The Nature of a Payment Dispute

A payment dispute erupts when money owed for labor, materials, or equipment fails to arrive on the date—or in the amount—the parties expected. Whether the shortfall stems from non-payment, late payment, under-payment, or a quarrel over change-order pricing, the ripple effect is the same: strained trade relationships, threatened schedules, and potential lien or bond claims that cloud title and alarm lenders.

Why Getting Paid on Time Matters

Construction margins are notoriously thin. Contractors and subcontractors rely on progress payments to meet payroll, purchase materials, and cover overhead. Owners, for their part, depend on orderly payment flows to keep subcontractors mobilized and to satisfy lender draw requirements. Understanding the legal tools that spur payment—and the penalties that attend delay—is therefore fundamental to project success.

Typical Flashpoints

• Simple non-payment after a pay application is approved.
• Slow-pay practices that push contractors past statutory deadlines.
• Under-payment driven by unilateral back-charges or disputed change orders.
• Retention battles over when the final ten percent should be released.
• Quality or scope disputes that prompt owners to withhold funds until defects are cured.

The Legal Arsenal

Texas prompt-payment statutes
Private work falls under Property Code Chapter 28: the owner must pay a properly submitted invoice within thirty-five days or face 1.5 percent monthly interest and attorney’s fees. Prime contractors must pass payment to subs within seven days of receipt.
Public work is governed by Government Code Chapter 2251: state and local entities have thirty days (thirty-five for certain municipalities) to pay undisputed invoices; interest accrues thereafter.

Federal Prompt Payment Act
On federally funded projects, agencies generally must pay within fourteen days of invoice approval or incur interest automatically.

Mechanic’s liens and bond claims
Chapter 53 of the Texas Property Code provides lien rights on private jobs, while the Little Miller Act (Texas Government Code Chapter 2253) and the federal Miller Act substitute payment bonds on public land.

Texas Trust-Fund Act
Under Property Code Chapter 162, construction payments received by a contractor are trust funds for the benefit of subs and suppliers. Diversion exposes individual officers to personal liability.

Contractual leverage
Well-drafted agreements lock in milestone dates, retainage release triggers, pay-if-paid or pay-when-paid clauses, and clear change-order pricing procedures—setting the rules before the first invoice is cut.

Best Practices for Trade Partners

• Draft contracts that spell out invoice intervals, pay-application contents, change-order approval steps, and retainage release dates.
• Send complete, accurate invoices with backup—daily reports, delivery tickets, signed change directives—to avoid owner “insufficient documentation” delays.
• Track statutory notice deadlines for liens or bond claims from day one; do not wait for a crisis.
• Speak up early and in writing when payment slips; a prompt notice letter preserves trust-fund and interest claims.
• Maintain meticulous records: contracts, correspondence, certified-mail receipts, wire confirmations, and lien waivers.

Best Practices for Owners and Developers

• Require schedule-of-values detail and sworn pay-applications to verify work in place.
• Release funds swiftly once work is approved; the interest clock starts immediately under state and federal prompt-payment rules.
• Use joint checks or direct pays when you detect upstream arrears that might lead to liens or bond claims.
• Secure unconditional lien waivers contemporaneously with each progress payment.
• Address quality or scope disputes quickly; withholding funds forever invites statutory interest and litigation.

Connect With Us

Payment disputes are rarely just about money; they threaten manpower, material flow, and ultimately the project’s delivery date. By coupling clear contractual language with statutory prompt-payment protections, lien and bond rights, and disciplined documentation, contractors and owners alike can transform the specter of non-payment into predictable, enforceable cash flow—and keep the job moving toward completion rather than the courthouse.