Retainage Law in Texas
by Donald Ray Burger
Attorney at Law

This article addresses the law in Texas on how a subcontractor recovers the retainage withheld by a prime contractor under the terms of a public works contract. This law applies to public works contracts over $25,000 between the prime contractor and the governmental entity.

Subcontractors in Texas know that when they subcontract with a prime contractor who is involved in a public works contract with a governmental entity (like the state, a county, a municipality or a school district), the prime contractor holds back part of the contract price as retainage. That money is supposed to be paid to the subcontractor after the project is completed.

Sometimes, because of a dispute with the governmental entity or for other reasons, the prime contractor is slow to pay the retainage.

What a subcontractor must do to get the retainage is set out in Chapter 2253 of the Texas Government Code. This article will discuss some of the steps a subcontractor must go through and some of the time deadlines that are faced. This is only an introduction to this area of the law. For specific questions one should contact an attorney familiar with retainage law in Texas.

Governmental entities require that prime contractors doing public works contracts for them obtain payment bonds. If the prime contractor obtains such a bond, the subcontractor cannot sue the governmental entity over the retainage. Conversely, if the governmental entity fails to make sure the prime contractor gets a payment bond, the governmental entity is liable as a surety. Otherwise, only the prime contractor and/or surety are liable.

A subcontractor can verify that a payment bond has been obtained by the prime contractor by requesting a copy from either the prime contractor or the governmental entity.

To recover in a suit on a payment bond for retainage, the subcontractor must mail (by certified or registered mail) written notice of the claim to the prime contractor and the surety on or before the 90th day after the date of final completion of the public work contract.

This date is not always easy to ascertain. Speed is of the essence here, but determining "the date of final completion of the public work contract" can get complicated. If you think you have missed this deadline, do not give up without talking to a lawyer.

The written notice shall consist of a statement of: (a) the amount of the [sub] contract; (b) the amount paid; and (c) the outstanding balance.

The notice to the prime contractor must be addressed to the prime contractor's residence or last known business address.

Once the notice of claim is mailed, the subcontractor may sue the prime contractor or surety (jointly or severally), on the payment bond, if the claim is not paid before the 61st day after the date the notice of the claim is mailed. Suit must be brought within one year of mailing said notice. Suit shall be brought in the county in which any part of the public work is located.

One can recover the unpaid balance of the claim and reasonable attorney fees.

Apparently, under Section 2253.074, either side can obtain its reasonable attorney fees and costs that are equitable (i.e., upon prevailing).

In conclusion, the good thing about retainage law in Texas is that there is usually a solvent defendant to pay the judgment. The bad thing is that there are a number of hoops a subcontractor must jump through to collect. Please contact a lawyer if you have specific questions.

Written by Donald Ray Burger, Attorney at Law
Last Revised July 15, 1996

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