H.B. No. 692

	AN ACT
	relating to retainage requirements for certain public works
	construction projects.
	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
	SECTION 1.  The heading to Subchapter B, Chapter 2252,
	Government Code, is amended to read as follows:
	SUBCHAPTER B. [INTEREST ON] RETAINED PUBLIC WORKS CONTRACT PAYMENTS
	SECTION 2.  Section 2252.031, Government Code, is amended by
	amending Subdivision (5) and adding Subdivision (6) to read as
	follows:
	(5)  "Retainage" means the percentage [part] of a
	public works contract payment withheld by a governmental entity to
	secure performance of the contract.
	(6)  "Warranty period" means the period of time
	specified in a contract during which certain terms applicable to
	the warranting of work performed under the contract are in effect.
	SECTION 3.  Section 2252.032, Government Code, is amended to
	read as follows:
	Sec. 2252.032.  RETAINAGE. (a) A governmental entity
	shall:
	(1)  include in each public works contract a provision
	that establishes the circumstances under which:
	(A)  the public works project that is the subject
	of the contract is considered substantially complete; and
	(B)  the governmental entity may release all or a
	portion of the retainage for:
	(i)  substantially completed portions of the
	project; or
	(ii)  fully completed and accepted portions
	of the project;
	(2)  maintain an accurate record of accounting for:
	(A)  [deposit in an interest-bearing account] the
	retainage withheld on [of a public works contract that provides for
	retainage of more than five percent of the] periodic contract
	payments; and
	(B)  the retainage released to the prime
	contractor for a public works contract [payment]; and
	(3)  for a public works contract described by
	Subsection (c), [(2)] pay any remaining retainage described by
	Subdivision (2)(A) and the interest earned on the retainage to the
	prime contractor on completion of the work required to be performed
	under the contract.
	(b)  Except as provided by Subsection (i):
	(1)  if the total value of a public works contract is
	less than $5 million, a governmental entity may not withhold
	retainage in an amount that exceeds 10 percent of the contract price
	and the rate of retainage may not exceed 10 percent for any item in a
	bid schedule or schedule of values for the project, including
	materials and equipment delivered on site to be installed;
	(2)  if the total value of a public works contract is $5
	million or more, a governmental entity may not withhold retainage
	in an amount that exceeds five percent of the contract price and the
	rate of retainage may not exceed five percent for any item in a bid
	schedule or schedule of values for the project, including materials
	and equipment delivered on site to be installed; and
	(3)  if a public works contract relates to the
	construction or maintenance of a dam, as that term is defined by
	Section 423.0045, regardless of the total value of the contract, a
	governmental entity may not withhold retainage in an amount that
	exceeds 10 percent of the contract price and the rate of retainage
	may not exceed 10 percent for any item in a bid schedule or schedule
	of values for the project, including materials and equipment
	delivered on site to be installed.
	(c)  For a competitively awarded contract with a value of $10
	million or more, and for a contract that was awarded using a method
	other than competitive bidding, a governmental entity and prime
	contractor may agree to deposit in an interest-bearing account the
	retainage withheld on periodic contract payments.
	(d)  If, for the purpose of fulfilling an obligation of a
	prime contractor under a public works contract, the prime
	contractor enters into a subcontract:
	(1)  the prime contractor may not withhold from a
	subcontractor a greater percentage of retainage than the percentage
	that may be withheld from the prime contractor by the governmental
	entity under the contract; and
	(2)  a subcontractor who enters into a contract with
	another subcontractor to provide labor or materials under the
	contract may not withhold from that subcontractor a greater
	percentage of retainage than the percentage that may be withheld
	from the subcontractor as determined under Subdivision (1).
	(e)  A governmental entity may not withhold retainage:
	(1)  after completion of the work required to be
	performed under the contract by the prime contractor, including
	during the warranty period; or
	(2)  for the purpose of requiring the prime contractor,
	after completion of the work required to be performed under the
	contract, to perform work on manufactured goods or systems that
	were:
	(A)  specified by the designer of record; and
	(B)  properly installed by the contractor.
