The Complete Guide to General Contractor Service Agreements in Texas

Texas is one of the few states that does not require a statewide contractor license for general contractors, but that does not mean you can skip the paperwork. Texas contractor laws are complex, and without a written agreement, you have no way to enforce payment terms, protect your lien rights, or defend yourself if a client makes false claims about your work.

A written service agreement is your first line of defense. It documents what you agreed to do, how much you will be paid, when payment is due, and what happens if something goes wrong. In Texas, verbal contracts for construction work are technically enforceable, but proving the terms in court is nearly impossible without written documentation.

Texas also has specific legal requirements that must be addressed in your contract. The Texas Property Code Chapter 53 governs mechanics liens, the Texas Prompt Payment Act governs payment timelines, and Texas common law governs indemnification and independent contractor relationships. A proper Texas service agreement addresses all of these.

Texas does not require general contractors to hold a statewide license. However, many cities and counties in Texas have their own licensing and registration requirements. For example, Houston requires contractors to register with the city, and Austin requires residential building permits and inspections. You must check with the local building department where the project is located before starting work.

Specialty trades in Texas do have state-level licensing requirements. Electricians must be licensed by the Texas Department of Licensing and Regulation (TDLR) under Texas Occupations Code Chapter 1305. Plumbers must be licensed by the Texas State Board of Plumbing Examiners under Chapter 1301. HVAC contractors must be licensed by the TDLR under Chapter 1302.

Even though general contractors do not need a state license, your contract should state that you will obtain all required local permits before commencing work. This protects you if the client later claims the work was done without proper permits, and it shows that you take regulatory compliance seriously.

If you are hiring subcontractors for electrical, plumbing, or HVAC work, you must verify that they hold the appropriate state licenses. Failure to use licensed subcontractors can result in code violations, failed inspections, and liability for any defects in their work.

Texas Property Code Chapter 53 gives contractors who improve real property the right to file a mechanics lien against the property if they are not paid. This is one of the most powerful tools available to Texas contractors, but the rules are strict and the deadlines are unforgiving.

For original contractors (those who contract directly with the property owner), the deadline to file a lien affidavit is the 15th day of the fourth month after the last day of the month in which you last furnished labor or materials. For example, if you last performed work on June 15, the four-month clock starts on July 1, and your lien affidavit must be filed by November 15.

For subcontractors and material suppliers, the deadline is the 15th day of the fifth month after the last day of the month in which you last furnished labor or materials. Subcontractors must also send a notice of unpaid balance to the owner and original contractor by the 15th day of the third month.

A practical example: you are a general contractor who finishes a bathroom remodel on July 20. The four-month clock starts on August 1. You have until December 15 to file your lien affidavit with the county clerk in the county where the property is located. If you miss this deadline, you lose your lien rights entirely.

Your lien affidavit must include specific information: the name and address of the owner, a description of the property, the nature and amount of the claim, and the dates you performed work. Filing an affidavit with incorrect or incomplete information can invalidate your lien, so it is worth taking the time to get it right.

The Texas Prompt Payment Act, found in Texas Government Code Chapter 2253, governs payment timelines for contractors on public projects. While it primarily applies to government contracts, its principles are useful to understand even for private projects.

Under the Prompt Payment Act, a governmental entity must pay a prime contractor within 30 days after receiving a proper invoice. The prime contractor must pay subcontractors within 7 days after receiving payment from the governmental entity. If payment is late, interest accrues at a rate of 1% per month.

For private projects, there is no equivalent statute, so your payment terms are governed entirely by your contract. This is why it is critical to include specific payment deadlines and late payment penalties in your service agreement. Without them, you have no legal recourse if a client pays late.

A good practice is to include a payment due date in your contract (such as "payment due within 15 days of invoice") and a late payment penalty (such as "1.5% per month on any unpaid balance after 30 days"). This mirrors the structure of the Prompt Payment Act and gives you a clear remedy if the client is slow to pay.

Texas law treats general contractors as independent contractors, not employees, but this status must be documented in your contract. Without an explicit independent contractor clause, a client or the IRS could argue that an employer-employee relationship exists, which would create tax and liability problems for both parties.

