Construction / 1 min read
Since 1999, Chapter 28 of the Texas Property Code, the Texas Prompt Payment Act, has provided prime and subcontractors alike with the ability to claim high pre-judgment interest rates, costs, and attorney's fees in payment disputes with owners. Sec. 28.010 explicitly details one exception, "this chapter does not apply to any agreement(s) [to] explore, produce, or develop oil, natural gas, natural gas liquids, synthetic gas, sulphur, ore, or other mineral substances [or] for any well or mine services…"
At first glance, this exception appears to pertain just to contractors that are involved in oilfield operations post construction. However, this is not the case. Any agreement to perform construction services on or for a facility related to the services listed in Sec. 28.010, falls squarely under this exception and those contractors are not afforded the benefits and protections of the Texas Prompt Pay Act.
Recently, Linde Engineering North America Inc. learned this the hard way. Arrow Field Services LLC hired Linde Engineering to act as general contractor to build the Bear Den II Plant, a natural gas processing plant located in Watford City, North Dakota. Following construction of the project, Linde Engineering brought multiple causes of action, including a violation of the Texas Prompt Payment Act, against Arrow Field for a failure to pay, resulting in nearly five weeks of trial. At judgment, the court found in favor of Linde, that the Texas Prompt Payment Act applied, and awarded them nearly $45 million.
Arrow Field Services appeal and the Court of Appeals disagreed with the initial ruling. The Court determined that development of the plant "contemplates [a] step taken in the search for, capture, production, and marketing of hydrocarbons," and construction of the plant constituted a "service" in connection with natural gas. Based on these findings, the Court of Appeals determined that Linde's services fell within the stated exemption and the Texas Prompt Payment Act did not apply.
By ruling out the Texas Prompt Payment Act, the Court slashed $17 million in prejudgment interest, $4 million in attorney's fees, and $130,000 in costs from Linde's judgment. This resulted in a reduction of the $45 million award to nearly $21 million.
While certainly still a favorable ruling for Linde Engineering, this case details an important clarification made by the Court: construction services in the oilfield are oilfield services and will not fall under the Texas Prompt Payment Act.