Most construction projects are either public or private in nature. When the government owns the property forming the basis of the project, the project is considered public and when a private individual or company owns the property, it’s considered a private project. The classification is generally most important in two contexts, remedies in the event of non-payment and the application of prompt payment statutes.
With regard to the remedies, in a private construction project if a contractor is not paid, it will file a statutory lien against the property to protect its interest. However, on a public project, a contractor cannot file a lien because generally, the government has laws in place stating that no private individual or entity can file a lien against public property. Consequently, on public projects the solution is a bond. The bond gives the contractor assurance of payment.
Many states, including Texas, have prompt payment statutes that require the general contractors to pay subs within a certain timeframe of receiving their invoice. In Texas, these periods vary depending on who is paying and whether the project is private or public. However, this classification is not always straightforward.
Although most projects are either private or public, there are some projects that mix public and private construction, funding, development, etc. and those projects are called Public Private Partnerships (P3) projects. P3 projects can be complicated because often times, the law doesn’t specifically outline how to handle or classify the p3 project. This makes it difficult to know which nonpayment remedies apply to these projects.
The best solution for avoiding these problems may be to address them during formation. P3s are creatures of contract which means that in many cases the contract can control the remedies available. Also, general contractors and subcontractors will want to try to classify the project early on so that they know their remedies.
For more information on P3 projects and breach or nonpayment remedies contact Stephens & Bell at 832 930 0529 or visit www.StephensBell.com