	(f)  On application to a governmental entity for final
	payment and release of retainage, the governmental entity may
	withhold retainage if there is a bona fide dispute between the
	governmental entity and the prime contractor and the reason for the
	dispute is that labor, services, or materials provided by the prime
	contractor, or by a person under the direction or control of the
	prime contractor, failed to comply with the express terms of the
	contract or if the surety on any outstanding surety bond executed
	for the contract does not agree to the release of retainage. The
	governmental entity must provide to the prime contractor written
	notice of the basis on which the governmental entity is withholding
	retainage under this subsection. If there is no bona fide dispute
	between the governmental entity and the prime contractor and
	neither party is in default under the contract, the prime
	contractor is entitled to:
	(1)  cure any noncompliant labor, services, or
	materials; or
	(2)  offer the governmental entity a reasonable amount
	of money as compensation for any noncompliant labor, services, or
	materials that cannot be promptly cured.
	(g)  A governmental entity is not required to accept a prime
	contractor's offer of compensation under Subsection (f)(2).
	(h)  Subsection (f) may not be construed to limit either the
	governmental entity's or prime contractor's right to pursue any
	remedy available under the express terms of the public works
	contract or other applicable law.
	(i)  For purposes of this subsection, a project is considered
	formally approved if the project is the subject of a resolution
	approving an application for financial assistance adopted by the
	Texas Water Development Board before September 1, 2019, for any
	part of the project's financing. Subsection (b) of this section
	does not apply to a governmental entity that receives financial
	assistance under Section 15.432 or 15.472, Water Code, for a
	project that is formally approved by the Texas Water Development
	Board or to a governmental entity that is a wholesale water supplier
	that supplies water to customers in 10 or more counties and is
	governed by Chapter 49, Water Code. A governmental entity
	described by this subsection shall deposit in an interest-bearing
	account the retainage withheld under a public works contract that
	provides for retainage that exceeds five percent of the periodic
	contract payments.
	(j)  This section may not be construed as affecting a
	governmental entity's ability to retain certain amounts due under a
	contract as required by Chapter 2258.
	SECTION 4.  Section 2252.033, Government Code, is amended to
	read as follows:
	Sec. 2252.033.  EXEMPTIONS. This subchapter does not apply
	to:
	(1)  a public works contract executed before August 31,
	1981;
	(2)  a public works contract in which the total
	contract price estimate at the time of execution of the contract is
	less than $400,000; or
	(3)  a public works contract made by the Texas
	Department of Transportation under [Subchapter A,] Chapter 223,
	Transportation Code.
	SECTION 5.  The changes in law made by this Act apply only to
	a contract to which Subchapter B, Chapter 2252, Government Code,
	applies that is entered into on or after the effective date of this
	Act. A contract to which Subchapter B, Chapter 2252, Government
	Code, applies that is entered into before the effective date of this
	Act is governed by the law in effect when the contract was entered
	into, and the former law is continued in effect for that purpose.
	SECTION 6.  This Act takes effect immediately if it receives
	a vote of two-thirds of all the members elected to each house, as
	provided by Section 39, Article III, Texas Constitution.  If this
	Act does not receive the vote necessary for immediate effect, this
	Act takes effect September 1, 2021.
	______________________________	______________________________
	President of the Senate	Speaker of the House
	I certify that H.B. No. 692 was passed by the House on May 11,
	2021, by the following vote:  Yeas 145, Nays 0, 1 present, not
	voting; and that the House concurred in Senate amendments to H.B.
	No. 692 on May 28, 2021, by the following vote:  Yeas 145, Nays 0, 2
	present, not voting.
	______________________________
	Chief Clerk of the House
	I certify that H.B. No. 692 was passed by the Senate, with
	amendments, on May 21, 2021, by the following vote:  Yeas 31, Nays
	0.
	______________________________
	Secretary of the Senate
	APPROVED: __________________
	Date
	__________________
	Governor