The Texas Prompt Payment Act: When You Actually Get Paid

Government Code Chapter 2251 says cities owe you in 30 days and subs in 10. The reality is messier. Here's how the statute really works, when interest accrues, and the three sentences that make a payment demand letter actually land.

The slowest-paying customer most Texas trade contractors will ever deal with is a city. Not because cities are dishonest — almost all of them pay eventually — but because a payment in a municipal organization has to clear an invoice approval, a project-manager sign-off, a finance review, a council pay-cycle, and a check run. That's the best case. Worst case, your invoice gets kicked back twice for a wrong PO number and you're 90 days out before you see a dollar.

The Texas legislature wrote Government Code Chapter 2251, the Prompt Payment Act, precisely because this happens. The statute gives you legal teeth: hard deadlines, statutory interest, and a process to recover both. Most contractors never invoke it. The ones who do tend to get paid faster on subsequent jobs without saying anything.

The deadlines, in plain language

The governmental entity owes the prime contractor by the 30th day after the date the city receives an invoice. (Tex. Gov't Code §2251.021.) Not the date you submitted the invoice — the date the city received it. Hand-delivered or emailed counts; you want a timestamp.

The prime contractor owes the subcontractor by the 10th day after receiving payment from the city. (Tex. Gov't Code §2251.022.) This is the "pay-when-paid" sub-clock. It does not start when you send the invoice — it starts when the prime gets the money.

The subcontractor owes a sub-subcontractor by the 10th day after receiving payment from the sub above them. The chain repeats all the way down.

When interest starts running

If payment is late, interest accrues automatically — you do not have to ask for it. The rate is 1% per month above the prime rate as published by the Federal Reserve on the day after the payment was due, compounded monthly. In a 7.5% prime environment that's about 8.5% annualized, which adds up faster than most people think on a $200K invoice.

Importantly, the interest is owed by the governmental entity even if no one asks for it. The city's auditor is supposed to track and pay it. In practice, almost nobody does, which means asking for it is what triggers the payment.

The exception every contractor needs to know

§2251.042 — Bona fide dispute. If the city has a genuine, written dispute with the goods or services delivered, the deadline pauses. The city has to notify you in writing within 21 days of receiving the invoice that there's a dispute and what it is. If they don't notify you in writing within 21 days, they can't later claim a dispute to avoid interest. This is your best leverage.

The payment demand letter that works

If you're 45 days past the 30-day deadline with no written notice of dispute, send a payment demand letter. It does not have to be from a lawyer to be effective. Three sentences:

1. "Pursuant to Texas Government Code §2251.021, [City] received Invoice [#] on [date]. Payment was due by [date 30 days later]. As of today, [date], payment has not been received and no notice of dispute has been provided under §2251.042."
2. "Statutory interest at prime + 1% began accruing on [day after due date] and currently totals approximately $[amount]."
3. "Please remit payment of $[invoice + interest] within ten (10) business days. Failure to do so will result in formal claim under §2251.043, including reasonable attorney's fees."

That's it. Email it to the buyer, the project manager, AND the city's finance director, with the original invoice attached. Most invoices clear within 14 days of receipt of that letter. The reason is mechanical: that letter forces someone in the city's finance office to put it in front of a person with sign-off authority. The bottleneck is almost always finding that person, not the payment itself.

Attorney's fees and the §2251.043 lever

If the demand letter doesn't produce payment within the deadline you set, §2251.043 allows you to recover reasonable attorney's fees in a successful suit. This is the deterrent that makes the act work. A small-claims-court action against the city, with a written demand letter and unpaid invoice attached, is almost always a winning case — and the attorney's fees provision means the city's risk of going to court is higher than yours.

This is why almost no contractor ever actually sues. The threat is enough.

What does NOT trigger the 30-day clock

• An incomplete invoice. If you didn't include the PO number, a required certification, or the W-9 update they asked for, the clock arguably hasn't started. Get the invoice right the first time.
• Disputed work, in writing, within 21 days. See §2251.042 above.
• Final retainage on a contract. Retainage is governed by separate provisions and the contract — it's often released 30 days after substantial completion, not 30 days after invoice.

For subs: the 10-day pay-when-paid clock

If you're a sub on a city job, the 10-day deadline starts when the prime receives payment from the city — not when you submitted your invoice to the prime. That means tracking when the prime got paid matters as much as tracking your own invoice date. Lien-rights notices on Texas public projects work differently than private (you can't lien public property) but the prompt payment act gives you the analogous remedy. Same demand-letter playbook, with the prime as the recipient, citing §2251.022.

Practical takeaways

• Submit invoices on the day work is completed. The earlier the timestamp, the earlier the 30-day clock starts.
• Track the date the city received the invoice, not the date you sent it.
• Calendar day 45 for every outstanding invoice and send the demand letter automatically if it's still unpaid.
• Quote interest amounts on the letter. Numbers focus attention.
• Keep your contract documents and the city's general conditions handy — they sometimes have prompt-payment provisions that go further than the statute.

The Prompt Payment Act exists because the legislature recognized that small contractors carry the cost of slow government payment. Used properly, it's an asset, not a footnote.

For broader context on the Texas procurement system, our Texas Municipal Bids field manual covers the rest of the playbook — registration, bidding, M/WBE goals, and the timing rhythms across city, county, and ISD work.