often require proof of coverage and additional insured status. Disputes may arise over whether insurance applies to a particular claim.
9. Termination and Substitution Disputes
General contractors sometimes seek to remove subcontractors or stop orders with suppliers, triggering disputes. Common problems include:
• Improper termination without cause
• Withholding of payment after termination
• Replacement of subcontractors mid-project
• Accusations of poor performance or delay
Well-drafted contracts should specify procedures for termination, including notice, opportunity to cure, and final payment obligations.
10. Resolving Subcontractor and Supplier Disputes
To resolve disputes, parties may use:
• Direct negotiation
• Mediation
• Arbitration (if agreed by contract)
• Filing a mechanic’s lien or bond claim
• Litigation in state court
Resolution options and outcomes often depend on the clarity of the contract and the quality of the documentation supporting the claim or defense.
Conclusion
Subcontractor and supplier disputes are an unavoidable part of the Texas construction landscape. The best way to avoid legal issues is through clear contracts, proactive communication, and careful documentation of performance and payment.
Guerra Days Law Group helps general contractors, subcontractors, and suppliers resolve disputes and enforce their rights under Texas construction law. Contact us today for experienced legal support.