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RULE §9.318Payment; Prompt Payment; Joint Checks

(a) For the purposes of this section:

  (1) "subcontractor" includes a supplier;

  (2) "work" includes materials that are provided by a supplier at a location approved by the department;

  (3) "satisfactory completion" occurs when:

    (A) the subcontractor has fulfilled the contract requirements of both the department and the subcontract for the subcontracted work, including the submittal of all information required by the specifications or by the department and including any vegetative establishment, testing, maintenance, and performance of other work that is the responsibility of the subcontractor; and

    (B) the work done by the subcontractor has been inspected, approved, and paid for by the department; and

  (4) "contractor" refers to a subcontractor that contracts work to another tier of subcontractors.

(b) The department will not withhold retainage on a contract executed and administered by the department. A contractor that withholds retainage on a subcontractor's work shall pay that retainage in full within 10 days after the date of satisfactory completion of all of the subcontractor's work.

(c) Each contract, subcontract, or material purchase agreement must include provisions that substantively provide that:

  (1) within 10 days after the date that the contractor receives payment for work performed by a subcontractor, the contractor will pay the subcontractor for the work performed; and

  (2) the contractor will pay to a subcontractor any retainage on the subcontractor's work within 10 days after the date of satisfactory completion of all of the subcontractor's work.

(d) The inspection and approval of work done by the subcontractor for determining substantial completion does not eliminate the contractor's responsibilities for all of the work, as defined in the contract.

(e) The department may pursue actions against a contractor, including withholding of estimates and suspending the work, for noncompliance with the subcontract requirements of this section on receipt of written notice with sufficient details showing the subcontractor has complied with the subcontractor's obligations, as described in the contract.

(f) Based on the department's assessment of the construction industry usage of joint check agreements between contractors and subcontractors working on federal-aid construction projects, the department has implemented procedures for the use of joint checks on the SBE contracts executed and administered by the department. The department will accept the use of a joint check issued by a contractor to a subcontractor and its supplier but only if:

  (1) the contractor does not require the subcontractor to use a supplier specified by the contractor or to use the contractor's negotiated unit price;

  (2) the subcontractor earns a profit from the material purchased;

  (3) the subcontractor, not the contractor, negotiates the quantities, price, and delivery of the materials;

  (4) the contractor issuing the check acts solely as a guarantor;

  (5) the subcontractor signs the joint check and releases it to the supplier, not the contractor;

  (6) the subcontractor is responsible both to furnish and install the material;

  (7) the subcontractor has applied for a line of credit with the supplier and was either denied credit or denied a sufficient increase in its line of credit;

  (8) the supplier is not the contractor or an affiliate of the contractor; and

  (9) the subcontractor's account with the supplier is in the subcontractor's name alone.

(g) The department will conduct prompt pay audits and prompt pay verifications to monitor compliance with this section.

Source Note: The provisions of this §9.318 adopted to be effective September 1, 2012, 37 TexReg 5320

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