Texas Construction Contracts Overview

A construction contract outlines each party’s obligations, rights, and remedies on a project. But although the language in specific contract clauses is typically negotiable. Texas has certain rules that govern what the agreement must include — and what is prohibited.

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Keep in mind that, while Texas’ rules for construction contract terms are written into state law. The courts determine how strictly those laws should be interpreted — and those interpretations can change.

On this page, you’ll find resources, legal information, and answers to frequently asked questions about Texas’ construction contract and payment terms requirements.

Texas construction contract provisions

While Texas generally allows construction parties to set the terms of their agreement, there are some laws that regulate specific types of contract provisions. Any contract clause that contradicts the law is invalid and unenforceable.

“No lien” clauses

Texas’ mechanics lien laws strictly prohibit no-lien clauses, i.e. the ability to waive the right to file a mechanics lien by contract as against public policy.

Contingent payment clauses

There are two types of contingent payment clauses: pay-if-paid and pay-when-paid; both of which are enforceable under Texas law.

Pay-if-paid clauses will only be enforceable if clearly, expressly, and unequivocally shifts the risk of nonpayment. Even if the clause meets these requirements, there are certain types of contracts and circumstances in which an otherwise valid pay-if-paid clause will be unenforceable. Pay-if-paid clauses are unenforceable in contracts solely for design services, civil engineering projects, and residential projects of 4 units or fewer. Additionally, Texas courts will not enforce such clauses if contractual obligations aren’t met, notice objecting to the enforceability is provided, or as a defense to invalidate a lien, to name a few.

Lastly, pay-when-paid clauses are also enforceable, but will only affect the timing of payment. The obligation to pay still remains, regardless if the owner fails to pay.

Payment timing clauses

Texas’ prompt payment laws on both public and private projects are strictly enforced. The deadlines and timing of payments on any project covered under the Texas prompt pay laws cannot be modified by an agreement between the parties.

Retainage clauses

On private projects, Texas owners must withhold 10% as retainage. This cannot be altered or modified by contract. On Texas public works projects, retainage is capped at 10% for projects valued at less than $5M, and on projects valued at $5M or more, retainage is capped at no more than 5% of the contract price. These amounts cannot be increased by the contract between the parties.

Texas home improvement construction contract requirements

Texas contracts for the improvement of residential properties have a few required disclosures and notices that must be included. This includes a Residential Disclosure Statement outlining the homeowner’s rights in case of a dispute, a list of any subcontractors and suppliers the contractor intends to use on the project, and disclosure concerning construction defects and the notice and opportunity to repair.

Construction Contracts FAQs in Texas

Construction contracts and payment terms are highly regulated in Texas. It can be confusing to figure out when payments must be made, how to make them, and how to best protect your company from expensive problems. Here are some frequently asked questions that come up with construction contracts and payment terms on Texas jobs.

Texas Construction Contracts FAQs

Can you waive lien rights by contract in Texas?

No, contractors cannot waiver lien rights by contract in Texas. The law strictly prohibits these so-called “no-lien clauses” or other such contract provisions under Tex. Prop. Code §53.286:

Notwithstanding any other law and except as provided by Section 53.282, any contract, agreement, or understanding purporting to waive the right to file or enforce any lien or claim created under this chapter is void as against public policy.

How does Texas treat pay-if-paid and pay-when-paid clauses?

Pay-if-paid clauses

Pay-if-paid clauses in Texas are generally enforceable if the clause clearly, unequivocally, and expressly shifts the risk of nonpayment. –Gulf Construction v. Self

However, there are certain types of contracts and exceptions to the enforceability of such provisions.

Pay-if-paid clauses are unenforceable in contracts solely for: (1) design services, (2) civil engineering projects, & (3) improvements to detached single-family residences, duplexes, triplexes, or quadruplexes.

Additionally, Texas will not enforce a pay-if-paid clause under the following circumstances:

• • Certain contractual obligations are not met;
• • The contingent payee provides notice objecting to the enforceability;
• • The contingent payor is in a sham relationship with the obligor;
• • The enforcement would be unconscionable; or
• • Used as a defense to invalidate mechanics’ lien rights.

pay-when-paid clauses

Pay-when paid clauses are enforceable in Texas as well. However, these clauses only act as a timing mechanism, the underlying obligation to pay still exists, despite the owner’s failure to pay a general contractor.

Are no-damages-for-delays clauses enforceable in Texas?

Yes, no-damages-for-delay clauses are generally enforceable in Texas. However, there are 5 common law exceptions to the ability to use the clause as a defense for nonpayment; these include the delay:

• • Was not intended or contemplated by the parties to be within the purview of the provision;
• • Resulted from fraud, misrepresentation, or other bad faith on the part of one seeking the benefit of the provision;
• • Has extended for such an unreasonable length of time, that the party delayed would have been justified in abandoning the contract;
• • Not specifically enumerated delays to which the clause applies; or
• • Based upon active interference or other wrongful conduct, including “arbitrary and capricious acts” and “willfully and unreasoning actions,” without due consideration and in disregard of the rights of the other parties.

–CALIFORNIA CONSTRUCTION CONTRACTS GUIDE & FAQS

Can you contract around Texas’ prompt payment terms?

No, the timing of payments under both the Texas private and public prompt payment laws may not be modified by contract.

On private projects, payments from the property owner must be made within 35 days after receipt of the invoice. Once payment is received, all other payments must be made down the payment chain within 7 days.

See: CALIFORNIA HOME IMPROVEMENT CONTRACTS – DETAILS & REQUIREMENTS

On public projects, payments to the prime contractor must be made within 30 days of either the receipt of goods or services or the receipt of an invoice; whichever is later. Once payment is received, all other payments must be made down the payment chain within 10 days.

Can you contract around Texas’ retainage requirements?

It depends on the type of project.

On private projects in Texas, the owner must retain 10% of the total contract price or the reasonable value of the work if there is no contract price. This cannot be modified by the agreement between the parties.

As for public projects, the amount that can be withheld as retainage differs depending on the total project value. For projects valued at under $5M, no more than 10% may be withheld. However, for projects valued at $5M or more, the amount of allowable retainage is capped at 5%. Note, that public entities may agree to release retainage upon completion of the project, or substantial completion of portions of the project.

For more information visit: Gulf Resources

Does Texas have any specific requirements for construction contracts?

Generally speaking, there are no specific requirements for construction contracts in Texas. However, if the contract is for the improvement of residential property, there are some requirements aimed to protect homeowners.

This includes the Texas Residential Disclosure Statement, a list of subs and suppliers, and a notice regarding defects and the notice and opportunity to cure.

How long do I have to bring a breach of contract claim for nonpayment in Texas?

Under Texas law, the Statue Of Limitation (deadline) to initiate a lawsuit under a breach of contract claim for nonpayment is 4 years from the date the breach occurred, regardless if the contract is oral/implied or written/express. –Tex. Civ. Prac. & Rem. Code §16.004