Did a Texas water district have to retain 10 percent from construction payments and place the money in an interest-bearing account?

Texas AG Opinion JM-199: Water District Retainage

Plain-English summary

JM-199 concluded that Tarrant County Water Control and Improvement District Number One had to retain 10 percent of the estimated construction-contract amount until the release point set by Water Code section 51.146.

"We know of no reason why the district in question is not required by section 51.146 of the Water Code to retain ten percent of the estimated amount of a construction contract until at least 50 percent of the work has been completed satisfactorily."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0199.pdf

The opinion read article 6252-5b together with the Water Code. The later statute did not eliminate retainage. Its interest-bearing account rule applied to contracts with retainage greater than five percent of periodic payments, subject to section 3 exceptions, including contracts under $400,000.

"We believe that article 6252-5b does not relieve the district of its obligations under section 51.146."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0199.pdf

"Construction contracts of water control and improvement districts are governed by both the provisions of section 51.146 of the Texas Water Code, which specifies the retainage of funds in construction contracts, and the provisions of article 6252-5b, V.T.C.S., which requires that such retained funds be deposited in an interest bearing account, with the interest earned on the retained funds to be paid to the contractor on completion of the contract."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0199.pdf

Where the interest-bearing requirement applied, JM-199 also concluded that the district could keep the retained amount with its other funds in an interest-bearing account. The statute did not require a separate segregated account.

"We conclude that a district that deposits funds withheld pursuant to section 51.146 with the district's other funds in an interest bearing account complies with the plain language of section 2, article 6252-5b."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0199.pdf

Currency note

This opinion was issued in 1984. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

How much did section 51.146 require the district to retain?

Ten percent of the estimated amount in progress payments.

"In making such progress payments, there shall be retained 10 percent of the estimated amount until final completion and acceptance of the contract work."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0199.pdf

Could the district stop withholding after half the work was complete?

The directors could authorize remaining progress payments in full after 50 percent completion if they found that satisfactory progress was being made.

"If the directors, at any time after 50 percent of the work has been completed, find that satisfactory progress is being made, they may authorize any of the remaining progress payments to be made in full."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0199.pdf

What did article 6252-5b add?

For a contract with retainage greater than five percent of periodic payments and no section 3 exception, the governmental entity had to deposit the retainage in an interest-bearing account and pay the interest to the prime contractor at completion. Section 3 excepted contracts under $400,000, among others.

"In any contract providing for retainage of greater than five percent of periodic contract payments, the governmental entity shall deposit the retainage in an interest-bearing account, and interest earned on such retainage funds shall be paid to the prime contractor upon completion of the contract."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0199.pdf

Did the two statutes conflict?

No. JM-199 harmonized them, treating one as the rule for how much and how long to retain and the other as the rule for where the retained funds went and who received the interest.

"We believe that section 51.146 and article 6252-5b are not in conflict with each other."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0199.pdf

Was a separate bank account required for each contract's retainage?

No. The opinion said the enacted language required an interest-bearing account but did not retain the introduced bill's trust and escrow structure.

"As finally passed, House Bill No. 1815 requires only that the governmental entity 'deposit the retainage in an interest-bearing account.'"
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0199.pdf

Background and statutory framework

The district was created under what became Water Code chapter 51 and article XVI, section 59 of the Texas Constitution. Its construction contracts had been governed by the provision later codified as section 51.146.

"The Tarrant County Water Control and Improvement District Number One is created under the provisions now codified as chapter 51 of the Texas Water Code and pursuant to article XVI, section 59 of the Texas Constitution."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0199.pdf

Article 6252-5b defined retainage as the part of a contract payment withheld by a governmental entity to secure contract performance.

"Retainage under the act is the part of a contract payment withheld by a governmental entity to secure performance of the contract."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0199.pdf

JM-199 applied the rule that statutes on the same subject should be read together and harmonized when possible so both retain effect.

"Statutes in pari materia are to be read and construed together in arriving at the intention of the legislature and must be harmonized, if possible, so as not to destroy the effect of either statute."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0199.pdf

Citations and references

• Water Code section 51.146 governed payment and retainage under the district's construction contracts.

