Timing of Delivery Does Not Always Negate Prompt Payment Act Obligations
by Tatianna Brannen
March 26, 2021
The Fifth District Court of Appeals in Dallas recently affirmed that a contractor violates the Prompt Payment Act by paying themselves with funds intended to pay its subcontractors.
In this case, the contractor subcontracted with a window supplier to provide windows for a hotel project. The window supplier provided the windows and sent the contractor an invoice. The contractor later sent a payment application to the owner requesting payment for several items, including the windows, for work completed in a previous application period.
The owner paid the contractor but withheld payment for the contractor’s overhead and profit. The contractor then decided to pay itself and “select subs” rather than paying all subcontractors. The window supplier did not receive payment.
The contractor argued it was not a violation of the Prompt Pay Act because there was conflicting evidence on whether the windows were delivered to the project before or after the contractor received payment from the owner. However, because the evidence conclusively established the contractor received payment for the windows pursuant to the pay application, the contractor was obligated to pay the window supplier regardless of when it actually delivered the windows. Unless there is an express contractual provision to the contrary, a contractor is ultimately responsible for its subcontractors’ payment.
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