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DAN MORALES                                    February 6,1992
 ATTORNEY
       GENERAL



     Honorable George Pierce                                  Opinion No. DM-88
     chairman
     Committee on Urban Affairs                               Re: Whether article 6Olf, V.T.C.S.,
     Texas House of Representatives                           pertaining to payments for goods and
     P. 0. Box 2910                                           services contracted for by state agen-
     Austin, Texas 78768-2910                                 ties or political subdivisions, applies to
                                                              construction contracts     (RQ-256)

     Dear Representative        Pierce:

             You have submitted a request on behalf of the City of San Antonio regarding
     payment of construction contracts. The materials you have submitted to this office
     suggest that minority- and women-owned construction companies in the San
     Antonio area have expressed concern that their economic success has been impaired
     due to lack of prompt payment by construction contractors to subcontractors.    With
     this concern in mind, you ask whether article 6Olf, V.T.C.S., a statute pertaming to
     the payment of goods and services contracted for by state agencies and political
     subdivisions, applies to construction contracts. For the reasons stated below, we
     conclude that it does.

              Article 6Olf establishes time limitations within which state agencies and
     political subdivisions must pay vendors for goods and services, and vendors who
     receive payment from such governmental entities must pay their subcontractors.1
     For example, a political subdivision must generally pay a vendor not later than the
     30th calendar day after the day on which it receives the goods or services, or the
     date it receives the invoice for the goods or services, whichever is later. V.T.C.S.


               *Article 601f deft   a %tatc apcn@ to iocIudc P board, commission or other agcocy of the
     ccxemhe branch, as well as the lcgidature or a legidatlvc agency, and certain state courts and judiciaJ
     agencies. V.T.C.S. art. 6Olf, 0 l(1). It dcfiocs “politicaI subdivision” to mean a county, ao incorporated
     city or town, a public szhml disk& or a special pwpose distrid or authority. Id. 5 l(2). For purposes
     of atide 6Olf, the term “govemmentaI cnw embraces both state agencies and political subdivisions.
     see id. 5 l(3).




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Honorable    George Pierce - Page 2               (DM-88)




art. 6Olf, $52(b).z Article 601f imposes interest at the rate of one percent per month,
which shall be paid automatically as payments become overdue. Id. ~392(c), 5. A
vendor is required to pay subcontractors not later than the 10th calendar day after
the day on which the vendor receives payment from the governmental entity, and a
vendor who does not make timely payments to subcontractors must also pay interest
at the rate of one percent per month. Id. $8 4(a), 5. A subcontractor must in turn
pay his or her suppliers no later than the 10th calendar day after the day on which
the subcontractor receives payment, or pay interest at the same rate. Id. 55 4(b), 5.

        Section 7 of article 601f sets forth certain exemptions to the above
requirements.   In particular, section 7(a) provides that article 601f does not apply
when the terms of a contract specify other times and methods of payment or
methods of resolving disputes or interest owed on delinquent payments, when there
is a bona fide dispute between a vendor and a subcontractor or a subcontractor and
a supplier concerning goods or services which causes payment to be late, when the
terms of a federal contract, grant, law, or regulation prevent a governmental entity
from making timely payment with federal funds, or when the invoice has not been
mailed to the addressee in strict accordance with instructions on the purchase order.
In addition, section 7(b) provides that article 601f does not amend article 5160,
V.T.C.S., which deals with contractors’ performance and payment bonds.

        It is not clear from the face of article 601f whether it applies to construction
contracts.     First, a vendor is defined as “a person, corporation,         association,
partnership,    or other legal entity that supplies goods and/or setiices to a
governmental entity.” Id. 5 l(6) (emphasis added).           Other provisions require
governmental entities to pay upon receipt of the invoice for “supplies, materials,
equipment or services.” Id. $3 2, 3. The terms “goods” and “services” are not
defined, however, and thus it is not clear whether those terms embrace construction
work.3 Given that the terms “goods” and “services” are not defined in article 601f,
we turn to the legislative history for guidance.