"Section 51.146. Payments Under Construction Contract."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0199.pdf

• Article 6252-5b governed interest-bearing treatment of retained construction funds.

"In 1981, the legislature enacted article 6252-5b, V.T.C.S., which requires that retainage in contracts between a governmental entity and a prime contractor be deposited in an interest bearing account for the benefit of the contractor."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0199.pdf

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/jim-mattox/jm-0199
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0199.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain. The linked PDF is authoritative.

The Attorney General of Texas

JIM MATTOX
Auglst 31, 1984
Attorney General

Supreme Court Building
P. 0. BOX 12548
Opinion No. .JM-199
Honorable Charles Evr.ns
Austin, TX. 78711.2548
5121475-2501
Chairman
Telex 9101874.1367
Committee on House !Klministration Ik: Statutory regulation of a
Telecopier 5121475-0266 Texas House of Reprcxientatives water district's construction
P. 0. Box 2910
contracts
714 Jackson, Suite 700
Austin, Texas 787fi!l
Dallas, TX. 75202.4506
2141742.8944
Dear Representative Ibans:

You have asked i:hefollowing questions:
4824 Alberta Ave., Suite 160
El Paso, TX. 79905.2793
915/533-3484
1. Is there any reason under case law or the statutes 0'7constitution why section 51.146 of the Texas Wal:c!rCode does not require the Tarrant
plOl Texas, Suite 700
County W,%:er Control and Improvement District
.o”ston, TX. 77002-3111
Number One to retain ten percent of the estimated
7131223.5886 amount of any construction contract covered by section 51.146 until at least fifty percent of the
SO6 Broadway, Suite 312
work has Daen completed satisfactorily?
Lubbock. TX. 79401.3479
aow747.5238
2. Does article 6252-5b in any manner relieve the dist.c:lctof its obligations under section
4309 N. Tenth, Suite S
51.146 of the Texas Water Code?
+&Allen, TX. 78501-1685
5121682.4547
We know of no reason why the district In question is not required
by section 51.146 elf the Water Code to retain ten percent of the 200 Main Plaza, Suite 400 estimated amount of a construction contract until at least 50 percent San Antonio. TX. 76205.2797 of the work has been completed satisfactorily. We believe that
512/225-4191
article 6252-5b does not relieve the district of its obligations under
section 51.146.
An Equal Opportunity/
Affirmative Action Employer
The Tarrant Ccs,ntyWater Control and Improvement District Number One is created und#+ the provisions now codified as chapter 51 of the Texas Water Code ar.Cpursuant to article XVI, section 59 of the Texas Constitution. Acccsxdingly,since 1971, the construction contracts of the district have teen governed by chapter 898 of the Sixty-second Legislature, which &as codified as section 51.146 of the Water Code in 1973. Section 51.146 reads, in pertinent part, as follows:
Honorable Charles Evans - Page 2 (JM-199)

551.146. Payments Under Construction Contract

(a) The distr:lctshall pay the contract price of such contracts LLShereinafter provided.

. . . .

(c) In making such progress payments, there shall be retained 10 percent of the estimated amount until fin&l completion and acceptance of the contract work. However, if the directors, at any time after 50 percent of the work has been completed, find zhat satisfactory progress is being made, they may authorize any of the remaining progress payments to be made in full.

In 1981, the legislatucs enacted article 6252-5b. V.T.C.S., which requires that retainage in contracts between a governmental entity and a prime contractor be deposited in an interest bearing account for the benefit of the contractor. The Tarrant County Water Control and Improvement District Number One ia a governmental entity within the meaning of the act. Sec. l(A). Retainage under the act is the part of a contract payment withha!:.dby a governmental entity to secure performance of the contract. Sec. l(D).

Section 2 of the act provides that

[inI any contract providing for retainage of greater than five! percent of periodic contract payments, the gclx.ernmentalentity shall deposit the retainage in ;m interest-bearing account, and Interest earned ~1 such retainage funds shall be paid to the prirlc!contractor upon completion of the contract.