Your contract should state that you are an independent contractor, that you are responsible for your own taxes, that you are not entitled to employee benefits, and that you control the means and methods of your work. This language is important because Texas Workforce Commission guidelines look at the degree of control the client has over your work to determine employment status.

If you hire subcontractors, the same principle applies. Your contract with your subcontractors should state that they are independent contractors and that they are responsible for their own taxes, insurance, and licensing. This creates a clear chain of independent contractor relationships and prevents employment claims from flowing up to the property owner.

Indemnification is a contractual promise to compensate the other party for certain losses. In Texas construction contracts, an indemnification clause typically states that the contractor will indemnify and hold harmless the property owner against claims arising from the contractor negligence or willful misconduct.

Texas has specific rules about indemnification in construction contracts under Texas Civil Practice and Remedies Code Chapter 127. The key rule is that an indemnification clause must be conspicuous and must clearly state that it covers the indemnified party own negligence. If the clause is not conspicuous or does not specifically mention the indemnitee own negligence, it may be unenforceable.

A well-drafted indemnification clause protects the property owner from claims caused by your negligence, such as property damage or personal injury on the job site. It should not cover claims caused by the owner own actions or the actions of other contractors. This limits your exposure to claims that are genuinely your fault.

Your contract should also include a mutual indemnification clause, where the property owner agrees to indemnify you against claims arising from their own negligence or willful misconduct. This creates a balanced allocation of risk between both parties.

Since Texas does not limit down payments by law, you have more flexibility than contractors in states like California. However, collecting a reasonable deposit and tying payments to milestones is still the best practice. A deposit of 25% to 30% is common for Texas projects, with the remaining balance tied to specific milestones.

A typical payment schedule for a residential remodeling project in Texas might look like this: 25% deposit upon contract signing, 25% upon completion of demolition and framing, 25% upon completion of rough-in and inspections, and 25% upon final completion and walkthrough. This ensures you get paid regularly and have working capital throughout the project.

For larger commercial projects, you may want to use a progress payment schedule based on the percentage of work completed. The AIA progress payment system is widely used in Texas commercial construction and provides a standardized way to track and bill for completed work.

Always include a late payment penalty in your contract. A common approach is 1.5% per month on any unpaid balance after 30 days. This is enforceable in Texas as long as it is disclosed in the original contract and the rate is not so high as to be considered a penalty rather than a reasonable estimate of damages.

One common mistake is assuming that because Texas does not require a state contractor license, no permits or licenses are needed. Many Texas cities have their own requirements, and failing to obtain local permits can result in stop-work orders, fines, and difficulty passing inspections.

Another frequent error is not serving the required notices for mechanics liens. If you are a subcontractor, you must send a notice of unpaid balance by the 15th day of the third month after you last perform work. Miss this deadline and your lien rights are severely limited. Even original contractors should send monthly notices to preserve their rights.

Not including an independent contractor clause is a common oversight. Without it, a client could argue that you are their employee, creating tax liability and potential workers compensation exposure. Always include an explicit independent contractor statement in every contract.

Using a generic template that does not address Texas-specific laws is also a problem. A template written for another state may not include the right lien law disclosures, may not address the Texas Prompt Payment Act, and may include provisions that are not enforceable under Texas law. A Texas-specific template ensures your contract is built for Texas courts.

Before signing a contract with a new Texas client, verify the following: You have checked with the local building department and obtained all required permits. Your contract includes an independent contractor clause stating that you are not an employee and are responsible for your own taxes.

The contract includes an indemnification clause that is conspicuous and specifically covers the property owner own negligence, as required by Texas Civil Practice and Remedies Code Chapter 127. The payment schedule is tied to specific milestones with clear due dates and late payment penalties.

You understand your mechanics lien deadlines. For original contractors, file your lien affidavit by the 15th day of the fourth month after the last day of the month in which you last performed work. For subcontractors, the deadline is the 15th day of the fifth month, and a notice of unpaid balance must be sent by the 15th day of the third month.

The scope of work is described in detail, including what is and is not included. The contract states who is responsible for obtaining permits and scheduling inspections. You have verified that any subcontractors you hire hold the appropriate state licenses for electrical, plumbing, or HVAC work.

If you have checked all of these items, you are ready to sign with confidence. The Texas general contractor service agreement template on this site already includes all of these clauses, so you can generate a compliant document in minutes.