HB3005

Regular Session

Relating to the payment of funds under certain construction contracts.

ModeratePlan for compliance

Low Cost

Effective:2025-09-01

Compliance Analysis

Key implementation requirements and action items for compliance with this legislation

Implementation Timeline

Effective Date: September 1, 2025
Compliance Deadline: September 1, 2025 (Applies strictly to contracts *entered into* on or after this date).
Agency Rulemaking: None required. This is a statutory amendment to the Government Code; however, individual agencies may update their General Conditions or Supplementary Conditions in bid packages to attempt to mitigate this timeline.

Immediate Action Plan

Audit Pending Bids: Identify any contracts currently in negotiation that can be delayed for signature until September 1, 2025, to secure the protections of this law.
Update Closeout Checklists: Make the "Certificate of Substantial Completion" a mandatory, priority item for Project Managers.
Revise Demand Letters: Draft a template demand letter for use after September 1, 2025, specifically addressing the expiration of the audit exception.

Operational Changes Required

Contracts

Prime Contracts: Review "Substantial Completion" definitions in all public bids. Ensure this term is defined by objective criteria (e.g., beneficial occupancy) rather than subjective agency approval, as the 60-day clock is legally tied to this date.
Subcontracts: Update flow-down payment clauses. If the agency is legally barred from withholding retainage/final payment due to audits, you (the GC) will receive funds sooner. You must be prepared to disburse to subcontractors within the statutory 10-day window to avoid liability.

Hiring/Training

Project Managers: Train PMs to prioritize the execution of the Certificate of Substantial Completion. This document is no longer just a milestone; it is the legal trigger for the 60-day payment clock.
Collections/AR: Update collections scripts. If a public entity withholds payment past Day 61 citing an audit, staff must be trained to immediately cite Texas Government Code Section 2251.002(c) and demand statutory interest.

Reporting & Record-Keeping

Audit Logs: Maintain a specific log of all agency correspondence regarding "audits," "reviews," or "financial assessments."
Interest Invoicing: Establish a protocol to automatically calculate and invoice statutory interest (Prime Rate + 1%) for any payment withheld past the 60-day limit. Agencies will not voluntarily calculate this for you.

Fees & Costs

No New Fees: There are no new filing fees.
Positive Cash Flow: This legislation is designed to reduce the carrying costs of accounts receivable for contractors on public projects.

Strategic Ambiguities & Considerations

The "Punch List" Delay: Since the 60-day limit starts at "Substantial Completion," expect agencies to become aggressive in refusing to certify completion over minor punch list items to prevent the clock from starting.
Redefining "Audit": Agencies may attempt to reclassify financial audits as "Quality Assurance" or "Compliance Reviews" to argue they fall outside the statutory definition of an "audit." Treat any administrative delay exceeding 60 days as a violation of the statute regardless of the terminology used by the agency.

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Legislative Timeline

This bill's path through the Texas Legislature

TopicsBusiness & Commerce Business & Commerce--general Property Interests Property Interests--real Property Purchasing Purchasing--local Purchasing--state Audits & Auditors

Official Analysis

View HRO Analysis View All Bill Documents

BILL ANALYSIS

H.B. 3005

By: Gervin-Hawkins

Trade, Workforce & Economic Development

Committee Report (Unamended)

BACKGROUND AND PURPOSE

The bill author has informed the committee that ongoing audits of certain public work construction projects are counter to the purpose of the Texas Prompt Payment Act, effectively negating the payments agreed upon under contract, delaying the release of retainage already earned by contractors, and making contractors act as financiers of public projects. H.B. 3005 seeks to clarify that audits on construction projects for public works are subject to the Texas Prompt Payment Act by excluding from a bona fide and good faith dispute an audit that continues for more than 60 days after the project's substantial completion.

CRIMINAL JUSTICE IMPACT

It is the committee's opinion that this bill does not expressly create a criminal offense, increase the punishment for an existing criminal offense or category of offenses, or change the eligibility of a person for community supervision, parole, or mandatory supervision.

RULEMAKING AUTHORITY

It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency, or institution.

ANALYSIS

H.B. 3005 amends the Government Code to establish that, for purposes of statutory provisions relating to payment for goods and services under state and local government contracts, 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.

H.B. 3005 amends the Property Code to establish that, for purposes of statutory provisions providing for withholding of payment to contractors and subcontractors when a good faith dispute exists with respect to a contract for construction of or improvements to real property, a good faith dispute does not include an audit of the construction or improvement project under contract that continues for more than 60 days after the date of the substantial completion of the project.

H.B. 3005 applies only to a contract that is entered into on or after the bill's effective date.

EFFECTIVE DATE

September 1, 2025.

House Authors

Rep. Barbara Gervin-HawkinsDemocrat · Primary Author

Joint Authors

John Lujan (R)

Senate Sponsor

Sen. Donna CampbellRepublican · Primary Sponsor

Bill Text(with markup)

H.B. No. 3005

View bill text in multiple formats on Texas Legislature website

Fiscal NoteView Original

	AN ACT
	relating to the payment of funds under certain construction
	contracts.
	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
	SECTION 1. Section 2251.002, Government Code, is amended by
	adding Subsection (c) to read as follows:
	(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.
	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.
	SECTION 3. This Act takes effect September 1, 2025.

LEGISLATIVE BUDGET BOARD
Austin, Texas

FISCAL NOTE, 89TH LEGISLATIVE REGULAR SESSION


April 11, 2025

TO:	Honorable Angie Chen Button, Chair, House Committee on Trade, Workforce & Economic Development

FROM:	Jerry McGinty, Director, Legislative Budget Board

IN RE:	HB3005 by Gervin-Hawkins (Relating to the payment of funds under certain construction contracts.), As Introduced

No significant fiscal implication to the State is anticipated.

It is assumed that any costs associated with the bill could be absorbed using existing resources.

Local Government Impact

No significant fiscal implication to units of local government is anticipated.

Source Agencies:

212 Office of Court Administration, Texas Judicial Council

LBB Staff:

JMc, RStu, BC

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Frequently Asked Questions

Common questions about HB3005

What does Texas HB3005 do?

HB3005 amends the Texas Prompt Payment Act to prohibit government entities from withholding construction payments beyond 60 days post-substantial completion solely due to an ongoing audit. This legislation effectively removes the "audit loophole" for public work contracts entered into on or after September 1, 2025, forcing state and local agencies to release funds or cite a specific material dispute. Implementation Timeline Effective Date: September 1, 2025 Compliance Deadline: September 1, 2025 (Applies strictly to contracts entered into on or after this date).

Who authored HB3005?

HB3005 was authored by Texas Representative Barbara Gervin-Hawkins during the Regular Session.

When was HB3005 signed into law?

HB3005 was signed into law by Governor Greg Abbott on June 20, 2025.

How urgent is compliance with HB3005?

The compliance urgency for HB3005 is rated as "moderate". Businesses and organizations should review the requirements and timeline to ensure timely compliance.

What is the cost impact of HB3005?

The cost impact of HB3005 is estimated as "low". This may vary based on industry and implementation requirements.

What topics does HB3005 address?

HB3005 addresses topics including business & commerce, business & commerce--general, property interests, property interests--real property and purchasing.

Legislative data provided by LegiScanLast updated: November 25, 2025

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