It is a well settled I,cleof statutory construction that statutes dealing with the same general subject are considered in pari materia though they contain no reE,:renceto each other and were enacted at different sessions of the legislature. C.A. Dunham Co. v. McKee, 57 S.W.2d 1132, 1135 (Tex. C:i(r.App. - El Paso 1933, writ ref'd). It also is well settled that statutes in pari materia are to be read and construed together in arrivj.ngat the intention of the legislature and must be harmonized, if pour:ible,so as not to destroy the effect of either statute. Calvert-v- Fort Worth National Bank,-356 S.W.2d 918, 921 (Tex. 1962); Lingner v. Haley, 277 S.W.2d 302, 306 (Tex. Civ. App.

• Amarillo 1954, writ dismissed). We believe that section 51.146 and
  article 6252-56 are not i,n conflict with each other. When read together, section 51.146 mandates that the water control and
  . .

  Honorable Charles Evans - Page 3    (JM-199)
  
  improvement district retain ten percent of the estimated amount of a
  construction contract  until Einal completion and acceptance of the
  contract work, or until at l.east fifty percent of the work of the
  project is complete and the &rectors, on determining that progress is
  satisfactory, authorize payment to be made in full, and article
  6252-5b requires that the retainage prescribed by section 51.146 be
  deposited in an interest bealr:.ng
                                   account with both the retained amount
  and the interest earned on that amount to be paid to the contractor.
  
       Section 3 of article ti252-5b excepts from its provisions a
  contract executed before August 31. 1981, a contract with a price
  estimated to be less than $41)0,000,a contract by the State Department
  of Highways and Public Tran:;portation,and, until June 1, 1983, a
  contract by a political subdvision funded by certain bonds pursuant
  to sections 49-c, 49-d, or 49-d-l of article III of the Texas
  Constitution or pursuant to chapter 54 of the Texas Water Code.
  Except for a contract in an amount less than $400,000, none of those
  exceptions in article 6252-5b applies to currently executed contracts
  of a water development and improvement district created under chapter
  51 of the Water Code and article XVI, section 59 of the constitution.
  
       A brief submitted with )'ourquestions also discusses whether the
  district should deposit the funds withheld in accordance with section
  51.146 in an interest bearing account that segregates those funds from
  other funds of the district. As introduced, House Bill No. 1815 of
  the Sixty-seventh Legislature, which enacted article 6252-5b, would
  have required that the reta:lnagein question be deposited in a state
  or national bank, savings and loan association, or credit union
  pursuant to a trust agreement which designated the financial
  institution to serve as escrow agent and to invest the retainage in
  the manner prescribed by the original bill. As finally passed, House
  Bill No. 1815 requires only that the governmental entity "deposit the
  retainage in an interest-bturing account." We believe that if the
  legislature intended that the retained funds be deposited in a
  separate interest bearing account that segregates the retainage from
  other funds of the district, the legislature would have said so. The
  courts freouentlv have ouotami the statement that "if narliament does
  not mean what it-says, it mll:rtsay so." Railroad Commission of Texas
  v. Miller, 434 S.W.2d 670, fi;'2(Tex. 1968); Brazes River Authority v.
  City of Graham, 354 S.W.2d 59, 109 (Tex. 1961). We conclude that a
  district that deposits fund!;withheld pursuant to section'51.146  with
  the district's other funds in an interest bearing account complies
  with the plain language of section 2, article 6252-5b.
  
                               SUMMARY
  
               Construction contracts of water control and
            improvement districts are governed by both the
            provisions of section 51.146 of the Texas Water
  

  Honorable Charles Evans - Page 4 (JM-199)

    Code, which specifies the retainage of funds in
    construction contracts, and the provisions of
    article 6252~Sb, ‘I.T.C.S., which requires that
    such retained funds be deposited in an interest
    bearing account, with the interest earned on the
    retained funds tc be paid to the contractor on
    completion of the contract.
  
                                 LJlh/h
                                      VeryItruly yourj
  
                                      JIM     MATTOX           --
                                      Attorney General of Texas
  

TOM GREEN
First Assistant Attorney Getwral

DAVID R. RICHARDS
Executive Assistant Attorney General

Prepared by Nancy Sutton
Assistant Attorney General

APPROVED:
OPINION COMMITTEE

Rick Gilpin, Chairman
David Brooks
Colin Carl
Susan Garrison
Jim Moellinger
Nancy Sutton

p. 878