AM Law Alert Update : Update on the Prompt Pay Act
Last month I had the privilege of presenting “HOW LONG OH LORD IS TOO LONG – Delays lasting a ludicrously long time. When do I get to quit and how much, if anything, can I collect in damages?” at the Construction Law Foundation of Texas’s 38th Annual Construction Law Conference in San Antonio. The presentation touched on many considerations contractors should evaluate before suspending or refusing performance. One notable consideration is the recent change the Texas Legislature made to the Prompt Pay Act (Chapter 28 of the Texas Property Code), allowing contractors to refuse additional work.
For decades, construction contractors have signed contracts obligating them to perform additional work (change order work) at an owner’s insistence, even if there was a dispute about whether the work is within or outside the contract. However, newly enacted Section 28.0091 provides some protection for contractors and subcontractors by officially limiting owner-directed change orders for owner-directed work. The new statutory protection provides a contractor or subcontractor with the right to elect not to proceed with additional work directed by an owner if certain circumstances are met. The new statutory language states:
Sec. 28.0091. UNSIGNED CHANGE ORDER.
(a) A contractor or subcontractor may elect not to proceed with additional work directed by an owner if:
(1) the contractor or subcontractor has not received a written, fully executed change order for the owner-directed additional work; and
(2) the aggregate actual or anticipated value of the additional work plus any previous owner-directed additional work for which the contractor or subcontractor has not received a written, fully executed change order exceeds 10 percent of the contractor’s or subcontractor’s original contract amount.
(b) A contractor or subcontractor who elects not to proceed with additional work as provided by this section is not responsible for damages associated with the election not to proceed.
While the new statute seems straight forward, there are a myriad of additional considerations contractors must evaluate before refusing to perform additional work. For example, what if the additional work was a part of the contract scope and the contractor was wrong characterizing it as additional work? What if the contract obligates a contractor to perform additional work through a construction change directive and without signed change order? How is the “anticipated value” determined and who gets to decide that? Each situation is different, and the facts and circumstances involved may lead to different results. Like any new piece of legislation, only time will tell how these and other questions created by the new legislation will be resolved. Regardless, you would be wise to consult with your legal counsel before deciding to suspend or refuse performance.
For more information, please contact Tim Ross.
Click here to receive updates in your inbox!
