Texas HB 3005: an audit that runs long after substantial completion is not a bona fide dispute

What changed: a long audit is not a bona fide dispute

The Act's caption says what it is about:

HB 3005 as enrolled, caption

relating to the payment of funds under certain construction contracts.

Section 2251.002 lists exceptions to the chapter. Its opening words, and the two exceptions about disputes:

Government Code 2251.002(a)

Sec. 2251.002. EXCEPTIONS. (a) Except as provided by Subchapter D, Subchapter B does not apply to a payment made by a governmental entity, vendor, or subcontractor if:

Government Code 2251.002(a)(1)

(1) there is a bona fide dispute between the political subdivision and a vendor, contractor, subcontractor, or supplier about the goods delivered or the service performed that causes the payment to be late;

Government Code 2251.002(a)(2)

(2) there is a bona fide dispute between a vendor and a subcontractor or between a subcontractor and its supplier about the goods delivered or the service performed that causes the payment to be late;

Subchapter B, the part those exceptions switch off, is headed:

Government Code chapter 2251, heading of Subchapter B

SUBCHAPTER B. PAYMENTS AND INTEREST

HB 3005 adds one subsection to the section:

HB 3005, section 1

SECTION 1. Section 2251.002, Government Code, is amended by adding Subsection (c) to read as follows:

Government Code 2251.002(c)

(c) For purposes of this chapter, a bona fide dispute with respect to a contract for the construction of a public work does not include an audit of the public work project that continues for more than 60 days after the date of the substantial completion of the project.

The enrolled bill adds subsection (c) in the same words the code now prints. So a bona fide dispute that makes a payment late still takes it out of Subchapter B, but on a contract for the construction of a public work, an audit that has run more than 60 days past substantial completion is not such a dispute.

What the text leaves open: chapter 2251 defines neither audit, public work nor substantial completion. The only other place the chapter uses public work is section 2251.0521, which takes the meaning of public work contract from section 2253.001 for that section alone, and this page did not read section 2253.001. The subsection does not say who has to be carrying out the audit. It takes out an audit that continues past the 60 days, and does not say whether an audit that ends sooner can be a bona fide dispute.

Who it covers: public work, and whose disputes

The subsection speaks only of a contract for the construction of a public work. The chapter is about payments by a governmental entity, and by its vendors and their subcontractors in turn. It defines a governmental entity this way:

Government Code 2251.001(3)

(3) "Governmental entity" means a state agency or political subdivision of this state.

And a political subdivision:

Government Code 2251.001(6)

(6) "Political subdivision" means: (A) a county; (B) a municipality; (C) a public school district; or (D) a special-purpose district or authority.

The people paid are vendors and their subcontractors:

Government Code 2251.001(10), first sentence

(10) "Vendor" means a person who supplies goods or a service to a governmental entity or another person directed by the entity.

Government Code 2251.001(9), first sentence

(9) "Subcontractor" means a person who contracts with a vendor to work or contribute toward completing work for a governmental entity.

Chapter 2251 does not define contractor or supplier, though exception (1) names both.

What the text leaves open: exception (1) speaks of a dispute between “the political subdivision” and a vendor, contractor, subcontractor, or supplier. It does not name a state agency, and subsection (c) does not change that wording, so the text does not say how (c) bears on a payment by a state agency. Exception (2) covers disputes between a vendor and a subcontractor, and between a subcontractor and its supplier. Subsection (c) speaks of “a contract for the construction of a public work”, and does not say whether a subcontract on a public work is such a contract.

From when

The Act sets its date, and limits the change to new contracts:

HB 3005, section 3

SECTION 3. This Act takes effect September 1, 2025.

HB 3005, section 2

SECTION 2. The changes in law made by this Act apply only to a contract that is entered into on or after the effective date of this Act.

