January 24; 1963

:!onorable

D. C. Greer StateHighwayEngineer ~cxasHighway Department Austin,Texas

DearMr. Greer: Opinion No. c-6 ie: Constructionof Article 6674m and related statutes as to the amount to be withheld on highway construction contractsunder -stated facts.
Your recent letter&quests the. opinion of this office concerning

the referenced statutes, under the following situation:

. . "On a project.whiohhas been recently completed, our contractorwent bankrupt and defaulted. Hia surety took over and completed the job and, in addition',

paid off such claims for materials and wages aswere deemed to have qualifiedunder the paymentbond provlded.for in Article 5160. .~This Departmenthas notice'of 8ome $13,OOO.OC.worth of alleged claims which are still unpaid and consequently ha8 withheld thia amount from it8 ypayment to the .contractor." : "Since the job in .uestion was a small one and only totaled some $ O,OOO.OO. 2 it has been suggestedthat the subject of Article 6674m belng~ retainage it only requires that 5%. or $3,000.00,

.. be withheld until It is shown tha't all. bills have been paid. Would you please advise us whether we shouldwithhold an amount equal to the alleged unpaid bllls.or whether'we can pay the contra,ctor all but 5.5 of the~contractprice."

. Article 6674m, Vernon's Civll Statutes, requires the FOllowring

retalnage Cstracts: from final payment of highway construction

"Said contracts“mayprovide for partial payments to anamount not exceeding ninety-fiveper

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.HOll. D. c. cireer,

Page 2 (C- 6 )

o&t (95%) of the value of the work done. Five per cent (5s) of the contract price shall be retained until the entire work has been comple-' ted and accepted, and final payment shall not be made until It 18 shown that all sums of. money due for any labor,materials, or equipment furnished for 'the purpose 'ofsuch improve-' ments made under any such contract have been paip2 Article 5160, Vernon's Civil Statutes,requiresprime. contractorsentering into contractwith public agencies of the State for public works involving an amount in excess of $200 to execute a performancebond and a payment bond. Section B of Article 5360 provides:

.%very claiinant

who'has furnished labor .'ormaterial in the prosecutionof the .workprovided for in such,contractin which.a Payment Bond is furnnished as required hereinabove, and who ha¬ been paid in full therefor,, shall have the right, if his claim remains unpaid after the .explration .ofsixty (60).daysafter the filing'of the claim as herein required, to **sue** the principal andthe surety..or suretieson, .thePaymentBond.'.

. .";;, Article !%?%a, Ve.rnon's Cd.&.1 Statutes,authorizesone furnishing

any material, apparatus; fixtures;,,machinery, or labor to a contractorunder .aprime contract for,anypublic improvement

not exceeding $2000 to perfect a lien on the money,,bonds, or warrants due or to become due .tothe contractor for'

the improvementby giving pr.oper and timely noticc of unpaid c,laimS

to the public official responsib$efor payment on the zontract. The procedure to perfect such a lien ir ,setforth in some ,detall. Article %72b, Vernon'sCivil Statutes, states:

"Tha.t no publld official, when so notified in writing, shall pay all of said moneys, bonds ortiarrants,due.said contractor,but shall retain enough of said moneys, bonds or warrants to pay said claim, in case it is established-by' judgment in a court of proper jurisdiction." Under,theprior 'law,one furnishing labor or materials

-2%!ion..D. C. Greer, Page 3 (c- 6 )

couldproceed against the payment bond (Article 5160) or perfecta lien on money due the contractorunder the prime cont:sact (Article5472a). Since the 1959 amendment,however, actionspursuant to Article 5160 are limited to contracts in c:xcess of $2000 and liens pursuant to Article g72a are limlted to contractswhich do not exceed $2000. Acts 56th Leg.. i?jg,oh. 93, Pa 155: 336 S.W.2d 779 (Civ. See Cacanay Corporationv. Shepherd, App.'19bO., _

error dism. w.0.j.). Conalderingthe 1959 amendment, the question presented

,- 1s whether the retalnage provision of Article !5472b relates exclusively

to Article 972a liens and; as a consequence,18 applicable

solely to prime contract8 not exceeding $2000. Articles$k72a and 5472b were each sections of the same act In their originalenactment. Acts.39t.h Leg. 1925,'ch. 17, p.44, SCCS. 1 and'2. As noted in MetropolitianCasualty Insurance companyv. Cheaney, 55 S.W.2d 553 (1932) both articleswere sectionsof the same,act but were codif&d separatelyby Vernon's. The two articles are consideredby the courts as.parts of the 8ame.

law. and as providing a remedy In the nature of a lien or garnnishment, which i8.

in addition to that 'of Article 5160..smith v..Texz~%'Co.,:53 S.W..2d 774 (1932); .Massachusetts 3. & .InS.

