H.B. No. 692
AN ACT
relating to retainage requirements for certain public works
construction projects.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. The heading to Subchapter B, Chapter 2252,
Government Code, is amended to read as follows:
SUBCHAPTER B. [INTEREST ON] RETAINED PUBLIC WORKS CONTRACT PAYMENTS
SECTION 2. Section 2252.031, Government Code, is amended by
amending Subdivision (5) and adding Subdivision (6) to read as
follows:
(5) "Retainage" means the percentage [part] of a
public works contract payment withheld by a governmental entity to
secure performance of the contract.
(6) "Warranty period" means the period of time
specified in a contract during which certain terms applicable to
the warranting of work performed under the contract are in effect.
SECTION 3. Section 2252.032, Government Code, is amended to
read as follows:
Sec. 2252.032. RETAINAGE. (a) A governmental entity
shall:
(1) include in each public works contract a provision
that establishes the circumstances under which:
(A) the public works project that is the subject
of the contract is considered substantially complete; and
(B) the governmental entity may release all or a
portion of the retainage for:
(i) substantially completed portions of the
project; or
(ii) fully completed and accepted portions
of the project;
(2) maintain an accurate record of accounting for:
(A) [deposit in an interest-bearing account] the
retainage withheld on [of a public works contract that provides for
retainage of more than five percent of the] periodic contract
payments; and
(B) the retainage released to the prime
contractor for a public works contract [payment]; and
(3) for a public works contract described by
Subsection (c), [(2)] pay any remaining retainage described by
Subdivision (2)(A) and the interest earned on the retainage to the
prime contractor on completion of the work required to be performed
under the contract.
(b) Except as provided by Subsection (i):
(1) if the total value of a public works contract is
less than $5 million, a governmental entity may not withhold
retainage in an amount that exceeds 10 percent of the contract price
and the rate of retainage may not exceed 10 percent for any item in a
bid schedule or schedule of values for the project, including
materials and equipment delivered on site to be installed;
(2) if the total value of a public works contract is $5
million or more, a governmental entity may not withhold retainage
in an amount that exceeds five percent of the contract price and the
rate of retainage may not exceed five percent for any item in a bid
schedule or schedule of values for the project, including materials
and equipment delivered on site to be installed; and
(3) if a public works contract relates to the
construction or maintenance of a dam, as that term is defined by
Section 423.0045, regardless of the total value of the contract, a
governmental entity may not withhold retainage in an amount that
exceeds 10 percent of the contract price and the rate of retainage
may not exceed 10 percent for any item in a bid schedule or schedule
of values for the project, including materials and equipment
delivered on site to be installed.
(c) For a competitively awarded contract with a value of $10
million or more, and for a contract that was awarded using a method
other than competitive bidding, a governmental entity and prime
contractor may agree to deposit in an interest-bearing account the
retainage withheld on periodic contract payments.
(d) If, for the purpose of fulfilling an obligation of a
prime contractor under a public works contract, the prime
contractor enters into a subcontract:
(1) the prime contractor may not withhold from a
subcontractor a greater percentage of retainage than the percentage
that may be withheld from the prime contractor by the governmental
entity under the contract; and
(2) a subcontractor who enters into a contract with
another subcontractor to provide labor or materials under the
contract may not withhold from that subcontractor a greater
percentage of retainage than the percentage that may be withheld
from the subcontractor as determined under Subdivision (1).
(e) A governmental entity may not withhold retainage:
(1) after completion of the work required to be
performed under the contract by the prime contractor, including
during the warranty period; or
(2) for the purpose of requiring the prime contractor,
after completion of the work required to be performed under the
contract, to perform work on manufactured goods or systems that
were:
(A) specified by the designer of record; and
(B) properly installed by the contractor.
(f) On application to a governmental entity for final
payment and release of retainage, the governmental entity may
withhold retainage if there is a bona fide dispute between the
governmental entity and the prime contractor and the reason for the
dispute is that labor, services, or materials provided by the prime
contractor, or by a person under the direction or control of the
prime contractor, failed to comply with the express terms of the
contract or if the surety on any outstanding surety bond executed
for the contract does not agree to the release of retainage. The
governmental entity must provide to the prime contractor written
notice of the basis on which the governmental entity is withholding
retainage under this subsection. If there is no bona fide dispute
between the governmental entity and the prime contractor and
neither party is in default under the contract, the prime
contractor is entitled to:
(1) cure any noncompliant labor, services, or
materials; or
(2) offer the governmental entity a reasonable amount
of money as compensation for any noncompliant labor, services, or
materials that cannot be promptly cured.
(g) A governmental entity is not required to accept a prime
contractor's offer of compensation under Subsection (f)(2).
(h) Subsection (f) may not be construed to limit either the
governmental entity's or prime contractor's right to pursue any
remedy available under the express terms of the public works
contract or other applicable law.
(i) For purposes of this subsection, a project is considered
formally approved if the project is the subject of a resolution
approving an application for financial assistance adopted by the
Texas Water Development Board before September 1, 2019, for any
part of the project's financing. Subsection (b) of this section
does not apply to a governmental entity that receives financial
assistance under Section 15.432 or 15.472, Water Code, for a
project that is formally approved by the Texas Water Development
Board or to a governmental entity that is a wholesale water supplier
that supplies water to customers in 10 or more counties and is
governed by Chapter 49, Water Code. A governmental entity
described by this subsection shall deposit in an interest-bearing
account the retainage withheld under a public works contract that
provides for retainage that exceeds five percent of the periodic
contract payments.
(j) This section may not be construed as affecting a
governmental entity's ability to retain certain amounts due under a
contract as required by Chapter 2258.
SECTION 4. Section 2252.033, Government Code, is amended to
read as follows:
Sec. 2252.033. EXEMPTIONS. This subchapter does not apply
to:
(1) a public works contract executed before August 31,
1981;
(2) a public works contract in which the total
contract price estimate at the time of execution of the contract is
less than $400,000; or
(3) a public works contract made by the Texas
Department of Transportation under [Subchapter A,] Chapter 223,
Transportation Code.
SECTION 5. The changes in law made by this Act apply only to
a contract to which Subchapter B, Chapter 2252, Government Code,
applies that is entered into on or after the effective date of this
Act. A contract to which Subchapter B, Chapter 2252, Government
Code, applies that is entered into before the effective date of this
Act is governed by the law in effect when the contract was entered
into, and the former law is continued in effect for that purpose.
SECTION 6. This Act takes effect immediately if it receives
a vote of two-thirds of all the members elected to each house, as
provided by Section 39, Article III, Texas Constitution. If this
Act does not receive the vote necessary for immediate effect, this
Act takes effect September 1, 2021.
______________________________ ______________________________
President of the Senate Speaker of the House
I certify that H.B. No. 692 was passed by the House on May 11,
2021, by the following vote: Yeas 145, Nays 0, 1 present, not
voting; and that the House concurred in Senate amendments to H.B.
No. 692 on May 28, 2021, by the following vote: Yeas 145, Nays 0, 2
present, not voting.
______________________________
Chief Clerk of the House
I certify that H.B. No. 692 was passed by the Senate, with
amendments, on May 21, 2021, by the following vote: Yeas 31, Nays
0.
______________________________
Secretary of the Senate
APPROVED: __________________
Date
__________________
Governor