The Legislature's record of the bill shows the Governor's signature and the effective date:

capitol.texas.gov, HB 3005 history, actions table

E Signed by the Governor 06/20/2025 7952

One row of the actions table. The columns are chamber, description, comment, date, time and journal page; this row has no comment or time.

capitol.texas.gov, HB 3005 history, actions table

E Effective on 9/1/25 06/20/2025

Another row of the same table. It has no comment, time or journal page. Its date column reads 06/20/2025, and the effective date is in the description.

And the code prints this history note under the section:

Government Code 2251.002, history note, last entry

Amended by: Acts 2025, 89th Leg., R.S., Ch. 746 (H.B. 3005), Sec. 1, eff. September 1, 2025.

What the text leaves open: section 2 turns on when a contract is entered into. It does not say whether a change order or amendment signed from September 1, 2025, on a contract entered into before that date, brings the work under subsection (c). It does not say which date counts for a subcontract entered into after that date under a prime contract entered into before it.

What did not change: the payment clock and the interest

The rules the exceptions switch off are in Subchapter B, and HB 3005 does not amend them. A payment by a governmental entity is overdue on a set day:

Government Code 2251.021(a)

Sec. 2251.021. TIME FOR PAYMENT BY GOVERNMENTAL ENTITY. (a) Except as otherwise provided by this section, a payment by a governmental entity under a contract executed on or after September 1, 1987, is overdue on the 31st day after the later of:

Government Code 2251.021(a)(1)

(1) the date the governmental entity receives the goods under the contract;

Government Code 2251.021(a)(2)

(2) the date the performance of the service under the contract is completed; or

Government Code 2251.021(a)(3)

(3) the date the governmental entity receives an invoice for the goods or service.

Some political subdivisions get longer:

Government Code 2251.021(b)

(b) A payment under a contract executed on or after September 1, 1993, owed by a political subdivision whose governing body meets only once a month or less frequently is overdue on the 46th day after the later event described by Subsections (a)(1) through (3).

Interest starts on that day, at a rate the section sets:

Government Code 2251.025(a)

Sec. 2251.025. INTEREST ON OVERDUE PAYMENT. (a) A payment begins to accrue interest on the date the payment becomes overdue.

Government Code 2251.025(b)

(b) The rate of interest that accrues on an overdue payment is the rate in effect on September 1 of the fiscal year in which the payment becomes overdue. The rate in effect on September 1 is equal to the sum of:

Government Code 2251.025(b)(1)

(1) one percent; and

Government Code 2251.025(b)(2)

(2) the prime rate as published in the Wall Street Journal on the first day of July of the preceding fiscal year that does not fall on a Saturday or Sunday.

A disputed invoice has its own rules, in Subchapter C:

Government Code 2251.042(a)

Sec. 2251.042. DISPUTED PAYMENT. (a) A governmental entity shall notify a vendor of an error or disputed amount in an invoice submitted for payment by the vendor not later than the 21st day after the date the entity receives the invoice, and shall include in such notice a detailed statement of the amount of the invoice which is disputed.

Government Code 2251.042(b)

(b) If a dispute is resolved in favor of the vendor, the vendor is entitled to receive interest on the unpaid balance of the invoice submitted by the vendor beginning on the date under Section 2251.021 that the payment for the invoice is overdue.

Government Code 2251.042(d)

(d) The governmental entity may withhold from payments required no more than 110 percent of the disputed amount.

And the rights in the chapter cannot be signed away:

Government Code 2251.004

Sec. 2251.004. WAIVER. A person may not waive any right or remedy granted by this chapter. A purported waiver of any right or remedy granted by this chapter is void.

What the text leaves open: subsection (c) says what a bona fide dispute does not include. It does not say from which day a payment held for such an audit is overdue, whether from the day section 2251.021 sets or only once the audit passes the 60 days. It does not mention section 2251.042, and does not say how an audit past the 60 days fits with a notice of a disputed amount under 2251.042(a). The words bona fide dispute also appear in sections 2251.051 and 2251.052, on suspending work for nonpayment, and subsection (c) is written for purposes of the whole chapter. This page does not quote those two sections, and the text does not say how (c) applies to them.