Co. v. Farmer8 &.M. State Bank, 13g.!kX.310 **lb2** r;.Y.2d b57 (1942)'Fr nklin I3ros:v. Standard Mfg. Co.: 78 S.W.2d 294 (Civ.App. l&j, kit dism )* U S.:v. 'PedenIron & Steel Co., 330 'S.W.2d

635 (Clv,.'App.

1959;~&& ref.,n.r.e.) Corporation

v. Shepherd, supra. : ; Cacanay

Further, the 1959 amendment to Article. 5472a Indicates that 'the~Legislature'~consldered the two articles.asparts of the same act and the first section was amended, ,asfollows:

(8 Sebtion 1, Chapter 17,'Acts of the Th&y%.nth Legislature, 1925 (compiled as titicle 547@, Chapter 2, Vernon's Civil Statutes) Is amended.

. . ."
In view .ofthe above, we are of the opinion that Article. 9472brefers exclusively to unpaid claims for whlch'noticeIs Clven in accordancewith Article *72a, and that retainage of funds sufficientto cover such claims is required only.where th? prime contract does not exceed $2000.. *_ Attorney General's Opinion No. o-6241 (1944). states: "Articles5472a, **5472b-1,** and 6674m, are:. Hon. D. c. Greer, Page 4 (C- 6 )

. In pari materla and should be construed~together.

~dWd;$8t.t& Work v. Kennedy, Clv. App.. 57

These Articles, In general,providi additional security for the payment of claims against a contractorin favor of those who furnish any material, equipmentor labor to any contractorfor any public improvements In this State, by means of either (1) a lien against funds designated for the payment of said contractor,or (2) a bond which the contractormakes In lieu of-said lien.' Attorney General's Opinion No. O-4453 (1942) states:
"In the case of Huddleston& Work v. Kennedy, 57 S.W.2d 258 the court held that 'Article

-2160 and Article 6674m were inpari materia. _. :&ulth vi Te$s $a~~~ held.'tha,t the statutescon- ’ cerning the fixing f 1 or material8 and labor furnished in‘the constructionof permane.nt Improvementsof the State should be liberallyconstrued.

. Ai+icJe 6674m was .&nended'by the LegislatureIn then same'sessldn'but

later in time than Articles. 5160, and 5472a. Acts 56th Deg. 1959;ch. ,434, p.: 138. ~The prio? constructionthat. these atatutes,are in par1 .materia

.andshould be~liberallyconatrued,.together with the fact that the amendments of Article 6674m was later in time than the amendment of Articles 5160 and %72a, compels the '~ conclusionthat the Texas liighway.Department should retain five .percent

of the contract price of al.1 highway constructiori, contracts'untll,the work has been completedand acceptedand that final payment should not be tendereduntil a showing is made that all money due for labor and material furnishedfor the purpose of the project has been paid. SUkARY Article 5472b~requires public officialsto retain funds due under prime contracts.for public improvementssufficienttoxover unpaid claims for which notice is recelved.onlyin those situatlons where the amount of the prime contractdoes

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.

‘Hon. D. C. Greer, Page 

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no.t exceed $2000. Article 

### 6674m requires the Texas Highway Department to retain five percent of the contract price of highway construction-contracts until a showing is made that all money due for labor and material furnished for the purposes of the project has been paid. Sincerely,

WAGGONER CARR Attorney General of Texas

By .JH& F. -R:.Booth AssistantAttorney General : FRB:ab :APPROVED: OPINION COMMITTEE W. V. Geppert, Chairman

BenHarrison - Arthur Sandlin ~'
Tom Peterson Grady Chandler

APPROVED FOR'TRE ATTORNBY GRNERM, BY: Stanton Stone

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