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Section 3: Prompt Payment

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

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.

Per Article 9 “Payment Provisions for Subcontractor,” Pay subcontractors for work performed within 10 days after receiving payment from the Department. The Contractor may withhold retainage on subcontractors in accordance with the state and federal regulations.

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

Contractor needs to submit all complaints in writing. 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 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 correct 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 Non-Payment Notices

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 Prompt Pay Sample Letter CST Support page on Crossroads internal access only.) A sworn statement of account notice is required to be sent to the bonding company under Tex. Gov. Code §2253.041, “Public Work Performance and Payment Bonds.” The applicable portion corresponds to Subchapter C, “Notice Requirements.” We recommend that said statement include the project information and location.

If the subcontractor is a DBE, the District should contact the Civil Rights division for initial guidance. Also, TxDOT’s responsibility (in addition to what service CIV can offer) is limited to providing the subcontractor/supplier the name of the Bonding Company, their listed mailing address, and the bond number.

If a complaint is accepted, follow the procedures outlined below:

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  1. Verify the Department has approved the work in question.
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    • If the Department has not approved the work or materials in question, notify the prime Contractor and subcontractor that no prompt payment issue exists. *
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    • 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. *
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  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.
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  3. Advise the subcontractor that they may file against the payment bond surety
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    • 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
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    • Provide copies of the letter to the prime contractor, subcontractor, and the payment bond surety. *
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  4. Request payment or justification for non-payment
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    • 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. *
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    • 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.
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    • Set a deadline.
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  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.
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  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

The prime Contractor must complete a Form 2177, “Prompt Payment Certification.” For example, if the work was performed in January and the Contractor was paid in February, the Contractor must submit certification no later than the end of March. If final acceptance occurred in January, the Contractor must submit the final certification no later than the end of February. On federally funded projects, Disadvantaged Business Enterprises (DBEs) certify in the Diversity Management System (DMS) that they have been promptly paid.

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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  2. 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, which both FHWA and United States Department of Transportation (USDOT) requirements.

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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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  2. 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.
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  3. All subcontracts on federal-aid projects must contain FHWA Form 1273.

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 Pay Audit

The Department must provide appropriate means to enforce the requirements of Prompt Pay ( 49 CFR 26.29). The Department will conduct a minimum of one audit per quarter per project based on a calendar year basis starting January 1. DBEs certifying they are promptly paid in DMS is considered taking affirmative steps to ensure compliance. Use Form 2177A, “Prompt Pay Audit,” (internal access only) to complete this process.

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