The rest of the section, word for word

The other two exceptions in 2251.002(a), and subsection (b):

Government Code 2251.002(a)(3)

(3) the terms of a federal contract, grant, regulation, or statute prevent the governmental entity from making a timely payment with federal funds; or

Government Code 2251.002(a)(4)

(4) the invoice is not mailed to the person to whom it is addressed in strict accordance with any instruction on the purchase order relating to the payment.

Government Code 2251.002(b)

(b) This chapter does not affect Chapter 2253.

Section 2251.002 is quoted in full on this page, apart from the older history line under it, which records that the section was added in 1993 and amended from 1995 to 2003. From the rest of chapter 2251 the page quotes only the parts shown. Of the enrolled bill, it quotes the caption and sections 1 to 3, with the subsection that section 1 adds quoted from the code, where the words are the same; it leaves out the enacting clause and the signature and certification lines. Each quote is checked against a saved copy of the official text when this page is built. Read the chapter, the enrolled bill and the bill's history there:

Read the law: Government Code chapter 2251tcss.legis.texas.gov, HB 3005 as enrolledcapitol.texas.gov and HB 3005 bill historycapitol.texas.gov

What to do differently

Only what the text supports:

• Start with the contract date. The changes “apply only to a contract that is entered into on or after the effective date of this Act”, and the Act “takes effect September 1, 2025”. On an older contract, subsection (c) does not apply.
• Keep a written record of the date of substantial completion. The 60 days run from “the date of the substantial completion of the project”, and the chapter does not define it or say how it is set.
• If a public owner is holding a payment for an audit that is still running more than 60 days after substantial completion, cite Government Code 2251.002(c) when you ask for the money. For purposes of the chapter, a bona fide dispute on a public work “does not include” that audit.
• Know the normal clock. A payment by a governmental entity is overdue “on the 31st day after the later of” the dates in 2251.021(a), or “on the 46th day after the later event described by Subsections (a)(1) through (3)” for a political subdivision whose governing body meets once a month or less, and it accrues interest “on the date the payment becomes overdue”.
• Watch for a notice of a disputed amount. The entity has to send it “not later than the 21st day after the date the entity receives the invoice”, with a detailed statement of the amount disputed.
• Read any audit clause in the contract with section 2251.004 in mind: “A person may not waive any right or remedy granted by this chapter.” The text does not say whether a clause letting the owner audit for longer is such a waiver.

Questions people ask

What does Texas HB 3005 change?

It adds subsection (c) to Government Code 2251.002. On a contract for the construction of a public work, a bona fide dispute “does not include an audit of the public work project that continues for more than 60 days after the date of the substantial completion of the project”. It matters because a bona fide dispute “that causes the payment to be late” takes a payment out of the chapter's payment and interest rules.

When does HB 3005 apply?

The Act “takes effect September 1, 2025”, and its changes “apply only to a contract that is entered into on or after the effective date of this Act”. The Legislature's bill history shows it signed by the Governor on 06/20/2025.

Does HB 3005 cover private jobs?

The new subsection speaks only of “a contract for the construction of a public work”, and the chapter's payment rules start from a governmental entity, which it defines as “a state agency or political subdivision of this state”. The subsection says nothing about a private job.

What counts as substantial completion, or as an audit?

The subsection does not define either, and chapter 2251 has no definition of them. It does not say who has to be doing the audit, either. This page cannot say more than that.

What interest does an overdue Texas public payment earn?

A payment “begins to accrue interest on the date the payment becomes overdue”. The rate is the one in effect on September 1 of the fiscal year in which the payment becomes overdue, and that rate is “equal to the sum of” one percent and the prime rate published in the Wall Street Journal on the July date section 2251.025(b) names.

Texas lien waiver forms under Property Code 53.284, a different code from the public payment rules in Government Code chapter 2251

Other state changes to how contractors get paid are on the construction law changes page.

This page quotes Texas Government Code section 2251.002, as amended by HB 3005 (Acts 2025, 89th Leg., R.S., Ch. 746) and explains what it says. It is not legal advice, and a statute can be amended. Read the linked section before you rely on it.