         2A political subdivision must pay for goods and services provided pursuant to a contract
executed between July 1, 1986, the statute’s effective date, and September 1, 1987, within 45 days. Id.
0 2(a). Similar requirements for state agencies are set forth in section 3 of article 601f.

          *The comptroller has issued regulations pursuant to article 6Olf. See 34 TA.C. 9 5.55. These
regulations shed no light on the question at issue here. The General Services Commission (the
“commission”), however, has interpreted article 601f to apply to construction contracts. Section 5.26 of
article 6Olb, V.T.C.S., requires the commission to adopt uniform general conditions to be incorporated
into all state building construction contracts.    These uniform general conditions state that “[t]he



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Honorable     George Pierce - Page 3               (DM-88)




         Article 601f was enacted by the 69th Legislature as House Bill 275.4 It is
abundantly clear from the legislative history of House Bill 275 that the legislature
intended for it to apply to construction contracts. The witnesses who testified at
hearings on House Bill 275 ,before the House Committee on Business and
Commerce included construction contractors and subcontractors. Hearings on H.B.
275 Before the House Comm. on Bus. & Corn., 69th Leg. (February 18, 1985). It is
clear from their testimony that House Bill 275 was intended to apply to construction
contracts.     Id   In addition, a house study group bill analysis states that the
legislation “will also help minimize the construction-project   delays that result from
disputes between contractor and subcontractor, by encouraging contractors to pay
subcontractors promptly.” House Study Group, Bill Analysis, H.B. 275, 69th Leg.
(1985) at 2. The analysis also notes that the bill’s opponents contended that many
state agencies actually pay in less than 30 days, and the new deadlines “would look
like’ a m&date for delay at the expense of vendors, especially cot~~~cfion
contractors, who generally borrow heavily and end up owing their lenders a lot more
interest if they do not get paid on time.” Id. at 3 (emphasis added). Furthermore,
when House Bill 275 was considered by a senate committee, Representative
Jackson, the author of the bill, was asked how it would affect transactions between
vendors and subcontractors.      He replied, “It does reach those private transactions
only on public projects where there is a subcontractor for public construction
projects. It does not go into the purely private transactions.” Hearings on H.B. 275
Before the Senate Comm. on State Affairs, 69th Leg. (April 3, 1985).

        Based on the legislative history, we conclude that the legislature intended
article 601f, V.T.C.S., to apply to payments by governmental entities to construction
contractors under construction contracts. As a result, we conclude that article 601f
applies to payments by construction contractors to construction subcontractors, and
by construction subcontractors to suppliers, for work on such public construction
projects. Of course, a particular construction contract may be exempt from article
601f if it falls within one of the exemptions set forth in section 7.




(footnote continued)
provisions of Article 6Olf of Texas Civil Statutes.. . apply to payments under this Contract.”         See
Uniform General Conditions art. 7.2.1.1 (copies available through the commission).

         4Acts 1985, 69th Leg., ch. 82, at 257 (eff. July 1, 1986); we rrlso Acts 1985, 69th Leg., ch. 614,
5 2, at 2293 (amending section 7(a) to exempt contracts which specify other methods of payment or
methods of resolving disputes or interest owed on delinquent payments).




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Honorable    George Pierce - Page 4        (DM-88)




                                     SUMMARY


                Article 601f, V.T.C.S., a statute pertaining to the payment of
            goods and services contracted for by state agencies and political
            subdivisions, applies to construction contracts.




                                                       DAN      MORALES
                                                       Attorney General of Texas

WILL PRYOR
First Assistant Attorney General

MARY KELLER
Deputy Assistant Attorney General

JUDGE ZOLLIE STEAKLEY (Ret.)
Special Assistant Attorney General

RENEA HICKS
Special Assistant Attorney General

MADELEINE B. JOHNSON
Chair, Opinion Committee

Prepared by Mary R. Crouter
Assistant Attorney General




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