The private and public prompt pay acts both provide contractors and subcontractors with the right to stop work if an owner or upstream contractor fails to pay an undisputed amount. With H.B. 3485, the Texas legislature has now extended this right when the contractor or subcontractor is waiting on large dollar value change orders.
This is an important change because construction contracts often require contractors and subcontractors to continue working even though a change order remains pending. This situation can put a contractor in limbo and jeopardize its ability to get paid for its work. Conversely, owners and upstream contractors understandably want to keep the project moving to maintain the project schedule and budget.
The legislature resolved these competing concerns by giving contractors and subcontractors the right to temporarily suspend work, but they imposed a materiality threshold. In particular, if the contractor or subcontractor has not received a change order for owner/contractor-directed additional work and the “aggregate actual or anticipated value” of all additional work for which there are not yet fully executed change orders exceeds 10 percent of the contract amount. The amendment goes on to say that 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.”
This is a big win for contractors and subcontractors. It should help expedite change order review and approval, and provide certainty for contractors and subcontractors that they will be paid for significant out of scope of work.