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Section 3: Prompt Payment

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Policy

Pay the Contractor no earlier than 10 calendar days or no later than 30 calendar days following the month in which work was completed and accepted.

Prompt Pay is required for both state and federally funded projects.

As per item 9 in the Standard Specifications for Construction and Maintenance of Highways, Streets, and Bridges the contractor must pay subcontractor's within 10 days. The contractor may hold retainage if stated in their subcontract agreement.

The Contractor must pay any retainage on subcontractor work within 10 calendar days after satisfactory completion of all of the subcontractor's work. Satisfactory completion is accomplished when:

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  • the subcontractor has fulfilled the contract requirements of both the Department and the subcontract for the subcontracted work, including the submission of all information required by the specifications and the Department and
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  • the Department has inspected and approved the subcontractor's work, and the final quantities of the subcontractor's work hours have been determined and agreed upon.
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Contractor Complaints

Determine if payment has been made for the work in question. If payment has been made, notify the contractor. Ensure that the contractor receives the notice prior to the 20th calendar day from the date of the contractor's written notice.

If payment has not been made and there is no dispute concerning the work involved, pay the contractor as soon as possible but no later than the 20th calendar day from the date of the prime contractor's written notice.

If payment has not been made due to a dispute of the work, notify the prime contractor that a bona fide dispute exists and include the specific reasons for nonpayment. Ensure that the contractor receives the notice prior to the 20th calendar day from the date of the contractor's written notice. Provide the contractor with a reasonable opportunity to cure areas of noncompliance or offer reasonable compensation for areas where noncompliance cannot be achieved in accordance with the contract. Do not waive the contractor's responsibility to comply with the contract.

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Subcontractor and Materials Supplier Complaints

Ensure subcontractors submit all complaints in writing. The complaint should identify specifics regarding the subcontract language, items of work in question, and the subcontractor's attempts to obtain payment from the prime contractor. Notify the subcontractor that the complaint will not be accepted until the subcontractor provides satisfactory written evidence they have contacted the prime contractor and its payment bond surety in an attempt to resolve the issue. (See sample letter in chapter 17.)

If a complaint is accepted, follow the procedures outlined below. Also refer to the Prompt payment Flow Chart provided in Chapter 17.

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Anchor: #i1025965Handling Complaints from Subcontractors and Material Suppliers

Step

Action

1

Verify the Department has approved the work in question.

  • If the Department has not approved the work materials in question, notify the prime contractor and subcontractor that no prompt payment issue exists. *
  • If the Department has approved the work, determine if the Department made payment. If not, make payment to the prime contractor and notify the parties involved of the resolution. *
2

If the Department paid for work or materials, determine if a dispute exists by referring to prompt payment certifications and other supporting information.

NOTE: Supporting information aids in the determination of a dispute or resolution to a dispute that may include a subcontractor. Examples: subcontractor agreements (includes quantities and unit prices) or supplier agreements, invoices, subcontract or supplier revisions (change orders), canceled checks, identification of billing errors, etc.

  • If YES, a dispute is determined to exist, go to step 3.
  • If NO, a dispute is determined not to exist, go to step 4.
3
  • Advise the subcontractor that it may file against the payment bond surety.
  • Forward the subcontractor's letter of complaint to the prime contractor advising it of its responsibility to work with the subcontractor to resolve the dispute.
  • Provide copies of the letter to the prime contractor, subcontractor, and the payment bond surety. *
4
  • Forward the subcontractor's letter of complaint to the prime contractor with a copy of the payment bond surety.
  • Request payment or justification for non-payment.
    • If the prime contractor makes payment or provides documentation that substantiates the dispute, forward the response to the subcontractor and advise that payment was made or a dispute exists. Send a copy of the subcontractor notice to the payment bond surety. In instances of a dispute, advise the parties it is the responsibility of the parties involved to resolve the issue. *
    • If the prime contractor has not made payment and does not provide notification of a dispute within the timeframe specified, initiate the appropriate administrative action. Possible administrative actions include suspending work, withholding all or a portion of an estimate, withholding project acceptance, placing the prime contractor in default for breach of contract, or other actions deemed appropriate.
  • Set a response deadline.
5

Second-tier subcontractor complaints should be forwarded to and addressed by the prime contractor, with a copy of the prime contractor's notice sent to the payment bond surety.

6

Ensure the prime contractor and subcontractor receive the notices associated with prompt payment prior to the 20th calendar day from the date of the subcontractor's written notice of complaint.


* No further Department action necessary related to prompt payment.

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Contractor Compliance

Obtain a completed Form 2177, “Prompt Payment Certification,” from the contractor for all projects.

The prime contractor must submit a certification form monthly during the course of the project and the month following final acceptance. Initiate the following actions for receipt and review of the required certification form.

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  1. Verify the form is received by the due date and any payments withheld are based on a dispute.
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  3. If payment is withheld without a stated dispute or the prime contractor fails to provide the monthly or final certifications:
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    • contact the prime contractor with a reminder of its contractual obligation, and
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    • when required, escalate the issue. Escalated actions may include suspending work, withholding all or a portion of an estimate, withholding project acceptance, placing the prime contractor in default for breach of contract, or other actions deemed appropriate.

When determining if a legitimate dispute exists, the following situations are not considered valid reasons as per USDOT. All subcontracts on federal-aid projects must contain FHWA Form 1273.

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  1. A prime contractor may not withhold payment to a subcontractor due to the prime not being paid the final estimate on the project. A subcontractor is entitled to payment when the Department makes payment for the work and the subcontractor meets the requirements of the subcontract.
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  3. A prime contractor may not withhold payment to a subcontractor on Project A for delinquencies or issues with the subcontractor on other projects, such as Project B or C.

Area Office must review in DMS when a subcontractor indicates they are not paid promptly and address any payment discrepancies.

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Prompt Payment Audit

The Department must provide appropriate means to enforce the requirements of prompt pay ( 49 CFR 26.29) and take affirmative steps to monitor and enforce prompt payment. To ensure compliance, the Department will conduct a minimum of one audit per quarter per project. The quarter will be based on a calendar year basis starting January 1st as per FHWA recommendation.

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Anchor: #i1026360Prompt Payment Audit Process

Step

Action

1

TxDOT receives Form 2177 from prime contractor.

  • Form must be received by TxDOT prior to the end of the month following each month payment was received and the month following the month when final acceptance occurred.
2

Select a subcontractor or a supplier on the contract to verify full payment was received and on time.

  • If project is in the Diversity Management System (DMS), select a non-DBE subcontractor or supplier.
  • If project is not in DMS and contains a DBE goal, select a DBE.
  • If project is containing no DBE goal, select any subcontractor/supplier.
3

Contact the subcontractor or supplier, and request the following.

  • “Was your firm paid in full and on time for the work performed during this reporting period? (Yes or No) If so, provide proof of payment in your response. If not, provide an explanation.”
  • Example proof of payment includes: canceled checks, bank statements, etc.
4

Store proof of payment in project records.

5

Enter the date the audit was completed in the SiteManager Checklist of Events.


Anchor: #i1031690Prompt Payment Audit Selection

Project Type

Whom to Audit

Federal Projects with DBE goal NOT in DMS

DBE

Federal Project with DBE goal in DMS

Non-DBE

State Funded

Anyone

Federal Project with 0% DBE goal

Non-DBE



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