Texas Prompt Payment Act: Deadlines, Penalties, and Interest When an Owner or Contractor Pays Late

By Hank FasthoffJuly 5, 2026

Texas has two prompt payment statutes for construction, and which one governs your project depends on who owns it. Private projects are governed by Texas Property Code Chapter 28. Public projects (state agencies, counties, cities, school districts, and other governmental entities) are governed by Texas Government Code Chapter 2251. Both statutes impose fixed payment deadlines, automatic interest penalties for late payment, and remedies that can't be waived by contract. If you're owed money on a Texas construction project and the party above you in the payment chain is sitting on your invoice, one of these statutes applies to your situation.

Private Projects Under Chapter 28

Chapter 28 establishes a payment cascade that runs from the owner through every tier of the construction chain.

An owner must pay the contractor within 35 days after receiving a written payment request for work properly performed, materials suitably stored, or specially fabricated materials. If the owner doesn't pay within 35 days and hasn't raised a good faith dispute in writing, interest begins accruing on day 36.

Once the contractor receives the owner's payment, the contractor must pay each subcontractor the portion of the payment attributable to that subcontractor's work within seven days. If the contractor withholds the payment beyond the seven-day window, interest accrues from day eight.

Each subcontractor must pay its own downstream subcontractors and suppliers within seven days of receiving payment from the tier above. The seven-day rule cascades through every level of the payment chain.

Interest on Late Payments

On private projects, interest accrues at 1.5 percent per month on the unpaid amount, which annualizes to 18 percent. § 28.004. Interest is simple, not compounded, and begins accruing the day after the payment deadline passes. On a $200,000 unpaid invoice, that's $3,000 per month in statutory interest, an amount that accumulates quickly enough to change the economics of any payment dispute.

On public projects, interest accrues at a rate set annually by the Texas Comptroller, calculated as the Wall Street Journal prime rate on the first business day of July plus one percentage point. For fiscal year 2026 (September 1, 2025 through August 31, 2026), the rate is 8.50 percent per year. § 2251.025.

Interest under both statutes runs automatically. You don't need to demand it, file a claim for it, or send a separate notice. If the payment is late, interest accrues by operation of law.

Good Faith Disputes

Neither statute requires you to pay for work you're disputing in good faith. If a good faith dispute exists over whether the work was properly performed, the paying party can withhold payment, but only on the disputed portion, not the entire invoice.

On non-residential private projects, the party withholding payment can withhold up to 100 percent of the disputed amount. On residential projects (single-family homes, duplexes, triplexes, and quadplexes), the withholding cap is 110 percent of the disputed amount. § 28.003. Any amount beyond those limits is "wrongfully withheld" and accrues interest from the date it was due.

On public projects, the governmental entity must notify the contractor of the dispute within 21 days of receiving the invoice. § 2251.042. If the government doesn't provide written notice within that window, the full amount is treated as undisputed and the payment deadline applies.

Withholding payment without a documented, good faith basis is the most common prompt payment violation. An owner who withholds the entire $200,000 pay application because of a $15,000 dispute over one section of work owes interest on the $185,000 that isn't in dispute.

The Right to Stop Work

On non-residential private projects, an unpaid contractor or subcontractor can suspend performance if payment isn't received within 10 days after the unpaid party provides written notice to the owner (and any lender, if applicable) of the nonpayment and the intent to stop work. § 28.009. Stopping work under this provision is a statutory right, not a breach of contract, provided you follow the notice requirements.

Residential projects are excluded from the stop-work provision. If you're building or renovating a single-family home, duplex, triplex, or quadplex, Chapter 28's stop-work right doesn't apply.

On public projects, vendors (including contractors) may suspend performance if the governmental entity doesn't pay within the statutory deadline, but only after providing written notice informing the entity that payment hasn't been received and identifying the amount owed. § 2251.051.

Stopping work is a powerful remedy, but it's also a dangerous one if you do it without following the statutory notice requirements. A contractor who stops work without proper notice may be treated as having abandoned the project, which can trigger termination for cause, forfeiture of retainage, and liability for the owner's completion costs. Follow the statute precisely.

Attorney's Fees

On private projects, a court or arbitrator may award reasonable attorney's fees and costs to the prevailing party in an action to enforce Chapter 28. § 28.005. Attorney's fees are discretionary, not mandatory, but courts routinely award them when the withholding party can't demonstrate a good faith basis for the late payment.

