Dallas Business Journal, Friday, October 26, 2007

Disputes over who gets paid and when likely to continue
Excerpted from Dallas Business Journal - by Ford Gunter and Margaret Allen Staff Writers

Controversy is building over a new commercial construction law.

The law, part of the Texas Business & Commerce Code, aims to resolve the long-standing wrangle between general contractors and subcontractors over who gets paid if the owner or financier of a project defaults or withholds payment.

In the past, if a general contractor didn't get paid, so-called "contingent-payment clauses" in contracts meant that neither did any of the subcontractors, regardless of whether they had anything to do with why the owner hadn't paid up.

On Sept. 1, that all changed.

Now, if a project owner doesn't pay, general contractors cannot necessarily hide behind the contingent-payment clause. Subcontractors not in breach of their contract with the general contractor now have a limited right to sue to get a portion of the money they are owed.

"Generally speaking, the new law severely restricts, but does not ban, the use of contingent-payment clauses," says Gavin McGee, an attorney and shareholder with Houston-based Andrews Myers Coulter & Cohen PC, which specializes in construction, real estate and corporate law.

The new law -- which many say is complicated, confusing and probably more of a framework that will need tweaking by the Legislature in the future -- has some subcontractors cheering.

Ernesto Lopez, owner of Dallas-based commercial and industrial electrical contractor Lopez Electric Co. Inc., said he wrote letters to lawmakers endorsing the change when it was being considered as a bill. He's glad to see it's now a law.

"It's a definite step in the right direction," Lopez said. "Prior to this we had no rights whatsoever."

While subcontractors believe they bore the burden for unpaid work in the past, now some of that risk appears to have shifted slightly to the general contractor.

"I like to say all's fair in love and war and business," says Dale Trevino, principal in The Trevino Group Inc., a Houston-based general contractor. "This is just an unfair bill. In the past, the pain was shared across the board. With this new law, the main risk is sitting on the general contractor's lap."

This e-mail address is being protected from spambots. You need JavaScript enabled to view it | 713-960-5931 This e-mail address is being protected from spambots. You need JavaScript enabled to view it | 214-706-7119
All contents of this site © American City Business Journals Inc. All rights reserved.