Getting paid on Texas public work: prompt payment and retainage
Updated November 2026
Winning a job order contract is one thing. Getting paid on time for each order is another. Texas has two sets of rules that shape cash flow on public work: the Prompt Payment Act in Government Code Chapter 2251, and the retainage rules in Government Code Chapter 2252, Subchapter B.
This page walks through what each one says from the contractor's side. Your contract and the solicitation still control the details, so read them alongside the statute.
When a payment is overdue
Under section 2251.021, a payment by a governmental entity is overdue on the 31st day after the latest of three dates:
- the date the entity receives the goods;
- the date the performance of the service is completed; or
- the date the entity receives your invoice.
There is one longer clock. If the payment is owed by a political subdivision whose governing body meets only once a month or less often, the payment is overdue on the 46th day after that same latest date. For this chapter, a political subdivision means a county, a municipality, a public school district, or a special-purpose district or authority.
Because the clock runs from the latest of those dates, the invoice date matters. Send it the way the purchase order tells you to. Section 2251.002 says the payment rules do not apply if the invoice is not mailed to the person it is addressed to in strict accordance with the purchase order's instructions.
Passing payment down the chain
The same chapter sets deadlines below the prime contractor. A vendor that receives a payment from a governmental entity must pay each subcontractor its appropriate share within 10 days, and that share is overdue on the 11th day. A subcontractor that gets paid has the same 10-day duty to the people who supplied goods or services for that payment.
Interest on late payments
An overdue payment starts accruing interest on the day it becomes overdue. Under section 2251.025, the rate is the one in effect on September 1 of the fiscal year in which the payment becomes overdue. That rate equals one percent plus the prime rate published in the Wall Street Journal on the first weekday of July of the preceding fiscal year. Check the current figure rather than relying on last year's.
If the entity is a political subdivision, section 2251.027 says it must compute the interest itself and pay it along with the principal. It may not make you petition, bill, or wait an extra day for the interest, and it may not require you to waive your right to interest as a condition of the contract. More broadly, section 2251.004 says no one can waive a right or remedy under the chapter, and a purported waiver is void.
If the entity pays part of an invoice on time, the unpaid balance still accrues interest unless that balance is in dispute.
When the entity disputes an invoice
An entity that finds an error or disputes an amount must tell you within 21 days of receiving the invoice and include a detailed statement of the disputed amount. It may withhold no more than 110 percent of the disputed amount.
If the dispute is resolved in your favor, interest runs from the date the payment originally became overdue. If it is resolved in the entity's favor, you submit a corrected invoice, and that invoice is paid on the normal schedule.
Two limits on what counts as a dispute are worth knowing:
- The late-payment rules do not apply when a bona fide dispute about the goods delivered or the service performed causes the payment to be late.
- On a contract for construction of a public work, a bona fide dispute does not include an audit of the project that continues for more than 60 days after substantial completion.
If you have to go to a formal administrative or judicial action to collect an invoice payment or interest under the chapter, section 2251.043 says the losing party pays the prevailing party's reasonable attorney fees. That runs both ways.
Suspending work for nonpayment
Section 2251.051 lets a vendor suspend performance if the entity has not paid an undisputed amount on time and the vendor gives written notice that says payment has not been received and that the vendor intends to suspend for nonpayment. You may not suspend before the 10th day after the notice. Once you suspend properly, you do not have to keep supplying labor, services, or materials until you are paid, plus demobilization and remobilization costs.
You are also not responsible for damages from the suspension unless the entity told you in writing, before you suspended, that payment had been made or that a bona fide dispute exists. That notice has to list the specific reasons. If a reason is noncompliant work, you get a reasonable chance to cure it or to offer a reasonable amount for items that cannot be cured promptly.
Subcontractors have a matching remedy against the vendor under section 2251.052, with written notice and the same 10-day wait. Texas Department of Transportation highway contracts use a 20-day wait instead.
Extra work without a signed change order
Section 2251.0521 covers additional work the entity directs on a public work contract. You may decline to proceed if you have no written, fully executed change order for it and the value of that work, plus earlier entity-directed extra work still without a signed change order, exceeds 10 percent of your original public work contract amount. If you decline under this section, you are not responsible for damages tied to that choice.
Retainage limits under Chapter 2252
Retainage is the percentage of a public works contract payment the entity holds back to secure performance. Section 2252.032 sets these rules:
- Caps. If the total value of the public works contract is less than $5 million, retainage may not exceed 10 percent of the contract price, and the rate may not exceed 10 percent for any item in the bid schedule or schedule of values, including materials and equipment delivered on site to be installed. At $5 million or more, both limits are 5 percent. Contracts for construction or maintenance of a dam stay at 10 percent regardless of value. Certain water projects financed through the Texas Water Development Board, and certain large wholesale water suppliers, are carved out of these caps.
- Contract terms. Each public works contract must say when the project is considered substantially complete and when the entity may release retainage for substantially completed, or fully completed and accepted, portions of the project.
- Flow-down. A prime contractor may not withhold a higher retainage percentage from a sub than the entity may withhold from the prime, and the same limit applies sub to sub.
- After completion. The entity may not keep withholding retainage after the prime's work is complete, including during the warranty period.
- Disputes at final payment. The entity may hold retainage at final payment if there is a bona fide dispute that the work did not comply with the contract, or if the surety does not agree to the release. It must tell the prime in writing why.
For a competitively awarded contract of $10 million or more, and for a contract awarded by a method other than competitive bidding, the entity and the prime may agree to put retainage in an interest-bearing account.
Section 2252.033 lists exemptions. The subchapter does not apply to a public works contract whose total contract price estimate at execution is less than $400,000, or to TxDOT contracts under Transportation Code Chapter 223.
How these rules meet a JOC
A job order contract has a maximum aggregate contract price set when the entity advertises it, and the work is then issued as separate orders, each signed by the entity's representative and the contractor. Chapter 2252 measures its caps and exemption by the public works contract's total value or estimated price, and section 2251.0521 measures extra work against the original public work contract amount. We did not find a statute or opinion that says which figure controls on a JOC. Ask how the entity reads it before you bid, and get it in writing in the solicitation or contract if you can.
Retainage notice deadlines under a payment bond are a separate topic. The Texas JOC bonds guide covers those, and section 2251.002 confirms that the prompt payment chapter does not affect the bond chapter.
Questions to ask before you bid a JOC
- Who receives invoices, and what format and address does the purchase order require?
- Does the entity's governing body meet more than once a month, so you know whether the 31-day or 46-day clock applies?
- What retainage percentage will the entity withhold, and is it measured per order or against the whole contract?
- How and when is retainage released on each order: at substantial completion of the order, or at the end of the contract?
- How does the entity issue change orders on an open order, and who signs them?
Once an order arrives, the job order readiness checklist helps you confirm scope before you price it, which keeps invoices cleaner later.
This page is general information about Texas statutes, not legal advice. Check the current statute and your counsel before relying on a deadline or remedy for a specific project. Last checked against the statute text on November 5, 2026.