Earlier this year the Texas Supreme court ruled in favor of a supply company and the ruling has very good implications for subcontractors and suppliers. Here is an excerpt of the opinion:
Chapter 2253 of the Texas Government Code, historically called the McGregor Act, requires a prime contractor on a public-work contract to execute a payment bond to protect laborers and materialmen who work on or supply materials for the project. See Tex. Gov’t Code § 2253.021(a), (2). In this case, an electrical subcontractor on a bonded public-work project walked off the job, leaving his supplier of electrical parts unpaid. The supplier missed the McGregor Act deadline to pursue a claim on the bond, and filed this suit against the prime contractor for violation of the Texas Construction Trust Fund Act, Tex. Prop. Code §§ 162.001(a), 162.031(a)
With this ruling it helps any supplier or subcontractor in a situation where they were not paid and missed the bond claim deadline outlined in the McGregor Act. Quiet often, the General Contractor received construction funds from the owner of the project to pay the supplier or subcontractor for the work or product but diverted it for another purpose. This is where the Texas Trust Fund Statute comes into place. The great thing about this statute is that you are able to sue owners of corporations personally for violation of the Statute. Specifically, owners of the General Contractor’s company can be sued by the supplier or subcontractor for the outstanding balances owed to them. In a declining economy where construction companies are filing bankruptcy in record numbers, the Texas Trust Fund Statute provides a method of securing payment without having to stand in line with the other creditors in bankruptcy court. In the past, the law was vague as to whether or not suppliers or subcontractors would have this remedy if they failed to follow the bond claim process or was untimely in their pursuit of a bond claim. This case is definitely a win for the construction industry and helps clarify the situation and provides an extra remedy for the suppliers and subcontractors.
Kelly M. Davis