Construction / 1 min read
Many subcontractors have taken advantage of the newly enacted Texas Property Code Section 28.0091 (now in effect for construction contracts executed on and after September 1, 2023). In certain situations, this new statutory protection offers subcontractors the option to refuse to proceed with its work without the threat of being “responsible for damages associated with the election not to proceed” with the owner directed changes. Tex. Prop. Code Ann. § 28.0091.
However, a few of these same subcontractors that routinely utilize this new protection fail to use the remedy in the Texas Business and Commerce Code that offers subcontractors an on the job and “post-contractual” ability to object to the enforcement of a pay-if-paid contract term if it successfully follows the required statutory scheme. This potentially powerful and underutilized tool may potentially impair an upstream party’s ability to rely on the pay-if-paid clause if the subcontractor gives the general contractor a timely and effective notice objecting to the enforcement of the clause, and the contractor fails to timely advise the subcontractor in writing that its notice of objection is ineffective due to the subcontractor’s default.
There are several notice and substantive requirements that a subcontractor must meet to effectively object and protect the right to receive payment on its pay application—regardless of the payment status between the owner and general contractor. If the subcontractor is able to effectively meet the requirements set out in the Code—then the onus will be on the general contractor to timely and effectively meet the specific response requirements.
In that situation, a detailed consideration of the Code and present facts would be necessary to determine the effectiveness of the pay-if-paid defense, but—at a minimum—a subcontractor has the potential to be in a better position than if it had waited until the end of the job to try to fight the pay-if-paid clause in its subcontract.