CTCM Contract Financing and Payment Management 1 — Questions and Answers
Question 1: Under Texas prompt payment law, what is the standard deadline for a state agency to pay a vendor invoice after approval?
- 10 days
- 30 days (Correct answer)
- 45 days
- 60 days
Correct answer: 30 days
Texas Government Code Chapter 2251 requires state agencies to pay properly submitted and approved vendor invoices within 30 days to avoid interest penalties.
Question 2: What interest rate applies to late payments by Texas state agencies under the Texas Prompt Payment Act?
- The federal funds rate plus 1%
- A rate set by the Texas Comptroller each fiscal year (Correct answer)
- A flat 5% per annum
- Prime rate plus 2%
Correct answer: A rate set by the Texas Comptroller each fiscal year
The Texas Prompt Payment Act specifies that the interest rate on late payments is established annually by the Texas Comptroller of Public Accounts.
Question 3: A contract manager receives an invoice that does not match the agreed contract price. What is the correct first step?
- Pay the invoice to avoid prompt payment penalties
- Return the invoice as defective and notify the vendor in writing (Correct answer)
- Approve partial payment for the agreed amount
- Escalate directly to the agency's legal counsel
Correct answer: Return the invoice as defective and notify the vendor in writing
A defective invoice that does not conform to contract terms must be returned to the vendor with written notice specifying the defects, which resets the prompt payment clock.
Question 4: Which payment method is most appropriate for Texas state contracts involving ongoing services delivered over time?
- Lump sum payment upon contract execution
- Progress payments tied to milestones or deliverables (Correct answer)
- Advance payment of the full contract value
- Payment only at contract closeout
Correct answer: Progress payments tied to milestones or deliverables
Progress payments tied to milestones or deliverables align payment to actual performance, reducing risk and ensuring the state receives value before full payment.
Question 5: When a Texas state contract includes a retainage provision, what is the primary purpose of withholding a portion of payment?
- To fund contract modifications requested by the agency
- To ensure the contractor completes all work satisfactorily before final payment (Correct answer)
- To cover HUB subcontractor payments directly
- To offset future invoice discounts
Correct answer: To ensure the contractor completes all work satisfactorily before final payment
Retainage withholds a percentage of earned payments as financial incentive and security to ensure the contractor fully completes all contract requirements before receiving final payment.
Question 6: A Texas agency contract for construction services includes a payment bond requirement. What risk does the payment bond address?
- Risk that the prime contractor defaults on the project
- Risk that subcontractors and suppliers are not paid by the prime contractor (Correct answer)
- Risk of cost overruns beyond the contract ceiling
- Risk of agency budget rescission
Correct answer: Risk that subcontractors and suppliers are not paid by the prime contractor
A payment bond protects subcontractors and material suppliers by guaranteeing they will be paid even if the prime contractor fails to pay them from contract funds.
CTCM Contract Financing and Payment Management 1
Under Texas prompt payment law, what is the standard deadline for a state agency to pay a vendor invoice after approval?