On public projects, attorney's fees are mandatory. The opposing party must pay the reasonable attorney's fees of the prevailing party in any action to collect an invoice payment or interest under Chapter 2251. § 2251.043. This mandatory fee-shifting makes public project prompt payment claims particularly powerful, because the governmental entity (or the contractor withholding sub payments) faces both the underlying obligation and the other side's legal costs.

The 10 Percent Change Order Rule

In 2023, the Texas Legislature passed HB 3485 (effective September 1, 2023, for contracts entered into on or after that date), which gave contractors and subcontractors a new right related to unsigned change orders.

Under Texas Property Code § 28.0091 (private projects) and Government Code § 2251.0521 (public projects), a contractor or subcontractor can refuse to perform additional directed work when the cumulative value of unsigned change orders exceeds 10 percent of the original contract value. Before HB 3485, owners could issue unilateral change directives and expect the contractor to perform the work before price was agreed, putting the contractor in the position of performing work without knowing whether or how much it would be paid.

HB 3485 lets the contractor refuse additional work once unsigned changes accumulate beyond 10 percent of the contract value, forcing the owner to formalize the change orders (and agree on price) before directing more work.

The 2025 Audit Loophole Fix

Under HB 3005 (effective September 1, 2025, for contracts entered into on or after that date), an audit of a construction project that continues for more than 60 days after substantial completion no longer constitutes a good faith or bona fide dispute that justifies withholding payment. Texas Property Code § 28.003(c) and Government Code § 2251.002(c).

Before this amendment, some owners and governmental entities used extended post-completion audits as a pretext to delay final payment and retainage release for months after the work was finished. The 60-day audit cutoff closes that loophole by treating any audit that runs beyond 60 days post-completion as something other than a legitimate basis for withholding payment.

Chapter 28 Can't Be Waived

Any provision in a construction contract that waives or attempts to modify Chapter 28's requirements is void and unenforceable. § 28.010. You can't contract around the 35-day payment deadline, the seven-day pass-through requirement, the 1.5 percent monthly interest rate, or the stop-work right. An owner who includes a contract clause stating that "payments shall be made within 90 days" can't enforce that clause against Chapter 28's 35-day deadline. The statute overrides the contract.

Government Code Chapter 2251 contains a similar non-waiver provision. Prompt payment deadlines on public projects can't be modified by contract.

Public Projects Under Chapter 2251

Payment deadlines on public projects differ from private projects in several respects.

A governmental entity must pay the prime contractor within 30 days of the later of the date the entity receives the goods or services under the contract, or the date the entity receives the contractor's invoice. § 2251.021.

Once the prime contractor receives the governmental entity's payment, the contractor must pay each subcontractor within 10 days (compared to seven days under Chapter 28). § 2251.022. Each subcontractor must pay its own downstream subcontractors and suppliers within 10 days as well.

If the governmental entity disputes the payment, it must provide written notice to the contractor within 21 days of receiving the invoice, stating the specific reasons for the dispute. § 2251.042. If the entity doesn't notify the contractor within 21 days, the invoice is treated as undisputed.

Practical Recommendations

Submit written payment requests on time and keep records of when they were received. Chapter 28's 35-day clock doesn't start running until the owner receives the written request. If you submit pay applications verbally or don't document delivery, you can't prove when the clock started.

If payment is late, send a written demand identifying the amount owed, the date it was due, and the interest accruing under the applicable statute. Don't assume the owner or GC knows about the prompt payment penalties. Putting the statutory interest rate in writing (18 percent per year on private projects, 8.50 percent on public projects for fiscal year 2026) often accelerates payment.

If you're considering stopping work, follow the statutory notice procedure precisely. Send written notice to the owner and lender (on private projects) or the governmental entity (on public projects), identify the unpaid amount, state your intent to suspend performance, and allow the statutory waiting period to expire before stopping. Don't stop work first and send the notice later.

Don't sign contract provisions that purport to extend payment deadlines beyond the statutory limits. Those provisions are void under § 28.010, but invoking them in a dispute costs time and legal fees. It's simpler to challenge the provision as unenforceable during contract negotiation.

Track every payment deadline from the day you submit your pay application. Calendar the 35-day owner deadline, the seven-day (or 10-day on public) pass-through deadline, and the date interest begins accruing. Prompt payment claims are strongest when you can show, with documentation, exactly when payment was due and exactly how many days it's been late.